.
Matia Grossi
Senior Analyst Private Wealth Management
I am responsible for the development of a number of our proprietary databases covering the onshore and offshore savings and investments markets as well as the global wealth markets. Delving into this data I have authored various reports examining the current dynamics and outlook of the global wealth industry, both in terms of asset allocations, competitive environment and legislative developments. When I am not talking to clients, working on databases or authoring reports I take part at conferences and events focusing on the private wealth market. Ask me about‌ The future growth prospects of the global wealth market, the challenges facing the market, and what wealth managers and private bankers can do to overcome them.
If you have questions about the research, data and findings within this document you can put your questions directly to the analysts. Simply email your questions to askfs@datamonitor.com To find out more about Datamonitor Financial contact us at: email: enquiries@datamonitor.com phone: EU: +44 20 7551 9201 | US: +1 212 686 7400 | AP: +61 2 8705 6900 Or visit our website: www.datamonitorfinancial.com DISCLAIMER While every care is taken to ensure the accuracy of the information contained in this material, the facts, estimates, and opinions stated are based on information and sources which, while we believe them to be reliable, are not guaranteed. In particular, it should not be relied upon as the sole source of reference in relation to the subject matter. No liability can be accepted by Datamonitor LTD, its directors, or employees for any loss occasioned to any person or entity acting or failing to act as a result of anything contained in or omitted from the content of this material, or our conclusions as stated. The findings are Datamonitor’s current opinions; they are subject to change without notice. Datamonitor has no obligation to update or amend the research or to let anyone know if our opinions change materially.
2
The global wealth market has now fully recovered from the financial crisis, both in terms of prospects and investors’ confidence. Although emerging regions continue to drive much of the upturn, North America is also showing healthy growth levels. A global portfolio allocation readjustment away from deposits and bonds, reduced volatility, and more stable growth are all elements that will create opportunities for growth for wealth managers.
2013 will be the turning point for the global wealth market, which is set for years of solid growth.
The number of millionaires will reach 9.9 million by 2017, with over half a million millionaires created every year between 2014 and 2017.
Returning investor confidence and reduced stock market volatility will rebalance global asset allocation, which will see allocation in deposits and bonds decrease to the lowest value since the onset of the financial crisis.
Wealth is still mostly concentrated among the rich Western markets, but Asia Pacific is now the second largest market and the real battleground for wealth managers, who are abandoning some of the struggling European countries.
The top 10 markets changed in 2012 with the entry of Brazil and India and the demise of crisis-ridden Spain.
3
The global wealth market has finally fully recovered from the financial crisis, with major stock markets reaching levels not seen since 2007. The market seems to have finally left behind the volatility that characterized much of the past five years, and more stable growth is expected to set in from 2014. Much of this growth will be derived from rediscovered investor confidence, originated by stock markets' stunning performance since mid-2012 and the apparent stabilization of the eurozone crisis. This said, the growth will be two-speed, with much of the massive wealth creation of recent years expected to be limited to the emerging markets and North America. Unsurprisingly much of crisis-ridden Europe and the foreverstagnating Japan are expected to barely grow over the years to 2017.
4
The phenomenal run of the global stock market since the second half of 2012 is losing speed and investors are jittery when it comes to anything less than positive macroeconomic news. Any negative event is bound to start a largescale sell-off in the second half of 2013. From 2014 onward, however, more stable underlying economic growth will put the global wealth market on a growth path. One of the main remaining question marks is over Europe, where a dramatic turn of events (such as the collapse of the euro) could send the world economy back to a 2008-like crisis. However, given the gradual step-by-step approach European bureaucrats have adopted in recent years to try to solve the crisis, this is unlikely.
In 2012, the world’s 258 million affluent individuals (defined as those holding $50,000 or more in liquid assets) represented just 8.1% of the total adult population globally, but accounted for 81% of total global liquid assets. The number of affluent individuals has continued to increase over the past few years with over 60 million more individuals added to the affluent ranks between 2008 and 2012.
5
The economic recovery that will kick in from 2014 will also boost the number of millionaires globally by about 500,000 a year between 2014 and 2017. This follows much more volatile growth between 2009 and 2013; years of strong growth in the number of millionaires have traditionally been followed by much more lackluster ones. A large chunk of the growth in the coming years will come from the emerging markets, which on top of growth economies tend to have unequal wealth distribution that further concentrates wealth in the hands of fewer individuals. For those wealth managers targeting the emerging affluent in developing markets, this remains one of the main issues.
Source: Datamonitor's Global Wealth Markets Analytics
6
For wealth managers one of the major challenges in the post-financial crisis environment has been the high allocation in deposits and bonds, which limits growth (and fee income), coupled with a diminished trust in financial intermediaries. The strong stock market performance since mid-2012 is helping to reinvigorate investor confidence. Coupled with the lure of higher returns provided by equities, as opposed to low interest bearing deposits and low yielding bonds, this is pushing more investors into the stock market. As such, allocations in mutual funds and equities are expected to soon return to their pre-crisis levels.
