Discretionary Asset Management: HNW Demand and Drivers

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Globally over half of HNW investment portfolios are placed in discretionary mandates. However, the uptake of these services differs by country. While wealth managers in developed economies such as the UK and the US can attract investors to discretionary services relatively easily thanks to their established reputations, players in emerging markets have a longer way to go. Nevertheless, despite the challenging competitive environment, the penetration of mandated offerings is expected to increase, in line with most global players’ business strategies.

Scope

Verdict Financial’s “Discretionary Asset Management: HNW Demand and Drivers” report draws on our 2016 Global Wealth Managers Survey to analyze HNW investors’ preferences and attitudes towards discretionary asset management services across the globe. It sizes the market for discretionary mandates and examines key drivers behind wealthy individuals choosing such services. The competitive landscape is also analyzed.

Specifically, the report:

– Estimates the value of HNW assets invested via discretionary mandates

– Compares HNW individuals’ willingness to use discretionary services in different countries

– Identifies target client groups for discretionary asset managers

– Compares drivers for discretionary mandates between countries and regions

– Examines the client targeting strategies of discretionary portfolio managers

– Explores robo-advisors’ potential to disrupt traditional discretionary asset management business

Reasons to Buy

– Discover how much HNW wealth is invested via discretionary mandates.

– Identify markets offering the greatest growth potential for discretionary asset management.

– Learn why HNW investors choose to opt for discretionary services, and how these motivations differ between countries, particularly in emerging and developed markets.

– Gain an insight into best-practice examples from competitors operating within the discretionary mandates landscape.

Table of Contents

EXECUTIVE SUMMARY

Discretionary mandates remain the domain of developed markets

Key findings

Critical success factors

SIZING THE GLOBAL MARKET FOR DISCRETIONARY ASSET MANAGEMENT

Defining discretionary asset management

Wealth managers offer a range of asset management solutions to cater for HNW investors

Globally, 51.9% of HNW wealth is placed in discretionary mandates

HNW investors in Asia Pacific show the weakest preference for discretionary asset management

The penetration of discretionary is higher in developed markets

Discretionary asset management has only started developing in emerging markets

The global HNW discretionary asset management market is worth $15.7tn

The value of the market will continue to expand with the growth of HNW assets

In regional terms, the US represents the largest opportunity

Wealth managers will be trying to win a share of the Chinese market

Demand for professional advice will increase, partially encouraged by market volatility

However, wealth managers expect higher demand for advised rather than discretionary mandates

Increased demand for discretionary portfolio management will come from investors already familiar with the service

Mass affluent investors show a higher tendency to self-direct

DRIVERS FOR DISCRETIONARY ASSET MANAGEMENT

Discretionary mandates appeal to inheritors

Inheritors have been driving discretionary asset management

Intergenerational wealth transfer takes time

Motivations for using discretionary services vary between markets

In general, clients lacking time or expertise value discretionary mandates

European HNW investors are particularly time-constrained

A search for better returns is key in North America

Establishing trust is key in the Middle East and Africa, while investors in Asia Pacific are attracted by exclusivity

The high cost of discretionary asset management can deter HNW investors

UNDERSTANDING THE COMPETITIVE LANDSCAPE

Wealth managers offering discretionary mandates compete with a range of players

Most HNW-focused competitors provide discretionary asset management

In Europe, most "robo-advisors" are in fact discretionary investment managers

A range of discretionary options remain available for smaller investors

Fee models vary, though there is increasing pressure for transparency

Increasing mandates penetration forms the center of many wealth managers' strategies

Major players will continue to move clients to discretionary services

Boutique wealth managers will highlight their greater flexibility

APPENDIX

Definitions

Developed (mature) economies or markets

Developing (emerging) economies or markets

HNW

Liquid assets

Mass affluent

Mass market

Robo-advisor

Supplementary data

Methodology

Sizing the market for discretionary asset management

Verdict Financial's 2016 Global Wealth Managers Survey

Verdict Financial's 2015 Global Wealth Managers Survey

Verdict Financial's 2016 Retail Banking Insight Survey

Exchange rates

Bibliography

Further reading

About Verdict Financial

Disclaimer

Table

Table 1: Minimum thresholds for discretionary asset management services offered by selected UK providers

Table 2: HNW portfolios by mandate type (%), 2016

Table 3: US dollar exchange rates, December 31, 2014 and December 31, 2015

Figures

Figure 1: Globally, discretionary mandates are the most popular form of investment management among HNW individuals

Figure 2: Discretionary asset management is most pronounced in North America

Figure 3: Among developed markets, Australia has the lowest discretionary mandates penetration

Figure 4: Just over a third of HNW portfolios in emerging markets are managed under discretionary mandates

Figure 5: The value of HNW liquid wealth will continue to expand

Figure 6: The US HNW discretionary asset management market is worth over $10tn

Figure 7: Advisory asset management will see the highest increase in demand

Figure 8: Two thirds of US wealth managers expect greater demand for discretionary mandates over the next 12 months

Figure 9: Discretionary mandates tend to be more pronounced in markets with a high share of inheritors in the overall HNW population

Figure 10: Discretionary mandates are a perfect match for time-constrained clients

Figure 11: For Asian investors, convenience is more important than saving time

Figure 12: HNW investors in North America expect discretionary portfolio managers to deliver high returns

Figure 13: In Europe and the Middle East, HNW investors tend to switch to discretionary mandates once they are sure of the quality of advisory services

Figure 14: A share of HNW wealth is invested in advisory mandates because it is cheaper than discretionary service

Figure 15: Less than two thirds of wealth managers in Asia Pacific offer discretionary asset management

Figure 16: The majority of wealth managers in North America and Europe disagree that robo-advisors appeal only to self-directed investors

Frequently asked questions

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