Trends: Asian HNWIs favour investment with social gains

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This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on July 4 - 10, 2016.

 

A third of global high-net-worth individuals (HNWIs) favour investment portfolios that are based on the concept of achieving social gain, with regions such as Asia-Pacific (excluding Japan) and Latin America leading the trend, according to the World Wealth Report 2016 published by Capgemini, one of the world’s foremost providers of consulting, technology and outsourcing services. 

“In Indonesia, China and Malaysia, HNWIs have invested more than 40% of their portfolios with social goals in mind. They achieve social impact by investing in individual funds or companies that promote specific goals, such as clean energy or sustainable trade, or by screening out investments that are not socially responsible,” says the report. 

HNWIs can turn to a host of new products that have sprung up to meet the growing demand for social and financial returns, the report points out. Examples include green bonds, which fund projects with environmental benefits; community bonds, issued by non-profit organisations; and social impact bonds, which pay a return only if measurable social goals are achieved. 

According to the report, released on June 23, Asia-Pacific surpassed North America for the first time in having the largest amount of HNWI wealth. The global HNWI population and wealth grew modestly last year, by 4.9% and 4% respectively.

“If past growth rates hold, Asia-Pacific is likely to continue being a dominant force over the next decade, representing two-fifths of the world’s HNWI wealth — more than that of Europe, Latin America, and the Middle East and Africa combined,” says the report.

It also says more HNWIs are starting to favour a pay-for-performance fee model, presenting a challenge to firms and wealth managers but also a lever for those able to profitably offer such models. 

“While still in the early stage, some firms are exploring new fee models in response to client and regulatory demands, though the nature of performance fees will likely expand to encompass performance across a wide range of financial objectives. Preference for the pay-for-performance model cuts across almost all the wealth segments, and was especially popular among ultra-HNWIs.”

Financial technologies (fintech) are making inroads in the entire wealth management lifecycle, says the report. Many have developed new and improved ways of performing standard wealth management functions, covering everything from compliance and advice to client acquisition. 

“New fintech offerings, including automated advice platforms, open investment communities and third-party capability plug-ins, are increasingly being embraced by HNWIs as alternatives to traditional face-to-face advice. In just 12 months, HNWI demand for automated advisory services has shot up from 48.6% to 66.9% globally, with demand even higher in Asia-Pacific (79.6%) and Latin America (77.2%).”

The report points out that wealth managers are woefully out of sync with the gathering strength of HNWI demand, with only 30.5% globally believing that their clients would consider having a portion of their wealth managed in an automated fashion.