2019: Trends to Watch in Global Wealth Management

2019: Trends to Watch in Global Wealth Management

Summary

Investment managers should be rethinking portfolio diversification strategies for their HNW clients as recent regulatory changes will encourage flows of assets to the US, already leading as the world’s biggest offshore market.

Although there are some delays, in 2019 the vast majority of committed countries will be exchanging information under the Organisation for Economic Co-operation and Development’s (OECD) common reporting standard (CRS).

The OECD’s CRS has a focus on clamping down on tax evasion but it will not largely disrupt the offshore market. Tax benefits are not the only motivator to look overseas for investments, geographic diversification, and access to a better range of investments, are all unaffected by CRS. Nevertheless, the US market which is exempt from CRS, will continue to benefit from not participating. The country already has 27% of HNW global offshore wealth, and this proportion can increase.

Further flow of assets to the US might jeopardize investment managers’ efforts to geographically diversify client portfolios. According to the report, only a third of wealth managers surveyed are concerned about a potential market downturn. However, it will be paramount that wealth managers make their clients aware of its possibility, to avoid them being taken by surprise if the markets do descend.

Advisors should encourage diversification both onshore and offshore. In particular, alternatives will be a key way to diversify portfolios as they cope with market downturns better than traditional asset classes. In order to drive uptake in alternatives, client trust and education will be vital.

The latest report, "2019: Trends to Watch in Global Wealth Management", identified four main trends to come in the year -

In the wake of CRS, non-participating countries such as the US will continue to grow as offshore centers.

Volatility will require a rethink of diversification.

As use of technology increases, wealth managers will have to take more serious action towards cybersecurity.

New client demographics will become more prevalent.

Scope

The value of non-resident deposits in the UAE surged in 2018, with the Common Reporting Standard (CRS) potentially contributing to this trend.

The US, where 27% of HNW offshore wealth is already booked, will continue to benefit from not participating in CRS.

Only 43% of wealth managers are concerned about the effect of data breaches on their company's brand, although nearly 60% agree their clients are increasingly worried about data breaches and cybercrime.

The older demographics are more prudent and less likely to be a victim of financial fraud, but their losses are likely to be higher than among younger age groups.

Female millionaires are younger than men. In the Middle East and Africa, 71.7% of female HNW individuals are 50 and under, while 70% of HNW men are 51 and over.

Reasons to buy

Understand the key trends impacting the wealth management industry in 2019 and how to respond.

Discover the effect of CRS on the offshore industry and how to benefit.

Understand the recommended approach to client portfolio strategies in the context of current market conditions.

Learn about risks resulting from the industry’s growing dependence on technology and how to hedge against cyber threats.

Stay ahead of your competitors by reaching out to new emerging client demographics that offer huge revenue growth potential.

1. EXECUTIVE SUMMARY

1.1. In 2019 the wealth management industry will reconsider its priorities
1.2. Key findings
1.3. Critical success factors

2. IN THE WAKE OF CRS, NON-PARTICIPATING COUNTRIES SUCH AS THE US WILL CONTINUE TO GROW AS OFFSHORE CENTERS

2.1. CRS implementation will channel more wealth to the US
2.1.1. The OECD’s CRS is the most comprehensive international effort to tackle tax evasion
2.1.2. Shifts in investment structures will be slight due to anti-avoidance provisions
2.1.3. HNW offshoring money dipped ahead of CRS but has since rebounded
2.1.4. The low importance of client anonymity means CRS will not massively disrupt the offshore market
2.1.5. CRS will benefit non-participating countries and low tax jurisdictions
2.1.6. The US and its dependencies remain the clear winners under CRS

3. VOLATILITY WILL REQUIRE A RETHINK OF DIVERSIFICATION

3.1. Bias towards equities is leaving investors exposed to a rise in volatility
3.1.1. Volatility promises to pick up as the year progresses
3.1.2. The average HNW portfolio is heavily biased to equities and thus overly exposed to market shocks
3.1.3. Many wealth managers seem oblivious to a potential crash
3.2. Providers should push for further diversification in the onshore and offshore space to ready investors’ portfolios for a potential downturn
3.2.1. Alternatives could add further diversification, but trust and client education are needed to drive uptake
3.2.2. Wealth managers should pay greater attention to geographic and industry diversification
3.2.3. Reaching out to clients will help avoid rushed decision-making

