HNWIs offer wealth managers trust, not assets
Asia Pacific’s high-net-worth individuals (HNWI) are wealthier than ever, but keep more of their money in cash or bank accounts than with wealth managers, according to Capgemini's Asia Pacific Wealth Report 2016, published yesterday.
The regional report surveyed 1,700 HNWIs in eight markets in the region. It follows the company's global report, published in June, which had highlighted that Asia-Pacific region now leads the world with the largest amount of HNWI wealth as reported.
The trust of Asia Pacific ex-Japan HNWIs in wealth management firms was a positive for the service providers. It grew from 63.7% in the first quarter of 2015 to 76.2% over the same period of 2016. Likewise, trust in financial markets improved during the same period — from 47.8% to 68.8%, according the latest report.
But wealth managers do not appear to be greatly benefiting from this upswing in trust. The survey showed Asia ex Japan HNWIs were more likely to keep their wealth in cash or in a retail bank account (32.6%) than hold it with a wealth manager (30%). Japan's wealthy felt similarly; only 23.7% of HNWIs said they hold assets with a wealth manager, with most holding it in a bank (27%) or as physical cash (17.8%).
There are a few reasons that wealth managers aren't gaining more assets. Most importantly, a higher proportion of HNWIs' wealth creation in Asia Pacific is tied to business ownership than in the rest of the world, and they typically allocate more to real estate. Both of these are illiquid and not something that would be managed by wealth managers, according to David Wilson, head of strategic analysis group at Capgemini Financial Services in London.
"Not every firm has been able to build a compelling proposition for HNWIs in the region, who are ever-more demanding," he told AsianInvestor via email.
"We found that 'proposition development' is one of the biggest gaps between where firms are currently investing versus where they want to be investing, due to the challenges in allocating investments across modernisation, keeping up with business as usual, and evolving the business model and culture (as told to us by leading wealth firms in the region who we interviewed)," he said.
Wilson stressed that HNWIs are considering giving wealth managers more wealth. For instance, 59.4% of Asia-Pacific ex. Japan wealthy said they were open to placing more of their assets with a wealth manager, and this rose to almost 70% for emerging markets like China, India, and Indonesia.
Tech constraint
Wilson added that wealth managers had not done themselves any favours with a largely ambivalent attitude towards embracing technology as part of their services.
"The industry has moderate to low digital maturity, and [this] will not be enough to 'wow' wealth clients whose expectations of their banks are being shaped by innovative FinTech firms and other start-ups not encumbered by legacy technology,” he noted.
Firms might do well to take digital solutions investing more seriously, as 85.9% of Asia-Pacific (ex. Japan) HNWIs say digital maturity is an important factor in whether they increase the wealth they place with wealth managers in the coming 24 months, he added.
Making an impact
The survey also found that wealthy individuals in Asia Pacific are looking to place more money into social impact investing. All-told, 37.3% of the portfolios of HNWIs across the region aside from Japan were allocated to social improvement, versus 31.6% for those globally last year. Investments in public (22%) and private (19%) companies that address environmental and social challenges were the biggest tools used by regional HNWIs.
When asked for comments on the survey's findings on impact investing, Bernard Fung, Credit Suisse’s head of family office services and philanthropy advisory Asia Pacific, noted that his bank did a survey last year that charted a shift from philanthropy towards social impact investing. The former involves investments being made for social or environmental needs with no expectation of return, while with the latter some level of return is expected from investments into socially or environmentally beneficial enterprises.
The Credit Suisse survey found impact investing looked set to rise from 33% of overall social and environmental investing to 44% over the next three years. He noted that if the momentum towards impacting investing continues, impact investing will overtake philanthropy as the favoured means of doing good for the super wealthy in the region.
Bertrand Gacon, head of impact investing at Lombard Odier, said HNWIs should consider three elements when looking for social impact investments.
"Firstly, the reality of the impact, which implies some form of impact measurement and reporting. Secondly, they need to deem whether their investment brings an additional impact. For example, buying shares from an existing shareholder in a social business does not bring much value as it does not give any additional resources to the company. Finally, is there any replicability or scalability to what they are providing capital for?”
He noted that wealth managers can help HNWIs by developing high impact investment products that are easy to invest in, transparent and innovative, as well as educating them about key concepts and organising meetings with social entrepreneurs.