Wealth in Germany: HNW Investors 2018

Wealth in Germany: HNW Investors 2018

Summary

Germany has an established and mature wealth market. The recent upswing in the German economy and the strength of its stock market performance have presented significant opportunities for German wealth managers. However, with changes to capital gains tax on the horizon and falling real returns in the traditionally preferred safe havens of deposits and bonds, the role of wealth managers in a traditionally risk-averse market will become more challenging.

German HNW investors are typically older than their European counterparts. While the bulk fall into the 51-70 year-old age bands, the country has an above-average proportion of HNW investors aged over 70. In addition, female HNW investors remain under-represented in the German market, with the highest proportion also falling into this oldest age band.

German HNW individuals have made their fortunes predominantly through earned income and entrepreneurship, which is largely due to the importance of privately-owned Mittelstand companies in the economy. The most prominent industries from which HNW individuals have amassed their wealth are financial services, manufacturing, tech, and telecommunications.

Key findings included in this report:

More than 50% of German HNW investors are older than 60, with an above-average proportion over 70.

Almost a third of HNW investors are entrepreneurs, yet only around 54% of German wealth managers target this segment - in a stark contrast with the around 79% of European wealth managers.

German HNW expats are a small but lucrative sector. The vast majority are steady long-term migrants, yet wealth managers have an over-reliance on cold calling to acquire their business.

German HNW investors are increasingly open to new investment ideas as they search for higher returns. Allocations into property, alternatives, and equities will all increase over the next 12 months.

German HNW investors hold only around 10% of their wealth offshore, and are predominantly attracted by the better range of investment options and higher returns available.

Only about around 14% of providers targeting HNW investors offer pension and retirement planning services, despite strong and rising demand.

The report "Wealth in Germany: HNW Investors 2018", provides a snapshot of the wealth management market in Germany, looking at investor demographics, investment style, and asset allocation preferences, as well as demand for products and services. It reveals how the profile of HNW investors in Germany is changing.

Companies mentioned in this report: Standard Chartered, Morgan Stanley, Deutsche Bank

Scope

50.3% of German HNW investors are older than 60, with a higher-than-average proportion over 70.

Almost a third of HNW investors are entrepreneurs yet only 54.5% of German wealth managers target this segment, a stark contrast with the 79.5% of European wealth managers.

German HNW expats are a small but lucrative sector. The vast majority are steady long-term migrants, yet wealth managers have an over-reliance on cold calling to acquire their business.

German HNW investors hold only around 10% of their wealth offshore, and are predominantly attracted by the better range of investment options and higher returns available.

Only 14.4% of providers targeting HNW investors offer pensions and retirement planning services, despite strong and rising demand.

Reasons to buy

Develop and enhance your client targeting strategies using our data on HNW profiles and sources of wealth.

Give your marketing strategies the edge required and capture new clients using insights from our data on HNW investors’ preferences for the various styles of asset management.

Tailor your investment product portfolio to match current and future demand for different asset classes among HNW individuals.

Develop your service proposition to match the product and service demand expressed by German HNW investors and react proactively to the forecasted changes in demand.

1. EXECUTIVE SUMMARY

1.1. German wealth managers need to adjust to a changing HNW population
1.2. Key findings
1.3. Critical success factors

2. OVERVIEW

2.1. Succeeding in Germany’s HNW market requires an understanding of evolving HNW demand patterns
2.2. Demographics: German HNW investors are older than their European counterparts
2.3. Expats: Providers need to work quickly and more effectively to develop expat relationships
2.4. Investment style preferences: Lack of time and expertise drive uptake of advice
2.5. Asset allocations: Equities, property, and alternatives will increase
2.6. Offshore preferences: A good investment track record and a wide range of products can entice wealth home
2.7. HNW product and service demand: Wealth managers need to meet the demand for retirement planning and automated advice

3. GERMAN WEALTH MANAGERS SHOULD NOT OVERLOOK FEMALE AND ENTREPRENEURIAL HNW INVESTORS

3.1. Intergenerational wealth transfer remains a significant trend in Germany
3.2. Women remain under-represented among HNW investors, but are likely to form a growing target segment
3.2.1. German female HNW investors are older and are more likely to have either inherited or family wealth
3.2.2. Change is occurring, and a new generation of female HNW individuals are emerging
3.2.3. Wealth managers should take account of the differing needs of emerging female HNW wealth
3.3. German wealth managers risk overlooking entrepreneurs
3.3.1. Entrepreneurs represent a sizable and growing target market for wealth managers
3.3.2. A relatively low proportion of wealth managers target entrepreneurs
3.4. Wealth managers need to improve customer acquisition
3.4.1. German wealth managers rely more heavily on cold calling and external referrals
3.4.2. Wealth managers should aim to improve co-operation with business banking