4. AS USE OF TECHNOLOGY INCREASES, WEALTH MANAGERS WILL HAVE TO START THINKING ABOUT CYBERSECURITY

4.1. Adoption of technology in wealth management has been growing
4.1.1. 43% of HNW-focused wealth managers now offer robo-advice
4.1.2. New operational risks emerge as a consequence of tech development
4.2. The industry is underestimating the importance of cybersecurity
4.2.1. Customers might be worried about fraud, but it does not prompt them to switch
4.2.2. Client-advisor relationships mitigate the consequences of failures on a company level
4.2.3. Concern about cybercrime is the highest in digitally advanced regions
4.3. The risk of incurring costs and regulatory scrutiny will compel competitors to act
4.3.1. The cost of brand damage is difficult to measure
4.3.2. Cybercrime prevention should creep up the list of priorities

5. NEW CLIENT DEMOGRAPHICS WILL BECOME MORE PREVALENT

5.1. Wealth managers need to think about the younger generations
5.1.1. Involving heirs in decision-making will be the most effective retention method
5.1.2. Advisor choice differs between the next generation and their parents
5.2. Hybrid services remain in demand among the next generation
5.2.1. Catering to the next generation via digital services is key
5.2.2. The human touch is also in demand by millennials
5.2.3. Investing in socially responsible companies is important to the next generation
5.3. Gender equality will become more prevalent in the industry
5.3.1. More women will enter previously male-dominated industries
5.3.2. The demographic characteristics of HNW women differ from HNW men
5.4. Faith-based investing will open investing to new demographics
5.4.1. Faith-based digital platforms are expanding in the wealth management industry
5.4.2. Religion-compliant investments often align with socially responsible investing
5.5. Targeting the masses will aid AUM growth
5.5.1. Digital services are the gateway to the mass affluent
5.5.2. The mass affluent should be viewed as potential HNW clients

6. APPENDIX

6.1. Abbreviations and acronyms
6.2. Definitions
6.2.1. Affluent
6.2.2. HNW
6.2.3. Liquid assets
6.2.4. Mass affluent
6.2.5. Residency
6.3. Methodology
6.3.1. 2018 Global Wealth Managers Survey
6.3.2. 2017 Global Wealth Managers Survey
6.3.3. 2018 Mass Affluent Investors Survey
6.3.4. 2018 Consumer Payments Insight Survey
6.3.5. Weighted level of agreement
6.3.6. Exchange rates
6.4. Secondary sources
6.5. Further reading

List of Tables

Table 1: US dollar exchange rates

List of Figures

Figure 1: The decline in offshore wealth has been arrested
Figure 2: Total non-resident assets slowly increased over the CRS implementation period
Figure 3: While tax is a major driver of offshoring, CRS does not interfere with tax-minimization strategies
Figure 4: The UAE may benefit as an offshore booking center provided it retains permissive tax residency requirements
Figure 5: Already the world’s leading offshore center, the US will benefit significantly from being outside CRS
Figure 6: Volatility increased in 2018
Figure 7: The average HNW portfolio is increasingly exposed to equity risk
Figure 8: Concerns regarding a financial market downturn are relatively low among wealth managers
Figure 9: The proportion HNW investors allocate to alternatives varies significantly across the world
Figure 10: Driving trust is paramount to encourage uptake of alternatives
Figure 11: An increasing number of wealth management firms offer technology-based solutions
Figure 12: Involving the next generation in the estate planning process is key to retaining clients
Figure 13: Digital channels are more important to the next generation than current clients
Figure 14: Females source more of their wealth through inheritance than men
Figure 15: Access to a human advisor is very important according to 30% of mass affluent investors