Banking for 7 billion and 7 million

GLOBAL INVESTOR 3.06 Lead — 17
market countries is keeping up with the growth in developed countries.
Both trends suggest a clear globalization of portfolios that
used to be invested more locally. Furthermore, the new clients are
expected to be more active in the financial decision-making process
(see table 2) – a clear challenge for today’s financial advisor.
Knowing the client and serving them according to their needs will
be the factor for success during this transitional and growth period
in wealth management, and not the pure segmentation according
to the size of their financial assets. A study done by Phoenix marketing
international 4 for the US market shows that high net worth individuals
increase the number of banking relationships until the age
of 50 as they need broad banking services for their daily life and
family matters, such as student loans or leasing. After the age of
50, the number of relationships with banks usually starts to shrink.
Clients shift assets mainly to their primary provider of financial services.
The future strategy for banks is clear: be among the primary
service providers, or very simply, “big is beautiful,” as the largest
players are expected to grow above the market growth rate. Due to
the fragmentation of the wealth management market, we expect the
biggest companies with a well-known global brand and a decent
track record to grow above market average, and anticipate acceleration
in M&A activities among the smaller players in the sector.
Currently, 15% of households in the US with more than USD
1 million in investable assets are headed by a woman as the primary
financial decision maker . 5 Women as a group of clients will increase
in importance going forward as the number of wealthy widows will
rise due to demographic developments and the rising number of
wealthy working women. Overall, they favor a full service firm and
are less risk tolerant, i.e. they have more diversified portfolios
which are more focused on wealth protection. Banks that want to
be successful with this growing segment must consider these factors
and address them accordingly.
Table 2 Source: Capgemini/ML RM survey, March 2006
Generational wealth transfer
Generational wealth transfer is being driven by the aging of the more
developed and wealthier part of the world. Studies in the USA estimate
a wealth transfer of USD 41 trillion by 2053.
Financial advisors believe that the inheritors are more … Disagree Agree
… focused on international investments 17% 83%
… risk-tolerant 32% 68%
… engaged in financial decisions 25% 75%
… focused on wealth accumulation 32% 69%
Varied and rising demand for talent — Rising client sophistication
and greater demand for workers in fast-growing regions such
as Asia, Latin America and the Middle East might lead to a shortage
of skilled senior banking staff and is likely to drive remuneration
levels up. Initiatives to train and educate young front staff already
started a couple of quarters ago. Furthermore, financial institutions
are shifting senior bankers from the institutional side to wealth
management to meet clients’ needs.
The solution: Embedded asset management model — Banks
that aim to gain the customer of the future will offer a global reach,
a wide range of products, sound advice, a strong brand name and
reputation based on proper risk management as well as excellent
distribution and execution capabilities. A clear commitment to the
business – wealth management in its broad definition including
manufacturing, i.e. asset management – and knowing the client is
key for gaining both customer trust and ensuring long-term success
and growth in this relationship business.
1
We chose catchy numbers for this headline. Strictly speaking, there are 8.6 million people
with financial assets over USD 1 m, according to the Capgemini /Merrill Lynch Wealth
Report. Seven million might better refer to investors with over USD 1.5 m. And global
population is currently just over six and a half billion, and expected to reach seven billion
in the near future.
2
United Nations
3
The Journal of Gift Planning. Vol. 7, No. 1, 1st Quarter 2003
4
Phoenix Marketing International, published at the UBS investor day 2006
5
Source: Phoenix Marketing International