Wealth in Sweden: HNW Investors 2018

Table of Contents

1. EXECUTIVE SUMMARY 1

1.1. Market summary 1

1.2. Key findings 1

1.3. Critical success factors 1

2. OVERVIEW 9

2.1. An uncertain macroeconomic environment is changing the face of the HNW investment landscape 9

2.2. Demographics: financial services professionals represent a lucrative target market 10

2.3. Expats: offering tax services will be key for the small HNW expat community 11

2.4. Investment style preferences: highlighting expertise and convenience will be key to maintaining high-value discretionary business 12

2.5. Asset allocation: a notable increase in cash allocation is anticipated 13

2.6. Offshore preferences: offering investors access and guidance to foreign stock markets is key 14

2.7. HNW product and service demand: wealth managers urgently need to determine their automated investment services strategies 15

3. BECOMING PART OF SWEDEN’S START-UP SCENE COULD PAY DIVIDENDS IN THE FUTURE 16

3.1. Sweden has one of the highest proportions of technology-derived wealth globally 16

3.2. The huge success of Sweden’s start-up scene is driving the importance of the tech sector 17

3.2.1. Stockholm is widely recognized as one of the world’s top locations for start-ups 17

3.2.2. An excellent technical infrastructure and small population make Sweden an ideal test bed for new products 18

3.3. Investment in the sector is growing and proving lucrative for venture capitalists 18

3.3.1. The success of the technology scene is also a boon for financial services, particularly in the venture capital space 19

3.3.2. Wealth managers should look to capitalize on the success of the start-up space by providing access to direct private equity opportunities 20

3.4. Wealth managers need to improve their engagement with the technology ecosystem 20

3.4.1. While local wealth managers are well versed in catering to entrepreneurs and employees… 20

3.4.2. … they need to improve their outreach to the start-up ecosystem 20

4. HIGHLIGHTING TAX EXPERTISE AND BUSINESS ADVICE WILL HELP TO ATTRACT EXPATS 21

4.1. The HNW expat opportunity is not particularly large, but indications are that it is growing 21

4.1.1. The HNW expat population is slightly above the European average 21

4.1.2. Interest in investment visas is increasing 21

4.2. Sweden’s start-up scene is a particular draw for foreign talent and investors 22

4.2.1. Sweden offers tax breaks for expats 23

4.2.2. There are no limitations on foreigners starting businesses 23

5. DISCRETIONARY SERVICES WILL REMAIN DOMINANT, BUT HIGHLIGHTING EXPERTISE WILL BE INCREASINGLY IMPORTANT 25

5.1.1. Discretionary services account for the majority of the market and demand is set to increase 25

5.1.2. Lack of expertise and time are key drivers for professional financial management 26

5.2. However, increased price sensitivity means providers should not rest on their laurels 26

5.2.1. HNW investors are willing to self-direct for lower fees, especially for simple investments 26

5.3. Wealth managers must focus on relationships and building trust to differentiate from self-directed and automated offerings 27