Source: Datamonitor's Global Retail Savings and Investments Analytics
7
Western economies have large affluent populations built over decades of economic prosperity. However, since 2007 some of these countries have seen their wealth markets shrink, for the first time after decades of continuous growth. Prospects in large chunks of Europe remain, at best, bleak, notably in the PIIGS nations. Over-reliance on deposits and fixed income products in many of these markets makes matters worse in a near-zero interest rate environment. Wealth managers in these markets are either restructuring their operations or disposing of their activities, as demonstrated by Sarasin’s and Lloyds Banking Group's divestments of their Spanish private banking operations. Overall the emerging markets have much rosier growth prospects, with Asia Pacific (excluding Japan) in particular continuing to flourish. However, even among developing nations differences are emerging between their future prospects. Some, such as Brazil, India, and Mexico, are starting to slow down, pointing to a more bumpy future in some key markets.
8
North America seems to be the place to be right now; with both the largest affluent population, generally well-diversified allocations, and decent growth prospects in the medium term.
North America is still by far the largest regional wealth market in the world. The phenomenal growth of the emerging markets over the past 15 years has done little to change this. Furthermore, the North American wealth market is expected to show a growth rate only marginally lower than those of some of the emerging markets.
Source: Datamonitor Global Wealth Markets Analytics
9
China, India, and Brazil are behind most of the explosive growth seen in Asia Pacific (excluding Japan) and Latin America in recent years, and will continue to be for the foreseeable future. In terms of number of millionaires, Asia Pacific (excluding Japan) overtook Western Europe in 2012, while Latin America remains the fourth largest regional market.
925
1,450
2,090
14%
11%
109
149
223
9%
12%
749
753
818
0%
2%
153
234
338
13%
11%
88
122
164
10%
9%
2,878
3,727
4,626
7%
6%
1,270
1,420
1,668
3%
4%
Source: Datamonitor Global Wealth Markets Analytics
10
The Middle East experienced phenomenal growth in the years prior to the 2008 financial crisis, driven by high oil prices and speculative infrastructure spending. However, the crash following the financial crisis, the Arab Spring, and poor GDP performances in many Middle Eastern countries have damaged growth prospects in the region. Middle East and Africa will be the only emerging regions not to experience double digit growth over 2013–17.
Source: Datamonitor Global Wealth Markets Analytics
11
The pace at which the various markets in Europe will grow will vary significantly on a geographical basis. Much of Southern Europe is still in the full depth of the crisis, with collapsing GDP, rocketing unemployment, and shrinking wealth markets meaning 2013 and 2014 will still be painful years. The northern and core markets have fared much better with diminishing unemployment and some economic growth, albeit feeble. Central and Eastern Europe, on the other hand, is set for much rosier growth rates after a less than stellar performance in recent years, boosted by the stabilization of the situation in Western Europe.
12
In terms of millionaires' holdings the top six largest markets (the US, China, Japan, the UK, Italy, and Germany) will be unchanged in the years to 2017. In general, Anglo-Saxon markets, namely Australia, Canada, the UK, and the US, are expected to perform strongly compared to the other mature markets, mainly thanks to their more diversified investment mix and solid economies, which will offer higher returns. Other countries such as France and Spain are slowly shifting toward the bottom of the list. Spain in particular is the only market to have shown negative growth in the number of millionaires between 2008 and 2012. While Spain was in the 2008 top 10, it was overtaken by India and Brazil in 2012 and will be passed by Australia by 2017.
US
2,744
US
3,555
US
4,408
Japan
749
China
803
China
1,169
China
463
Japan
753
Japan
818
UK
257
UK
329
UK
417
Italy
236
Italy
244
Italy
276
Germany
200
Germany
221
Germany
257
France
156
France
174
Canada
218
Canada
134
Canada
172
Brazil
205
Spain
118
Brazil
144
France
200
Australia
93
India
127
India
192
Brazil
91
Spain
116
Australia
172
India
74
Australia
104
Spain
124
Source: Datamonitor Global Wealth Markets Analytics
13
Datamonitor’s coverage spans over 64 wealth markets around the world. At its core are a range of Datamonitor's proprietary databases, reports, and surveys, some of which have been built over a number of years through extensive data collection, analysis, and modeling. In more explicit terms this study leverages data from:
Global Savings and Investments Analytics – Datamonitor’s Global Savings and Investments Analytics delivers a powerful view across savings and investments markets globally, enabling cross-comparison at regional and country level for 64 countries and six regions. Historical and forecast balance data are presented for four product areas, namely bonds, deposits, equities, and mutual funds.
Global Wealth Markets Analytics – Datamonitor’s Global Wealth Markets Analytics delivers a powerful view across wealth markets globally, enabling cross-comparison at regional and country level for 64 countries and six regions. Historical and forecast data for both number of individuals and value of liquid assets are segmented by 11 liquid asset bands ($0–3m+) from 2006 through 2017.
