Wealth in Germany: HNW Investors 2018

Table of Contents

1. EXECUTIVE SUMMARY 2

1.1. German wealth managers need to adjust to a changing HNW population 2

1.2. Key findings 2

1.3. Critical success factors 2

2. OVERVIEW 10

2.1. Succeeding in Germany’s HNW market requires an understanding of evolving HNW demand patterns 10

2.2. Demographics: German HNW investors are older than their European counterparts 11

2.3. Expats: Providers need to work quickly and more effectively to develop expat relationships 12

2.4. Investment style preferences: Lack of time and expertise drive uptake of advice 13

2.5. Asset allocations: Equities, property, and alternatives will increase 14

2.6. Offshore preferences: A good investment track record and a wide range of products can entice wealth home 15

2.7. HNW product and service demand: Wealth managers need to meet the demand for retirement planning and automated advice 16

3. GERMAN WEALTH MANAGERS SHOULD NOT OVERLOOK FEMALE AND ENTREPRENEURIAL HNW INVESTORS 17

3.1. Intergenerational wealth transfer remains a significant trend in Germany 17

3.2. Women remain under-represented among HNW investors, but are likely to form a growing target segment 18

3.2.1. German female HNW investors are older and are more likely to have either inherited or family wealth 18

3.2.2. Change is occurring, and a new generation of female HNW individuals are emerging 19

3.2.3. Wealth managers should take account of the differing needs of emerging female HNW wealth 19

3.3. German wealth managers risk overlooking entrepreneurs 20

3.3.1. Entrepreneurs represent a sizable and growing target market for wealth managers 20

3.3.2. A relatively low proportion of wealth managers target entrepreneurs 20

3.4. Wealth managers need to improve customer acquisition 21

3.4.1. German wealth managers rely more heavily on cold calling and external referrals 21

3.4.2. Wealth managers should aim to improve co-operation with business banking 22

4. WEALTH MANAGERS MUST TARGET EXPATS EARLY 23

4.1. The German expat market is currently a small but steady sector 23

4.1.1. German HNW expats tend to be migrants rather than transients 23

4.1.2. Job transfer is the number one reason for HNW investors moving to Germany 23

4.2. Brexit could potentially lead to an increase in the expat population 24

4.3. Expats are a lucrative target market 25

4.4. The challenge for German wealth managers is reaching out early to potential and new expats 25

5. WEALTH MANAGERS NEED TO ADAPT TO HYBRID ROBO-ADVICE MODELS 27

5.1. HNW demand for robo-advice far outstrips supply 27

5.1.1. The German robo-advice market is rapidly expanding 27

5.1.2. Demand among HNW investors is increasing, and is currently unmatched by wealth offerings 27

5.2. Wealth managers need to develop hybrid models, with automated advice supporting the HNW advisory offering 28

6. PROVIDERS MUST SATISFY A HNW POPULATION THAT IS INCREASINGLY OPEN TO NEW INVESTMENT IDEAS 30

6.1. Demand for property, alternatives, and equities will rise as HNW investors are increasingly open to new investment ideas 30

6.1.1. A strong stock market performance has boosted equity returns 31

6.1.2. Property returns are a big draw for HNW investors 32

6.1.3. Alternatives are an attractive means of asset diversification, with higher current and future returns available 33

6.2. Wealth managers need to balance the search for higher returns with German investors’ greater desire for safety 33

6.3. Proposed changes to capital gains tax will affect future investment preferences 34

7. GERMAN WEALTH MANAGERS HAVE TO COMPETE WITH BETTER RETURNS AND INVESTMENT OPTIONS OFFSHORE 36

7.1. The offshore proportion of German HNW assets remains below average 36

7.2. Over half of German offshore wealth is held in equities 36

7.2.1. Offshore equities may provide better investment opportunities 37

7.3. German wealth managers need to compete with the perception that offshore centers provide a better range of investments and returns 38

7.4. Steps to tackle offshore tax evasion are reducing the importance of tax efficiency as an offshore investment driver 38

7.4.1. In addition to political drivers, criminal investigations are clamping down on tax schemes 39

8. WEALTH MANAGERS SHOULD TACKLE INCREASED DEMAND FOR PENSION AND RETIREMENT PLANNING SERVICES 40

8.1. Relatively low demand for auxiliary services suggests wealth managers are competing with specialized boutiques 40

8.2. Wealth managers are experiencing robust demand for inheritance planning 41

8.3. Wealth managers risk missing out on increased demand for pension and retirement planning 42

9. APPENDIX 44

9.1. Supplementary data 44

9.2. Definitions 46

9.2.1. Affluent 46

9.2.2. HNW 46

9.2.3. Liquid assets 46

9.3. Methodology 46

9.3.1. GlobalData’s 2017 Global Wealth Managers Survey 46

9.3.2. GlobalData’s 2016 Global Wealth Managers Survey 46

9.3.3. Level of agreement calculation 47

9.3.4. Service level of demand score 47

9.3.5. Forecast level of demand calculation 47

9.4. Bibliography 47

9.5. Further reading 48

List of Tables

Table 1: Cash and near-cash products: importance of asset allocation drivers 44

Table 2: Equities: importance of asset allocation drivers 44

Table 3: Bonds: importance of asset allocation drivers 44

Table 4: Property: importance of asset allocation drivers 45

Table 5: Commodities: importance of asset allocation drivers 45

Table 6: Alternatives: importance of asset allocation drivers 45

List of Figures

Figure 1: A higher proportion of German HNW investors are over 70 years old 11

Figure 2: Expats represent just 5.9% of the German HNW population and are typically long-term migrants 12

Figure 3: German HNW investors typically have relationships with a greater number of wealth managers 13

Figure 4: German HNW investors are likely to notably increase their holdings in property and alternatives 14

Figure 5: Better returns and a wider range of investments offshore are driving HNW wealth abroad 15

Figure 6: Wealth managers need to meet the increasing demand for pension and retirement planning 16

Figure 7: Germany’s wealth market has an older, more male-dominated profile than Europe 18

Figure 8: In comparison to Europe, a much higher proportion of female HNW wealth in Germany is either inherited or family wealth 19

Figure 9: Far fewer wealth managers target entrepreneurs in Germany than in the rest of Europe 21

Figure 10: In comparison to Europe, German wealth managers rely far more heavily on cold calling and benefit less from client referrals when targeting entrepreneurs 22

Figure 11: German HNW expats are more likely to be long-term immigrants 24

Figure 12: HNW expats in Germany are more profitable 25

Figure 13: German wealth managers are over-reliant on cold calling for HNW expat acquisition 26

Figure 14: German wealth managers are failing to meet HNW demand for automated advice 28

Figure 15: German HNW demand for equities, property, and alternatives is forecast to increase 31

Figure 16: Germany’s DAX impressed with strong returns in 2017 32

Figure 17: HNW investors are still more motivated by risk aversion, regular income, and liquidity than their European peers 34

Figure 18: German HNW individuals invest more heavily in equities, deposits, and commodities in their offshore portfolios than in their onshore portfolios 37

Figure 19: German HNW investors are more likely to offshore for better returns and a wider range of investments than their European peers 38

Figure 20: German HNW investors show lower levels of demand for auxiliary services than their peers 41

Figure 21: German HNW investors show the strongest demand for inheritance planning 42

Figure 22: German wealth managers are failing to meet current and future demand for pension and retirement planning services 43