Private banks compete for ‘share of wallet’

The wealth of the world’s high-net-worth individuals (HNWIs), those with more than $1m (?750,000) to invest, expanded by more than 11 per cent to $37,200bn in 2006, according to the latest study from Merrill Lynch and Capgemini. Wealth is predicted to swell considerably in the future, estimated to reach $51,600bn by 2011, averaging an annual growth rate of 6.8 per cent. Acceleration of real GDP and market capitalisation were the two primary drivers of wealth generation last year, contributing to boost the total number of HNWIs to 9.5m, an increase of 8.3 per cent year on year. A clear trend in the market is towards a more dispersed distribution of wealth across geographical regions. This will pose new challenges and opportunities to private banks, which will undoubtedly be encouraged to cast their net wider. Currently, 64 per cent of the total high net worth population lives in five countries: the United States (around 3m), Japan (1.5m), Germany (800,000), United Kingdom (485,000) and France (390,000). Fifty seven per cent of the HNWI wealth is concentrated in Europe and North America. However, in 2006 the highest wealth gains were registered in Latin America, Africa and the Middle East, where HNWI assets grew by around 23, 14 and 12 per cent, respectively. In the Asia-Pacific, total HNWI assets grew by almost 10.5 per cent last year and annual growth rates for the next five years are expected to be double those that will be registered in Europe (8.5 per cent versus 4.3 per cent respectively). As a result, in 2011 the wealth held by the rich individuals in the Asia-Pacific region is expected to reach $12,700bn, thus overtaking Europe, where HNWI wealth is estimated to hit $12,500bn. This analysis supports the decision taken by a large number of wealth managers of opening new offices in Asia, hoping to grab a share of these growing assets. Of course, it remains to be seen what proportion of this wealth is within the reach of the private banking system (see article, page 7). Another clear trend, which applies to the whole world regardless of the geographical region, is the increasing concentration of wealth in the hands of the Ultra-HNWIs, those whose financial assets exceed $30m. Last year, the number of people in this elite group increased by 11.3 per cent to 95,000 and the wealth they control grew significantly by 16.8 per cent to $13,100bn. In other words, 1 per cent of the rich in the world control over a third of the total HNWI wealth. Perhaps it is no surprise, also in light of this trend, that private banks are placing a greater emphasis in acquiring share of wallet, as demonstrated in the latest global private banking survey from PricewaterhouseCoopers. Under 50 per cent of wealth managers hold more than 40 per cent of their clients’ investable wealth, but 80 per cent of the firms aim to hold over 40 per cent of a client’s wealth within the next three years. Increasing their share of wallet enables private banks to institutionalise the client, said Bruce Weatherhill, global private banking leader at the consulting firm, making it more difficult for a client to move their assets when the adviser leaves. But increasing share of wallet is only half of the job. “The problem is that everybody has a finite number of existing clients,” said Declan Sheehan, UK chief executive at HSBS private bank. “To meet our ambitious targets to grow our share of the market, we need to invest on both sides, on servicing existing clients and acquiring new clients.” Doing a good job with the existing clients is going to be a better short-term way to grow the wallet than to pay the cost of client acquisition, added Mr Declan, but one does not preclude the other.