Wealth in South Africa: HNW Investors 2017

Table of Contents

1. EXECUTIVE SUMMARY

1.1. South African clients accumulate wealth through earned income 3

1.2. Key findings 3

1.3. Critical success factors 3

2. PROFILING THE SOUTH AFRICAN HNW INVESTOR 8

2.1. Earned income accounts for the largest source of wealth 8

2.1.1. The bulk of South African HNW individuals are males above 51 years of age 8

2.1.2. The largest proportion of HNW clients amass their wealth through earned income 9

2.1.3. Many HNW investors have built their fortunes through the manufacturing industry 11

2.1.4. Nearly half of HNW individuals in South Africa are directors 12

2.2. Expats account for

8.4% of the local HNW population 13

2.2.1. The majority of HNW expats are from the UK 14

3. SOUTH AFRICAN HNW INVESTMENT STYLE PREFERENCES 17

3.1. Wealth managers should highlight their professional expertise 17

3.1.1. Over half of South Africa’s HNW wealth is held in discretionary mandates 17

3.1.2. A lack of expertise drives demand for professional advice 18

3.1.3. South Africa’s HNW investors place a higher-than-average proportion of their wealth with their main wealth manager 19

3.2. A desire to avoid management fees is increasing demand for execution-only mandates 20

3.2.1. However, demand is strongest for discretionary mandates 20

3.2.2. Advisory mandates will experience the strongest growth in demand 21

3.2.3. A lack of expertise is driving demand for advisory mandates 22

3.2.4. South African HNW investors who self-direct want to avoid management fees 23

3.2.5. Charles Schwab offers automated investment services with a human element 24

4. UNDERSTANDING ASSET ALLOCATION TRENDS AMONG SOUTH AFRICAN HNW INDIVIDUALS 26

4.1. Property will register the fastest increase in demand over the next year 26

4.1.1. Equities continue to account for the largest segment of HNW portfolios 26

4.1.2. Equity investments constitute the largest proportion of the average South African HNW portfolio 27

4.1.3. Capital appreciation opportunities are the main driver for equity investments 28

4.1.4. Bond investments are lower in South Africa than the rest of the world 29

4.1.5. Wealth managers expect bond holdings to decrease significantly 30

4.1.6. Cash and near-cash allocations are in line with the global average 31

4.1.7. A desire to maintain liquidity is driving demand for cash and near-cash products 32

4.1.8. Property constitutes a relatively small part of the typical HNW portfolio 33

4.1.9. Rental income is the main driver for property investments 34

4.1.10. Investments in alternatives are more popular in South Africa than globally 35

4.1.11. Asset diversification is the leading driver for investments in alternatives 36

4.1.12. Commodities allocations are as low as the global average 37

4.1.13. Asset diversification is the leading driver for commodity investments 38

5. HNW PRODUCT AND SERVICE DEMAND 40

5.1. Wealth managers should lead with pension planning services 40

5.1.1. Pension planning demand is much higher in South Africa than the rest of the world 40

5.1.2. Demand for all planning services is forecast to increase 41

6. APPENDIX 44

6.1. Abbreviations and acronyms 44

6.2. Definitions 44

6.2.1. Affluent 44

6.2.2. HNW 44

6.2.3. Liquid assets 44

6.2.4. Mass affluent 44

6.3. Methodology 45

6.3.1. GlobalData’s 2016 Global Wealth Managers Survey 45

6.3.2. GlobalData’s 2015 Global Wealth Managers Survey 45

6.3.3. GlobalData’s WealthInsight 45

6.3.4. Exchange rates 46

6.4. Bibliography 46

6.5. Further reading 48

List of Figures

Figure 1: Women represent just 9% of the South African HNW population 9

Figure 2: Earned income is the main source of wealth for South Africa’s HNW investors 10

Figure 3: Manufacturing is the leading generator of South African wealth 12

Figure 4: A significant proportion of HNW investors in South Africa are directors 13

Figure 5: 8.4% of South Africa’s HNW client base is made up of expats 14

Figure 6: Almost two thirds of South African HNW expats are from the UK 15

Figure 7: Nedbank Private Wealth targets British expats 16

Figure 8: More than half of HNW assets are managed using discretionary mandates 18

Figure 9: A lack of expertise is the major driver of wealth management demand 19

Figure 10: Over three quarters of South Africa’s HNW investors use two or more advisors 20

Figure 11: Discretionary and advisory mandates experience the highest demand 21

Figure 12: Advisory asset management will experience the highest increase in demand 22

Figure 13: HNW investors’ lack of expertise drives the need for advisory mandates 23

Figure 14: Advisors should offer innovative services to offset self-directing trends 24

Figure 15: Charles Schwab offers automated advice with a human touch 25

Figure 16: South African HNW investors are heavily exposed to equities 27

Figure 17: Equity investments are split almost equally between direct holdings and funds 28

Figure 18: Demand for equity holdings is forecast to decrease over the next year 29

Figure 19: Bond allocations in South Africa are half those seen globally 30

Figure 20: Bond investments are set to decline significantly 31

Figure 21: The majority of cash and near-cash is invested in money market funds 32

Figure 22: Cash and near-cash investments are set to record strong growth 33

Figure 23: South Africa’s HNW investors favor direct property investments 34

Figure 24: Property investments are forecast to increase further 35

Figure 25: Hedge funds are the most popular alternatives investment 36

Figure 26: The majority of industry experts expect alternative investments to increase 37

Figure 27: Commodity funds are most attractive to South African HNW investors 38

Figure 28: Asset diversification drives South African commodities investments 39

Figure 29: Pension planning is the priority for South Africa’s HNW investors 41

Figure 30: Pension planning will remain the preferred planning service 43