Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on October 24 - 30, 2016.

 

Asia-Pacific ex-Japan’s wealth management industry has not won more business from high-net-worth individuals (HNWI) despite earning a greater degree of trust, according to Capgemini’s Asia-Pacific Wealth Report 2016.

The report states that while trust levels are rising, it has not translated into more assets under management, with HNWIs more likely to keep their wealth in cash or a retail bank account (32.6%) than letting it be managed by a wealth manager (30.6%). This is considerably less than the rest of the world, at 34.5%. 

In addition, Asia-Pacific ex-Japan HNWIs only allocate 20.7% of their wealth to their primary wealth managers, compared with 23.2% in the rest of the world. 

The report says wealth managers should appeal to HNWIs’ interest in sophisticated investment management to win more business. “HNWIs in the region favour growth-oriented investments, are increasingly open to equity allocations, invest more of their assets internationally and are far more likely to take advantage of credit to leverage their assets. Just as important, investment management should be combined with goals-based financial planning.” 

Compared with the rest of the world, Asia-Pacific ex-Japan HNWIs are the most interested in growth-oriented investments (54.6%). India (67.6%), China (63.3%) and Indonesia (61.3%) have more growth-focused HNWIs than other markets around the globe. The growth approach is mainly adopted by younger HNWIs in the region, with 62.5% of those under 40 favouring it, versus 39.3% of those over 60. 

 

Equities still dominate

In asset allocation, equities have become the dominant asset class in Asia-Pacific ex-Japan HNWI portfolios for the first time in the four years since the Global HNW Insights Survey was featured in the report. Equities (23.3%) surpassed cash and its equivalents (20.6%). This compares with the 25.5% allocated to equities by HNWIs in the rest of the world. 

In addition, the region’s HNWIs are more likely to hold their equities in individual stocks, which account for 43.9% of their equity allocation. This is in contrast with the rest of the world, where mutual funds have a greater presence. Individual stock allocations among HNWIs in the rest of the world only account for 35.2% of their equity allocation. 

The report says HNWIs’ investment in equities is likely to depend on their investment philosophy. Investors with a growth approach are only 20.7% likely to allocate more towards equities, compared with 24.3% for those with a value approach and 26.6% for those with a blended approach. 

Asia-Pacific ex-Japan HNWIs are the most internationally focused investors in the world. The report says they place substantially more holdings outside their home markets to achieve greater diversification.

In the first quarter of this year, 67.8% of the region’s HNWIs held investments or accounts in markets outside their home country, compared with 52.7% in the rest of the world. Five of the top six globally minded markets are located in Asia-Pacific ex-Japan. Indonesia tops the list (87.3%), while China (74.6%) and India (73.5%) came in at No 3 and No 4 respectively.

The ability to provide credit is an important factor for wealth management firms operating in the region as it is a key component of their investment portfolios. More than a quarter (25.5%) of HNWI assets in Asia-Pacific ex-Japan are financed through credit, compared with only 18.2% in the rest of the world. The use of credit is particularly high in India (33.6%), Indonesia (31.1%) and Malaysia (30.8%). 

HNWIs in the region hold investment management expertise in high regard. It is the most valued wealth management service for 34% of HNWIs in the region, compared with 23.8% of HNWIs in the rest of the world. Financial planning is the second most valuable service a firm could provide, according to 21.1% of the respondents. 

The report says the need for comprehensive financial planning is expected to increase owing to the deep concerns among younger HNWIs about various wealth management-related issues, such as rising education costs. It adds that firms are required to strategically position their services towards delivering goals-based financial planning and wealth management services to meet the broad demands of HNWIs in Asia-Pacific ex-Japan.

“An asset consolidation strategy that blends overall holistic financial planning with a sophisticated approach to investment management can help wealth managers improve their odds of attracting more HNWI assets.”

The report notes that Asia-Pacific generated the most HNWI wealth of all the regions last year, after recording the highest HNWI population in 2014, thus confirming its status as the world’s most potent engine of HNWI wealth growth. Asia-Pacific HNWI wealth grew 9.9% to US$17.4 trillion last year — almost six times the growth in the rest of the world (1.7%). 

“With HNWI wealth growth on a tear in Asia-Pacific, the region’s wealth management firms appear poised to gather significant new assets. HNWIs there are expected to amass up to US$42.1 trillion over the next decade — five times the amount they held in 2006,” says the report. 

As HNWIs in the region have greater faith in their ability to generate wealth over the next 12 months (70.5% versus 67.6% for the rest of the world), wealth management firms can take advantage of their confidence by putting forth attractive investment propositions. 

Although the wealth management industry has been slow to adopt digital tools, the report says the industry can no longer afford to do so. It has found that 85.9% of the HNWIs in Asia-Pacific ex-Japan consider a firm’s digital maturity to be an important factor when deciding whether to allocate more or fewer assets to wealth managers over the next 24 months, compared with only 72.4% in the rest of the world. Additionally, the lack of digital tools has caused wealth managers to lose clients — 9.3% of wealth managers in the region say they have lost clients due to poor digital capabilities.

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