Banks miss out on cash as HNWI numbers swell
A large swathe of the affluent investor market is being overlooked and under-serviced by banks, according to Richard Thornton, executive consultant at Capgemini.
He issued the warning to PWM at the launch of the Merrill Lynch / Capgemini World Wealth Report, which has found that high-net-worth wealth globally grew by 8 per cent in 2004, surpassing the $30,000bn (?25,000bn) mark.
Mr Thornton, an author of the report, cited strong growth in the crossover area of the market where customers are just moving out of the mass affluent sector (where they have around $1m to invest) and into the so-called Mid-Tier Millionaire zone, where clients have between $5m and $30m to invest.
“These clients are often inadequately served by their advisers,” said Mr Thornton. “In this segment you have clients able to invest in hedge funds, private equity and commercial property.” But he said banks tend to only put such customers’ money into equity and bond funds because managing these smaller portfolios in more detail was seen as too onerous and expensive a task.
“The challenge is to provide family office-style functionality to the mid tier millionaires at a cheaper price”, said Mr Thornton. A solution would be account aggregation, he argued. “If you pull all the customer’s investments together under one adviser they could provide a platform allowing all the products the customer needs to be brought together.”
He said that since such customers had insufficient wealth for their banker to justify visiting them, an online service was vital in allowing them to be looked after remotely.
Technology could also play a key part in ensuring the end to end flow of information necessary to keep mid-tier millionaires up-to-date with complex aspects of their portfolio, such as hedge fund investments.
Mr Thornton stressed that such technology was already available but not being used. He said that the system for paying advisers could also be tweaked to make it more affordable for this client segment. Advisers could be paid one-off fees for each time they had contact with the customer rather than being retained all year round.
The Wealth Report found that the number of millionaires worldwide grew significantly in 2004, showing the biggest rise for three years. In fact the number of high-net-worth individuals (HNWIs) – people with a net worth of at least $1m excluding their main residence – grew by 7 per cent to 8.3m. North America led the growth, with 10 per cent increase to 2.7m HNWIs.
Asia came hot on its heels, with HNWIs growing 8 per cent to 2.3m. Europe, which has 2.6m HNWIs, lagged with a growth rate of around 4 per cent last year.
The report put the growth down to what it called “the two key drivers of wealth creation” – economic growth and market capitalisation. Merrill Lynch and Capgemini predicted that the growth rate of HNWIs would slowdown in 2005 from last year’s 8 per cent to 6.5 per cent due to rising inflation and interest rates, which would slow global growth and affect the value of financial assets.
