Wealth in Australia: HNW Investors 2018

Table of Contents

1. EXECUTIVE SUMMARY 2

1.1. Already a mature wealth market, Australia still offers room for growth 2

1.2. Key findings 2

1.3. Critical success factors 2

2. OVERVIEW 8

2.1. Succeeding in Australia’s HNW market requires an understanding of evolving HNW demand patterns 8

2.2. Demographics: Professionals employed in the financial services industry represent a lucrative target market 9

2.3. Expats: Providers will have to work hard to make the expat opportunity work 10

2.4. Investment style preferences: Lack of time drives uptake of advice, making convenience an implicit part of a wealth service 11

2.5. Asset allocations: Bonds and alternatives will be on the rise 12

2.6. Offshore preferences: A good investment track record and a wide range of products can entice wealth home 13

2.7. HNW product and service demand: Wealth managers should lead with tax and pension planning 14

3. INHERITING SPOUSES MEAN BIG BUSINESS, BUT FEW PROVIDERS ARE SET UP TO CAPITALIZE 15

3.1. Intergenerational wealth transfer represents a significant opportunity in Australia 15

3.2. More needs to be done to reach out to the next generation of HNW investors 16

3.2.1. Citi Private Bank’s Next Gen program helps private banks build ties with inheritors early on 16

3.3. Only focusing on the next generation limits earning opportunities 18

4. TAX STRUCTURING SERVICES ARE KEY TO KEEPING EXPAT WEALTH IN THE COUNTRY 20

4.1. On first view the Australian HNW expat market is not a lucrative one 20

4.1.1. Australian HNW expats are transients rather than migrants 20

4.1.2. Job transfer is the number one reason for HNW investors moving to Australia 20

4.2. HNW expats migrating under the SIV are more attractive than those reaching Australian shores as part of a job transfer 21

4.2.1. However, competition for SIV migrants is heating up due to regulatory changes 22

4.2.2. Partnerships with third-party companies will enable wealth managers to reach out to expats at an early stage 23

4.3. The complex needs of expats make them an attractive target, but a wide service offering is a must to appeal to these clients 23

4.3.1. Providing tax advice can help bring expat offshore holdings to Australia 24

5. EFFECTIVE CORPORATE-LEVEL BRANDING MINIMIZES THE RISK OF LOSING CLIENTS WHEN ADVISORS MOVE ON 26

5.1. Time is precious but control is even more important, meaning Australian HNW investors strongly favor advisory mandates 26

5.1.1. An advisory relationship allows for more efficient relationship building 27

5.2. Wealth managers have to bond with clients on a brand level 28

5.2.1. In a market where the advisor-client relationship is of utmost importance, good advisors are hard to come by 28

5.2.2. Having a CRM system in place reduces the risk of client loss when a relationship manager leaves 29

5.2.3. A client base that is only loyal to the advisor, not the brand, poses retention risks 30

5.2.4. NAB Private is strongly positioned to service customers’ private and business banking needs 31

6. PROVIDERS SHOULD PUSH FOR A PORTFOLIO RESHUFFLE AS OPPOSED TO A MOVE AWAY FROM EQUITIES AND PROPERTY 32

6.1. A lack of capital appreciation opportunities will see demand for real estate and equities fall 32

6.2. Wealth managers should convince investors of the benefits of a more selective investment strategy to avoid outflows 33

6.2.1. Banking Royal Commission interference may wreak short-term havoc in the equity space 33

6.2.2. However, record dividend payments and Australia’s imputation system are a compelling argument for equity ownership 34

6.2.3. Concerns over a crash in the property market are overstated 35

7. ASIAN OFFSHORE HNW WEALTH MEANS BIG BUSINESS 37

7.1. Australian wealth managers will find Asian offshore investors a lucrative target market 37

7.1.1. Stricter regulations and a cooling property market will see HNW wealth inflows decline 38

7.1.2. Wealth managers should focus on diversification benefits to attract a wider range of investments 39

7.2. The end of the bull run in the US is good news for local providers 40

8. WEALTH MANAGERS MUST IMPROVE AT PROMOTING THEIR TAX ADVISORY SERVICES 41

8.1. Wealth managers need to close the tax advice service gap 41

8.1.1. Only a third of wealth managers offer tax advisory services 42

8.1.2. ATO’s increased focus on Australia’s rich will continue to drive demand for tax planning 42

8.1.3. Estate Planning Equation works with investors and their advisors to structure tax 43

9. APPENDIX 45

9.1. Abbreviations and acronyms 45

9.2. Supplementary data 45

9.3. Definitions 47

9.3.1. Affluent 47

9.3.2. HNW 47

9.3.3. Liquid assets 47

9.4. Methodology 47

9.4.1. GlobalData’s 2017 Global Wealth Managers Survey 47

9.4.2. GlobalData’s 2016 Global Wealth Managers Survey 48

9.4.3. Level of agreement calculation 48

9.4.4. Service level of demand score 48

9.4.5. Forecast level of demand calculation 48

9.5. Bibliography 49

9.6. Further reading 50

List of Tables

Table 1: Cash and near-cash products: importance of asset allocation drivers 45

Table 2: Equities: importance of asset allocation drivers 45

Table 3: Bonds: importance of asset allocation drivers 46

Table 4: Property: importance of asset allocation drivers 46

Table 5: Commodities: importance of asset allocation drivers 46

Table 6: Alternatives: importance of asset allocation drivers 47

List of Figures

Figure 1: Female HNW investors tend to be younger than their male counterparts 9

Figure 2: Expats represent just 7.3% of the Australian HNW population 10

Figure 3: Becoming the prime wealth manager pays off in Australia 11

Figure 4: Investors’ significant allocation to equities could result in strong portfolio value fluctuation should volatility increase 12

Figure 5: Better returns offshore are driving HNW wealth abroad 13

Figure 6: The focus has shifted from retail to commercial property 14

Figure 7: Intergenerational wealth transfer represents a significant opportunity in Australia 16

Figure 8: Citi’s Next Gen program aims to build ties with the next generation of HNW investors early on 17

Figure 9: 44% of Australian HNW investors are 61 years of age or above 19

Figure 10: Australian HNW expats are more likely to be transients than immigrants 21

Figure 11: Credit Suisse helps HNW migrants with the visa application process 22

Figure 12: Australian HNW individuals are demanding but lucrative 24

Figure 13: Tax efficiencies are the main reason HNW expats invest in their country of residence 25

Figure 14: 63% of Australian HNW wealth is held via advisory mandates 27

Figure 15: The advisor-client relationship is the single most important retention tool in Australia 28

Figure 16: It is increasingly difficult to hire relationship managers in Australia 30

Figure 17: Australian HNW demand for equities and property is forecast to decrease 33

Figure 18: The S&P/ASX 200 tends to move in the same direction as global indices 34

Figure 19: Annual house price percentage changes by capital cities 36

Figure 20: Australia is a popular booking center among Asian HNW offshore investors 38

Figure 21: Property and equities dominate the Asian offshore portfolio 39

Figure 22: Offering tax advisory services is a must in Australia 41

Figure 23: Demand significantly exceeds supply when it comes to tax advisory services 42

Figure 24: Estate Planning Equation assists advisors and their clients in tax matters 44