Wealth in the UK: HNW Investors 2018

Table of Contents

1. EXECUTIVE SUMMARY 2

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

1.2. Key findings 2

1.3. Critical success factors 2

2. OVERVIEW 10

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

2.2. Demographics: Professionals employed in financial services and technology represent a lucrative target market 11

2.3. Expats: Providers will have to work hard to make the expat opportunity work 12

2.4. Lack of expertise drives uptake of advice 13

2.5. Asset allocation: Commodities are on the rise 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 have the opportunity to attract customers with a tax planning offering 16

3. THE UK IS ONE OF THE FEW EUROPEAN MARKETS IN WHICH WOMEN ARE A MAJOR SEGMENT 17

3.1. Wealth managers are missing a trick if they ignore female HNWs 17

3.1.1. Wealthy female investors are growing as an opportunity in the UK market 17

3.1.2. The female HNW market is poorly serviced both around the world and in the UK 18

4. UK HNW INVESTORS WANT THEIR WEALTH MANAGED PROFESSIONALLY 20

4.1. Discretionary mandates have a longstanding foothold with UK HNWs 20

4.1.1. Wealth managers need to be adept at building trust to win discretionary mandates 20

4.1.2. Much of the discretionary preference in the UK is due to the busy nature of the typical HNW Brit 21

4.1.3. UK wealth managers must lead with time-saving and expertise-led messaging to maintain a foothold with discretionary mandates 22

4.1.4. Demand is increasing for both advisory and discretionary services 23

4.1.5. Wealth managers in the UK need to address the robo-advice threat and opportunity 24

4.2. Wealth managers should focus on a hybrid model to attract and retain clients 25

4.3. Investing in corporate branding will help mitigate outflows as client relationships become less important 26

5. VOLATILITY IS A KEY DRIVER OF INVESTOR ASSET PREFERENCES 28

5.1. Investors are looking for a portfolio to shield them from Brexit but still grow 28

5.1.1. Wealth managers need to clearly communicate their Brexit strategy and the investments that cope best 28

5.2. Wealth managers should embrace commodities 29

5.2.1. Commodities provide wary UK HNW investors with hedge and growth opportunities 29

5.2.2. Diversification, returns, and safety are driving UK HNWs to hold and add to their commodities portfolio 30

5.3. Property will return to prominence in UK HNW investment portfolios – but not through direct residential investment 30

5.3.1. The majority of property allocations are in REITS 31

5.3.2. UK HNWs are unlikely to be affected too much by the current downturn 31

5.4. Record dividend payment predictions for 2018 are compelling for equity ownership, but should be mixed with growth stocks 32

6. WEALTH MANAGERS THAT RAMP UP THEIR TAX, RETIREMENT, AND INHERITANCE PLANNING WILL GAIN 34

6.1. Demand is increasing for pensions and retirement planning 34

6.1.1. Broad government policy changes have prompted a rethink of investors’ investment plans in most areas 34

6.1.2. Just over half of wealth managers in the UK offer tax advisory services, making this a point of differentiation 35

