Wealth in Russia: HNW Investors 2016; Understanding HNW investors and wealth management strategies

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The Russian wealth market has been developing over several years. However, the recent political and economic instability in the country have affected HNW investors’ portfolios and demand for wealth managers’ services. Russian millionaires have to adapt to changing conditions, yet they continue to have high expectations when it comes to financial advice. Wealth managers who succeed in guiding clients through uncertain times will earn their trust, which in turn will lead to long-term fruitful relationships. The provision of well-diversified investment strategies and sophisticated wealth structuring services is a must.

Scope

• The construction and real estate industries are the major sources of Russian HNW wealth. The oil and gas sector has been losing its significance.

• Expats account for a fraction of Russian millionaires and will continue to decline.

• Bonds account for 40% of the average HNW investor’s portfolio. Russian investors show strong interest in corporate debt, which has offered a regular flow of high interest payments.

• Strongly performing hedge funds have been attracting assets, driving the share of alternatives in HNW portfolios above the regional average. Further increases in hedge fund and private equity allocations are likely.

• The depreciation of the Russian ruble hit the foreign property investments of wealthy Russians, affecting their attitudes towards real estate and driving demand for advice in this field.

• The provision of financial planning and wealth structuring advice is essential to wealth managers’ propositions. This includes tax and inheritance planning advice.

Reasons to Buy

Develop and enhance your client targeting strategies using our data on HNW profiles and source of wealth.

Give your marketing strategies the edge required and capture new clients using insights from our data on HNW investors’ drivers for seeking investment advice vs self-directing.

Tailor your investment product portfolio to match the current and future demand for different asset classes among HNW individuals.

Develop your service proposition to match the product and service demand expressed by Russian HNW investors and react proactively to the forecasted change in demand.

Deutsche Bank
HSBC
Moscow Exchange

Table of Contents

EXECUTIVE SUMMARY

Russian wealth managers can leverage their HNW clients' anxiety

Key findings

Critical success factors

PROFILING THE RUSSIAN HNW INVESTOR

Most Russian HNW individuals are business owners

Construction and real estate are the main wealth-generating industries

Expats represent just

5.4% of the Russian HNW population

The expat opportunity is limited and it is difficult to obtain economies of scale for a dedicated service

Skilled work visas allow job transfers for up to three years

Investor and entrepreneur visas require relatively low capital

Most HNW expats residing in Russia originate from Western Europe

The current economic and political situation is encouraging expats to leave Russia

HNW INVESTMENT STYLE PREFERENCES

HNW investors in Russia rely on professional advice

Wealthy Russians expect their wealth managers to deliver outstanding returns

HNW investors opt for advisory asset management

The appetite for advice is still on the rise

The demand for advisory and discretionary mandates will increase

A share of Russian HNW wealth will remain in execution-only platforms

UNDERSTANDING ASSET ALLOCATION TRENDS AMONG RUSSIAN HNW INDIVIDUALS

Bonds and deposits dominate Russian HNW portfolios

Investors have been switching from cash to riskier asset classes

Equities allocations are on the rise

Bonds are the largest component of the Russian HNW portfolio

For deposits, foreign currencies are preferred to the ruble

Real estate has been important in HNW portfolios, but the economic crisis hit property investments

Allocation in commodities is lower than in previous years

Alternative investments have been attracting increasing attention

Deutsche Bank Private Wealth Management offers deposits in a number of currencies as well as more sophisticated investments

HNW PRODUCT AND SERVICE DEMAND

Planning services are in demand in Russia

Wealth structuring is significant in times of uncertainty

Russian millionaires are preparing for intergenerational wealth transfer

Internationally active millionaires require advice on tax and real estate

Provision of tax advice is a must

HNW individuals will require more advice on their real estate investments

APPENDIX

Abbreviations and acronyms

Definitions

Affluent

Mass affluent

HNW

Liquid assets

Methodology

Verdict Financial's 2015 Global Wealth Managers Survey

Exchange rates

Bibliography

Further reading

About Verdict Financial

Disclaimer

Table

Table 1: Top industries by contribution to Russian GDP output (gross value added), 2015

Table 2: Russian ruble-US dollar exchange rate, December 31, 2014 and December 31, 2015

Figures

Figure 1: Business owners dominate the Russian HNW population

Figure 2: The construction industry is the main source of Russian wealth

Figure 3: Expats account for a small proportion of the Russian HNW population

Figure 4: Switzerland, Germany, and the UK are the major expat feeder countries

Figure 5: HNW investors in Russia believe their wealth managers can deliver better rates of return than self-directed strategies

Figure 6: Advisory mandates are preferred to discretionary services in Russia

Figure 7: Demand for discretionary and execution-only services is quite weak

Figure 8: Demand for asset management services is on the rise in Russia

Figure 9: Russian millionaires want to self-direct at least some of their portfolio

Figure 10: 40% of the average Russian HNW portfolio is allocated in bonds

Figure 11: Equities account for 19% of the Russian HNW portfolio

Figure 12: The demand for equities will increase significantly

Figure 13: HNW clients prefer direct holdings to funds when investing in bonds

Figure 14: Opinion about future bond demand is mixed among wealth managers

Figure 15: Foreign currency deposits are more popular than ruble-denominated accounts

Figure 16: The demand for deposits is forecast to decrease

Figure 17: Property investments account for 9% of HNW portfolios

Figure 18: The demand for real estate investments in Russia will rebound

Figure 19: Holdings in commodities are well diversified

Figure 20: Allocations in commodities will remain stable in the foreseeable future

Figure 21: Hedge funds constitute over half of HNW allocation in alternatives

Figure 22: Russian wealth managers forecast increasing demand for alternatives

Figure 23: Planning services are in demand in Russia

Figure 24: Demand for inheritance planning will increase significantly

Figure 25: Demand for tax planning is very strong among Russian millionaires

Figure 26: Russian wealth managers should provide investment property advice

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