2019: Trends To Watch In Global Wealth Management

Regulation, technological change, and the bull run potentially coming to an end have all been discussed by wealth managers for so long that the risks associated with these trends have blended in. Paradoxically this means the risks are now underestimated, if not outright ignored. Yet as providers keep chasing new money and record highs in net new money figures – partly thanks to opening up to new demographics – they will have no choice but to start thinking about countering threats related to financial markets downturns and cybersecurity.

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.

Companies mentioned

TSB

UBS

Credit Suisse

Feedzai

DBS Bank

SheCapital

WorthFM

Ellevest

Legal & General

Wahed Invest

Crescent Wealth

Yolt

Wealthify

Table of Contents

Table of Contents

1. EXECUTIVE SUMMARY 2

1.1. In 2019 the wealth management industry will reconsider its priorities 2

1.2. Key findings 2

1.3. Critical success factors 2

2. IN THE WAKE OF CRS, NON-PARTICIPATING COUNTRIES SUCH AS THE US WILL CONTINUE TO GROW AS OFFSHORE CENTERS 8

2.1. CRS implementation will channel more wealth to the US 8

2.1.1. The OECD’s CRS is the most comprehensive international effort to tackle tax evasion 8

2.1.2. Shifts in investment structures will be slight due to anti-avoidance provisions 8

2.1.3. HNW offshoring money dipped ahead of CRS but has since rebounded 9

2.1.4. The low importance of client anonymity means CRS will not massively disrupt the offshore market 11

2.1.5. CRS will benefit non-participating countries and low tax jurisdictions 12

2.1.6. The US and its dependencies remain the clear winners under CRS 14

3. VOLATILITY WILL REQUIRE A RETHINK OF DIVERSIFICATION 16

3.1. Bias towards equities is leaving investors exposed to a rise in volatility 16

3.1.1. Volatility promises to pick up as the year progresses 16

3.1.2. The average HNW portfolio is heavily biased to equities and thus overly exposed to market shocks 17

3.1.3. Many wealth managers seem oblivious to a potential crash 19

3.2. Providers should push for further diversification in the onshore and offshore space to ready investors’ portfolios for a potential downturn 20

3.2.1. Alternatives could add further diversification, but trust and client education are needed to drive uptake 20

3.2.2. Wealth managers should pay greater attention to geographic and industry diversification 23

3.2.3. Reaching out to clients will help avoid rushed decision-making 24

4. AS USE OF TECHNOLOGY INCREASES, WEALTH MANAGERS WILL HAVE TO START THINKING ABOUT CYBERSECURITY 25

4.1. Adoption of technology in wealth management has been growing 25

4.1.1. 43% of HNW-focused wealth managers now offer robo-advice 25

4.1.2. New operational risks emerge as a consequence of tech development 26

4.2. The industry is underestimating the importance of cybersecurity 27

4.2.1. Customers might be worried about fraud, but it does not prompt them to switch 27

4.2.2. Client-advisor relationships mitigate the consequences of failures on a company level 27

4.2.3. Concern about cybercrime is the highest in digitally advanced regions 28

4.3. The risk of incurring costs and regulatory scrutiny will compel competitors to act 28

4.3.1. The cost of brand damage is difficult to measure 29

4.3.2. Cybercrime prevention should creep up the list of priorities 29

5. NEW CLIENT DEMOGRAPHICS WILL BECOME MORE PREVALENT 31

5.1. Wealth managers need to think about the younger generations 31

5.1.1. Involving heirs in decision-making will be the most effective retention method 31

5.1.2. Advisor choice differs between the next generation and their parents 32

5.2. Hybrid services remain in demand among the next generation 32

5.2.1. Catering to the next generation via digital services is key 32

5.2.2. The human touch is also in demand by millennials 33

5.2.3. Investing in socially responsible companies is important to the next generation 34

5.3. Gender equality will become more prevalent in the industry 34

5.3.1. More women will enter previously male-dominated industries 34

5.3.2. The demographic characteristics of HNW women differ from HNW men 35

5.4. Faith-based investing will open investing to new demographics 36

5.4.1. Faith-based digital platforms are expanding in the wealth management industry 36

5.4.2. Religion-compliant investments often align with socially responsible investing 36

5.5. Targeting the masses will aid AUM growth 36

5.5.1. Digital services are the gateway to the mass affluent 36

5.5.2. The mass affluent should be viewed as potential HNW clients 37

6. APPENDIX 39

6.1. Abbreviations and acronyms 39

6.2. Definitions 39

6.2.1. Affluent 39

6.2.2. HNW 39

6.2.3. Liquid assets 39

6.2.4. Mass affluent 39

6.2.5. Residency 40

6.3. Methodology 40

6.3.1. GlobalData’s 2018 Global Wealth Managers Survey 40

6.3.2. GlobalData’s 2017 Global Wealth Managers Survey 40

6.3.3. GlobalData’s 2018 Mass Affluent Investors Survey 40

6.3.4. GlobalData’s 2018 Consumer Payments Insight Survey 40

6.3.5. Weighted level of agreement 41

6.3.6. Exchange rates 41

6.4. Secondary sources 41

6.5. Further reading 42

List of Tables

List of Tables

Table 1: US dollar exchange rates 41

List of Figures

List of Figures

Figure 1: The decline in offshore wealth has been arrested 10

Figure 2: Total non-resident assets slowly increased over the CRS implementation period 11

Figure 3: While tax is a major driver of offshoring, CRS does not interfere with tax-minimization strategies 12

Figure 4: The UAE may benefit as an offshore booking center provided it retains permissive tax residency requirements 13

Figure 5: Already the world’s leading offshore center, the US will benefit significantly from being outside CRS 15

Figure 6: Volatility increased in 2018 17

Figure 7: The average HNW portfolio is increasingly exposed to equity risk 18

Figure 8: Concerns regarding a financial market downturn are relatively low among wealth managers 19

Figure 9: The proportion HNW investors allocate to alternatives varies significantly across the world 21

Figure 10: Driving trust is paramount to encourage uptake of alternatives 22

Figure 11: An increasing number of wealth management firms offer technology-based solutions 26

Figure 12: Involving the next generation in the estate planning process is key to retaining clients 32

Figure 13: Digital channels are more important to the next generation than current clients 33

Figure 14: Females source more of their wealth through inheritance than men 35

Figure 15: Access to a human advisor is very important according to 30% of mass affluent investors 38

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