6.1.3. Tax services will also help capture and retain HNW expats 38

6.1.4. Providing tax advice can help bring offshored holdings back to the UK 38

6.2. Wealth managers can do more to capitalize on inheritance planning demand 39

6.2.1. Inheritance planning needs to be seen as a means for retaining AUM as it passes to heirs 39

6.2.2. Only focusing on the next generation limits earning opportunities 42

6.3. The UK wealth market is not yet ready to embrace blockchain as part of HNW service offerings 43

6.3.1. Wealth managers need to educate overly enthusiastic clients regarding cryptocurrencies 43

6.3.2. Blockchain is not yet considered secure enough for use as a tool for investing 43

6.3.3. Blockchain will most likely not be used in customer-facing settings 44

7. BREXIT IS NOT A THREAT TO OFFSHORE WEALTH MANAGEMENT – BUT THE UNCERTAINTY IS 46

7.1. The UK is the world’s second-largest offshore booking center 46

7.1.1. Wealth managers need multiple country desks to accommodate the offshore market 46

7.1.2. Concerns about Brexit’s impact on the UK’s appeal as an offshore center are overstated 47

7.1.3. The UK is yet to see the impact of CRS on offshore inflows 48

7.2. UK wealth managers will continue to find Asian and Russian offshore investors a lucrative target market 48

7.2.1. Russian offshore wealth is unlikely to diminish post-Brexit, despite security threat claims 49

7.3. Wealth managers should focus on diversification benefits to attract a wider range of investments 49

8. APPENDIX 51

8.1. Abbreviations and acronyms 51

8.2. Supplementary data 51

8.3. Definitions 54

8.3.1. Affluent 54

8.3.2. HNW 54

8.3.3. Liquid assets 54

8.4. Methodology 54

8.4.1. GlobalData’s 2017 Global Wealth Managers Survey 54

8.4.2. GlobalData’s 2016 Global Wealth Managers Survey 55

8.4.3. Level of agreement calculation 55

8.4.4. Service level of demand score 55

8.4.5. Forecast and projected level of demand calculation 56

8.5. Bibliography 56

8.6. Further reading 56

List of Tables

Table 1: Cash and near-cash products: importance of asset allocation drivers 51

Table 2: Equities: importance of asset allocation drivers 52

Table 3: Bonds: importance of asset allocation drivers 52

Table 4: Property: importance of asset allocation drivers 53

Table 5: Commodities: importance of asset allocation drivers 53

Table 6: Alternatives: importance of asset allocation drivers 54

List of Figures

Figure 1: Female HNW investors tend to be younger than their male counterparts 11

Figure 2: Expats represent just 5.6% of the UK HNW population, down from previous highs 12

Figure 3: UK HNW individuals are seeking expertise in the face of an uncertain economic future 13

Figure 4: Investors’ significant allocation to equities requires hedging and risk mitigation 14

Figure 5: Tax efficiency is the number one offshore driver, highlighting the need for efficient local tax strategies to keep money in the UK 15

Figure 6: The growing tax planning need is not currently being met 16

Figure 7: There are more HNW women in the UK than all the countries of Central and Eastern Europe 18

Figure 8: Wealthy women in the UK are busy running companies and need wealth managers that can offer convenience 19

Figure 9: Discretionary mandates are the preferred style of asset management 21

Figure 10: The bulk of UK HNW investors are still very active, with severe time constraints that make convenience a major selling point 22

Figure 11: Trust is a major driver behind converting clients to discretionary mandates in the UK 23

Figure 12: Demand in the UK for discretionary asset management is strong and growing 24

Figure 13: UK wealth managers are worried about losing business to automated platforms 25

Figure 14: Brand, performance, and good relationships are the key to retention 26

Figure 15: Schroders sees the stars aligning for strengthening commodities prices 29

Figure 16: Hedging is a clear driver for UK HNWs in the commodities market 30

Figure 17: Price growth is still a driver for property investment in the UK 32

Figure 18: Demand is increasing for pensions and retirement planning 35

Figure 19: UK wealth managers should consider adding tax advisory services to their offering 36

Figure 20: Wealth managers should add tax planning to their offering where possible 37

Figure 21: Expats book in the UK to take advantage of tax breaks 38

Figure 22: Tax efficiencies are the main reason HNW expats leave wealth offshore 39

Figure 23: Intergenerational wealth transfer represents a significant opportunity in the UK 40

Figure 24: BNP Paribas has a strong next-generation program 41

Figure 25: St. James’s Place Wealth Management offers a large suite of intergenerational wealth planning 42

Figure 26: UK wealth managers are polarized in their views on blockchain security 44

Figure 27: UK wealth managers are still comparatively conservative about blockchain technology 45

Figure 28: The UK is the world’s second-largest offshore booking center and one of its most diverse 46

Figure 29: Most of the strengths of the London offshore market will endure even a messy Brexit 47

Figure 30: The UK is currently a popular booking center among Asian and Russian HNW offshore investors 49

Figure 31: Offshore wealth is more likely to be held in sophisticated investments 50