4. WEALTH MANAGERS MUST TARGET EXPATS EARLY

4.1. The German expat market is currently a small but steady sector
4.1.1. German HNW expats tend to be migrants rather than transients
4.1.2. Job transfer is the number one reason for HNW investors moving to Germany
4.2. Brexit could potentially lead to an increase in the expat population
4.3. Expats are a lucrative target market
4.4. The challenge for German wealth managers is reaching out early to potential and new expats

5. WEALTH MANAGERS NEED TO ADAPT TO HYBRID ROBO-ADVICE MODELS

5.1. HNW demand for robo-advice far outstrips supply
5.1.1. The German robo-advice market is rapidly expanding
5.1.2. Demand among HNW investors is increasing, and is currently unmatched by wealth offerings
5.2. Wealth managers need to develop hybrid models, with automated advice supporting the HNW advisory offering

6. PROVIDERS MUST SATISFY A HNW POPULATION THAT IS INCREASINGLY OPEN TO NEW INVESTMENT IDEAS

6.1. Demand for property, alternatives, and equities will rise as HNW investors are increasingly open to new investment ideas
6.1.1. A strong stock market performance has boosted equity returns
6.1.2. Property returns are a big draw for HNW investors
6.1.3. Alternatives are an attractive means of asset diversification, with higher current and future returns available
6.2. Wealth managers need to balance the search for higher returns with German investors’ greater desire for safety
6.3. Proposed changes to capital gains tax will affect future investment preferences

7. GERMAN WEALTH MANAGERS HAVE TO COMPETE WITH BETTER RETURNS AND INVESTMENT OPTIONS OFFSHORE

7.1. The offshore proportion of German HNW assets remains below average
7.2. Over half of German offshore wealth is held in equities
7.2.1. Offshore equities may provide better investment opportunities
7.3. German wealth managers need to compete with the perception that offshore centers provide a better range of investments and returns
7.4. Steps to tackle offshore tax evasion are reducing the importance of tax efficiency as an offshore investment driver
7.4.1. In addition to political drivers, criminal investigations are clamping down on tax schemes

8. WEALTH MANAGERS SHOULD TACKLE INCREASED DEMAND FOR PENSION AND RETIREMENT PLANNING SERVICES

8.1. Relatively low demand for auxiliary services suggests wealth managers are competing with specialized boutiques
8.2. Wealth managers are experiencing robust demand for inheritance planning
8.3. Wealth managers risk missing out on increased demand for pension and retirement planning

9. APPENDIX

9.1. Supplementary data
9.2. Definitions
9.2.1. Affluent
9.2.2. HNW
9.2.3. Liquid assets
9.3. Methodology
9.3.1. 2017 Global Wealth Managers Survey
9.3.2. 2016 Global Wealth Managers Survey
9.3.3. Level of agreement calculation
9.3.4. Service level of demand score
9.3.5. Forecast level of demand calculation
9.4. Bibliography
9.5. Further reading

List of Tables

Table 1: Cash and near-cash products: importance of asset allocation drivers
Table 2: Equities: importance of asset allocation drivers
Table 3: Bonds: importance of asset allocation drivers
Table 4: Property: importance of asset allocation drivers
Table 5: Commodities: importance of asset allocation drivers
Table 6: Alternatives: importance of asset allocation drivers

List of Figures

Figure 1: A higher proportion of German HNW investors are over 70 years old
Figure 2: Expats represent just 5.9% of the German HNW population and are typically long-term migrants
Figure 3: German HNW investors typically have relationships with a greater number of wealth managers
Figure 4: German HNW investors are likely to notably increase their holdings in property and alternatives
Figure 5: Better returns and a wider range of investments offshore are driving HNW wealth abroad
Figure 6: Wealth managers need to meet the increasing demand for pension and retirement planning
Figure 7: Germany’s wealth market has an older, more male-dominated profile than Europe
Figure 8: In comparison to Europe, a much higher proportion of female HNW wealth in Germany is either inherited or family wealth
Figure 9: Far fewer wealth managers target entrepreneurs in Germany than in the rest of Europe
Figure 10: In comparison to Europe, German wealth managers rely far more heavily on cold calling and benefit less from client referrals when targeting entrepreneurs
Figure 11: German HNW expats are more likely to be long-term immigrants
Figure 12: HNW expats in Germany are more profitable
Figure 13: German wealth managers are over-reliant on cold calling for HNW expat acquisition
Figure 14: German wealth managers are failing to meet HNW demand for automated advice
Figure 15: German HNW demand for equities, property, and alternatives is forecast to increase
Figure 16: Germany’s DAX impressed with strong returns in 2017
Figure 17: HNW investors are still more motivated by risk aversion, regular income, and liquidity than their European peers
Figure 18: German HNW individuals invest more heavily in equities, deposits, and commodities in their offshore portfolios than in their onshore portfolios
Figure 19: German HNW investors are more likely to offshore for better returns and a wider range of investments than their European peers
Figure 20: German HNW investors show lower levels of demand for auxiliary services than their peers
Figure 21: German HNW investors show the strongest demand for inheritance planning
Figure 22: German wealth managers are failing to meet current and future demand for pension and retirement planning services