The recent years have witnessed tremendous increase in the number of wealthy individuals and the amount of wealth held by these individuals is also on the rise. The Capgemini World Wealth report states that over the last 3 years the world has witnessed a double-digit growth in emerging markets and strong overall growth in high net worth individuals’ wealth in mature markets. The global financial wealth of high net worth individuals has increased from US$ 37. 2 trillion in the year 2006 to US$ 40. 7 trillion in the year 2007 with the number of high net worth individuals increasing from 9.5 million to 10. 1 million during the same period.
(Capgemini-Merrill Lynch World Wealth Report) The developed economies of Canada, France, Germany, Japan, Italy, United States, and United Kingdom continue to hold the top position in terms of choice of destination for potential investors and entrepreneurs. These countries hold the maximum number of wealthy individuals across the globe but emerging economies like China, India, and Middle East countries The World Wealth Report 2008 prepared by Capgemini Merrill Lynch defines the market for private wealth in four broad categories:
• Ultra high net worth individuals (NWIs) with over US$ 30 million of investable assets. • Very high NWIs with over US$ 5 million of investable assets. • High NWIs with over US$ 1 million of investable assets. • Mass affluent with assets over US$ 100,000. The first three categories play a significant role in international wealth management market while the mass affluent section is largely a domestic market. The globalization of economies and liberalization of international markets have opened new avenues for commercial ventures and enterprises.
This has contributed extensively to the growth and development of the wealth management industry. In addition to creating new opportunities for entrepreneurs the economies are providing them with the scope to invest and create more wealth. However, the wealth managers are faced with increasing challenges owing to the growing market complexities. The rapid changes in the market driving forces and business environment dynamics are evident in the fluctuating nature of stock markets and economic variables that drive the international trade and industries.
The equity markets are highly volatile and sensitive to global market influences and this has made it difficult for the financial institutions to provide risk free investment alternatives to their clients. Initially the wealth management industry offered services that encompassed only property, bonds, gold, and fixed income. But changing market environment and growing complexities in the nature of investment and financial market operations have led to introduction of variety of financial products and services that are tailor made to meet the needs of the clients.
The banks and financial institutions have created specialized departments that deal with wealth management and related services. The wealthy segment today has extensive options available to them in the market to invest, spend and distribute their money. The financial market offers a wide variety of products and investment options that help in efficient managing of wealth and assets of the high net worth individuals. The global pool of high net worth individuals presents tremendous potential for wealth management firms across the world.
New segments of clients are constantly making their way to the high net worth band despite market fluctuations, economic uncertainties. Wealth management firms are re-devising their operational strategy to adapt to growing and changing client needs. ‘HNW clients are demanding comprehensive and tailored services from the multiple firms with whom they do business; wealth managers are waging an impressive response to differentiate themselves. In the ensuing competition, however different types of wealth management firms have begun to vie for the same clients – as well as for those they traditionally have not served.
” (Wealth Management report, 2008) A large number of banking and financial institutions have introduced new products and financial planning schemes for their wealthy clients. These institutions are cashing in on the huge market demand created for wealth management services and generating attractive profits from the collection of fees for mobilizing and managing their wealth. Private banking has become one of the most attractive businesses in the banking sector with profit margins of 35 percent and revenue growth of 14 percent.
(McKinsey report on private banking 2007) Private banking continues to be driven by “greater competition following several years of attractive results, increased professionalism within many private banks, high growth in more demanding segments and in more innovative product offerings. ” (McKinsey report 2007) The wealth management firms today realize the importance of assessing client needs and offering them customised product packages that are comprehensive in nature and easy to manage.
Most of these wealth management firms are focusing on client experience initiatives to bring a more personalized, family office like service to high net worth client segments and responding to client demands for “improved visibility into embedded risks, holistic analysis of their assets and other benefits” (World Wealth Report, 2008 Merrill Lynch Capgemini). The growing market complexities and increasing client awareness fuel the rising demand for global wealth managers who are efficient, knowledgeable and experienced in assessing client needs and framing attractive schemes to invest and manage their wealth.
As McKinsey and Company point out in their private banking survey report, 2007 “the winning institutions will be those that are able to – 1. Adapt their service to the needs of each segment (including the ultra high net worth segment) 2. Deliver true value to clients rather than just perceived value 3. Invest consistently in growth throughout the cycle 4. Develop a distinctive talent model and proposition 5. Effectively broaden the product range 6. Successfully tap high growth markets”