5.3.1. Relationships are also key for encouraging clients to try new investment types 28

6. THE PORTFOLIO MIX IS CHANGING AND WEALTH MANAGER GUIDANCE WILL BE CRUCIAL 30

6.1. Equities currently dominate, but a shift into cash and bonds is strongly anticipated 30

6.1.1. HNWs are becoming more risk averse thanks to uncertainty in the market 31

6.1.2. Negative interest rates and the weak Swedish krona mean cash holdings will need to be handled carefully 32

6.1.3. Bond holdings will be aided by a well-performing corporate bond market 32

6.2. Property market concerns call for an investment strategy review and a frank discussion with clients 33

6.2.1. Residential property prices appear to be cooling 33

6.2.2. The commercial market is faring better and HNWs will benefit from their exposure here 34

7. PROVIDING ADVICE ON AND ACCESS TO INTERNATIONAL FINANCIAL MARKETS IS KEY 35

7.1. Swedish HNW investors hold an above-average proportion of their portfolios offshore, predominately in equities 35

7.1.1. Equities account for the majority of holdings thanks to their diversification benefits 35

7.1.2. The quest for better returns is the predominant driver 36

7.2. Economic and currency instability are also important drivers 37

7.2.1. The krona dropped to a nine-year low in 2018 38

7.3. Offshore holdings tend not be for tax purposes, but recent leaks have had some fallout 38

8. AUTOMATED ADVICE PRESENTS OPPORTUNITIES BUT INCUMBENTS MUST DETERMINE THEIR POSITIONS 40

8.1. HNW demand for robo-advice is high, but wealth manager provision is low 40

8.1.1. Automated advice is the most strongly in-demand service among HNWs 40

8.1.2. However, wealth management provision is noticeably lacking 40

8.2. Fintech start-ups have led the way, but incumbents are starting to enter the market 41

8.2.1. Fintech players have dominated the Swedish robo-advice scene 41

8.2.2. Wealth managers see automated advice as an opportunity, not a threat 41

8.2.3. Avanza, Nordea, and Nordnet have all launched robo-advice services 42

8.3. Fintech robo-advisors are also making moves into the wealth management space 43

8.3.1. Opti launched a hybrid advisory and automated service in 2018 43

9. APPENDIX 44

9.1. Abbreviations and acronyms 44

9.2. Supplementary data 44

9.3. Definitions 46

9.3.1. Affluent 46

9.3.2. HNW 46

9.3.3. Liquid assets 46

9.3.4. Residency 46

9.3.5. Unicorn 47

9.4. Methodology 47

9.4.1. Demographics data from GlobalData’s WealthInsight 47

9.4.2. GlobalData’s 2018 Global Wealth Managers Survey 47

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 48

9.6. Further reading 49

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 45

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 46

List of Figures

Figure 1: HNW fortunes are predominantly drawn from earned income, followed by entrepreneurship 10

Figure 2: HNW expats typically come from neighboring countries 11

Figure 3: Swedish HNWs tend to work with fewer wealth managers than the European average 12

Figure 4: Equity holdings dominate, but demand is expected to grow most for cash and bonds over the coming year 13

Figure 5: Swedish HNWs hold an above-average proportion of their portfolios offshore 14

Figure 6: There is a notable mismatch between high demand for and low provision of automated investment services 15

Figure 7: The technology & communications sector is a key source of Swedish HNW wealth 17

Figure 8: Investment into Sweden’s technology sector is on an upward trajectory 19

Figure 9: Wealth managers agree that HNW interest in investor visas has been increasing 22

Figure 10: Sweden wins the race in the number of technology investments in the Nordics 23

Figure 11: Stockholm has by far the largest financial market for smaller companies in the Nordics 24

Figure 12: Discretionary mandates predominate and are forecast to see the strongest growth 25

Figure 13: Lack of expertise is the key reason HNW individuals have their fortunes professionally managed 26

Figure 14: MiFID II has had an impact on price sensitivity, albeit less so than on other European markets 27

Figure 15: A trusted brand and relationships are the key reasons why investors choose their wealth manager over a competitor 28

Figure 16: Lancelot Asset Management offers alternative funds through Lancelot Camelot and Lancelot Avalon 29

Figure 17: Swedish HNW investors will be moving into bonds and cash, but out of commodities 30

Figure 18: There is strong consensus among wealth managers that Swedish HNW investors are becoming more risk averse 31

Figure 19: Strong growth in the corporate bond sector has seen it overtake Swedish government bonds in value 32

Figure 20: After years of growth, Swedish house prices have started to decline in 2018 34

Figure 21: In comparison with many other markets, Swedish HNW investors hold among the highest proportions of their portfolios offshore 36

Figure 22: The DAX and S&P500 have outperformed the OMXS30 since January 2013 37

Figure 23: Tax efficiency is a limited driver for Swedish HNW offshore holdings 39

Figure 24: Swedish automated investment services: fintech providers 41

Figure 25: Brokerage firm Avanza entered the robo space with Avanza Auto in September 2017 42

Figure 26: Opti is entering the wealth management market 43