Advisers need to develop an array of wealth management tools in order to gather share from a pool of high-net-worth investors that is not growing as quickly as a year ago, according to the 10th annual World Wealth Report.
The report, released Tuesday by Merrill Lynch & Co. and Capgemini, said the number of high-net-worth people grew 6.5% last year, to 8.7 million worldwide, but that, for the first time in three years, the U.S. segment of this group grew at a lower rate, 6.8%, than in the year before, 9.9%.
Bertrand Lavayssiere, a managing director at Capgemini Global Financial Services, said 76% of high-net-worth investors say that relationship managers must adapt the services they offer in order to gather share. Wealthy people want simpler reports, pricing transparency, tailored products, and all aspects of their relationship under one umbrella, he said.
The report predicted that $41 trillion of wealth would be transferred in the United States by 2053; 61% of today’s high-net-worth people are older than 56, it said.
“Providers can get significant market share by preparing a strong wealth-transfer offering,” Mr. Lavayssiere said.
Robert McCann, a vice chairman and the president of Merrill Lynch’s global private-client group, said higher competition for wealthy people’s business makes it harder for small players to succeed.
“This is a tough business,” he said. “I don’t think there is enough room in this tough business for all the players that are in this today. I think scale, global reach, and perspective, as well as having the ability to both manufacture and develop relationships with third-party providers, [are] critical to succeeding in this market.”
He expects Merrill’s private-client group to use organic growth, acquisitions, and joint ventures to sustain growth globally, Mr. McCann said. Last year, the unit began a joint venture in Japan with Mitsubishi Tokyo Financial.
The wealth of high-net-worth investors grew 8.5% last year worldwide, but Mr. McCann said Merrill Lynch and Capgemini expect a slower growth pace the next five years. The World Wealth Report said millionaires’ net financial assets grew to $33.3 trillion last year, better than the 7.7% gain during 2004. The wealth of North American millionaires increased 9.7% last year, to $10.2 trillion.
Mr. McCann said this was the ninth time in the report’s 10 years that wealthy people’s assets have grown. But he said he expects this growth to slow as the economy, after three years of strong expansion and low interest rates, enters a less robust cycle influenced by factors like soaring oil prices.
“We project that high-net-worth assets will increase 6% [a year] through 2010,” he said, “and that is still healthy, but it is not the 8% we have seen over the last decade.”
High-net-worth investors in the United States are missing out on opportunities in overseas markets because they remain too focused on domestic investments, he said. Overall, high-net-worth people were slightly more aggressive in allocating their assets last year than in 2004, he said, as shown by bigger investments in equities and alternative products.
Their investments in alternative products leaned heavily toward private equity, he said, rather than hedge funds. Allocations to private equity last year by rich investors rose more than 300%, to $174 billion, from $40 billion in 2004.
Mr. McCann said the fourth quarter of 2005 was the first with hedge fund outflows in a decade. Hedge funds’ popularity waned because of lower returns, higher fees, and increased regulation, he said, but “it is a mistake to think there is no longer any interest in hedge funds” from high-net-worth people.