14
Australia
Bulgaria
Austria
China
Croatia
Belgium
Hong Kong
Czech Republic
Denmark
India
Estonia
Finland
Indonesia
Hungary
France
Kazakhstan
Latvia
Germany
Japan
Lithuania
Greece
Malaysia
Poland
Ireland
New Zealand
Romania
Italy
Pakistan
Russian Federation
Netherlands
Philippines
Serbia
Norway
Singapore
Slovakia
Portugal
South Korea
Slovenia
Spain
Taiwan
Turkey
Sweden
Thailand
Ukraine
Switzerland UK
Argentina
Bahrain
Canada
Brazil
Israel
US
Chile
Kenya
Colombia
Kuwait
Mexico
Nigeria
Peru
Oman Qatar Saudi Arabia South Africa UAE
Throughout the report the following terms have been used:

Affluent – Individuals with more than $50,000 in onshore liquid assets; this includes millionaires as defined below.
15
High net worth (HNW)/millionaire – Individuals with more than $1m in onshore liquid assets.
Liquid assets – Liquid assets (also called liquid wealth) are defined as households’ direct holdings in cash and retail savings and investment classes, including bonds, cash, deposits, equities, and mutual funds.
Onshore – Onshore refers to the assets reported by the regulator of the country under study. It includes the assets held onshore by residents of the country. It excludes any assets held in that country by non-residents.
A brief overview of the methodology behind Datamonitor’s Global Wealth Model is presented below. If you wish to receive a more detailed version, please do not hesitate to contact us. The principal mechanism of Datamonitor's Global Wealth Model is to size the wealth market for each country on the basis of knowledge of two key components:
The distribution of liquid assets across the adult population, which is applied to:
The size of the total retail savings and investment markets for each country in any given year.
The Global Wealth Model is therefore essentially a set of sub-models, utilizing this same base methodology, but adjusted for regional variances in data availability and region-specific characteristics.
The UK represents a base country within Datamonitor’s wealth model, for which detailed wealth and income distribution data are available. Base data relating to the UK distribution of liquid assets are sourced from HMRC statistics that are derived from inheritance tax returns and probate data. This is modeled to provide one of the most reliable distributions of liquid assets for any country. This distribution is then applied to the known size of the UK retail savings and
16
investment market to establish the size of the UK HNW and mass affluent markets.
For many countries worldwide more limited data on the distribution of income and wealth are available. The regional sub-models therefore use the UK as a reference country. Specifically, the regional sub-models take the wealth distribution from the UK base model as a reference point and skew these data to establish a distribution of liquid assets for the modeled country. The UK reference wealth distribution is skewed according to a series of multipliers, such as comparisons of population, savings and investment holdings per capita, and Gini indices/income distributions. The connection between UK wealth distribution and the various multipliers is made by, once more, using the UK as a reference and then adjusting the relationship according to the specific country. In the Gini coefficient case, for example, Datamonitor uses the relationship between UK wealth distribution and the UK Gini coefficient as a reference and adjusts this relationship between the two indicators for each country. Once a distribution of liquid assets has been established for the modeled country, this is then applied to the known size of the retail savings and investment markets of that country to produce the wealth numbers.
Datamonitor’s Global Wealth Model relies upon the sizing of the onshore retail savings and investments market within each country studied. A database of such retail savings and investments data has been built up over a number of years on the basis of a substantial data collection exercise. Data covering retail savings and investments (excluding institutional and government holdings) are gathered from a wide range of sources including central banks, stock exchanges, investment associations, and national statistics offices around the world. These data are supported by primary research interviews and discussions to make and verify estimates where required.
17
Data are typically collected in local currency and converted to US dollars using the end of year exchange rate for the previous year, in this case 2012. This exchange rate is applied to all years to avoid introducing exchange rate fluctuations into the data.
A number of Datamonitor's clients have asked why the wealth numbers produced by different research houses and consultancies tend to vary from each other. While Datamonitor advises clients to seek out specific information on the methodologies behind other wealth models, it believes that these differences are primarily the result of two factors. The first of these factors is definitional differences. Datamonitor’s model covers traditional onshore liquid assets only as defined in the definitions section above. Some companies' wealth models will include offshore holdings or additional asset classes such as life and pensions assets or non-liquid assets such as property that can account for a significant proportion of an individual's total wealth. Datamonitor chooses not to include these asset classes as its data are focused on providing private wealth managers with information about liquid savings and investments readily available to wealth managers to invest. The second reason for variation in different companies' wealth numbers tends to relate to methodological differences. Some wealth models, for example, will rely exclusively on income distribution data in order to estimate the number of wealthy individuals in a given country. However, Datamonitor believes that income on the whole serves as a poor proxy for wealth and therefore bases its HNW and mass affluent numbers on a liquid asset distribution applied to a given country’s total known pool of liquid assets. Datamonitor believes this consistency makes for a more robust estimate of mass affluent and HNW populations.
18
This white paper is based upon analysis from our report:
Access this report through your Datamonitor Financial service www.datamonitor.com/kc/fs/ or order from our Research Store for instant access: http://www.datamonitor.com/store/
At Datamonitor Financial, we deliver intelligence-led insight and data on financial services markets, competitors, and consumers. Our robust forecasting methodologies, proprietary databases, and the experience and knowledge of our in-house analysts help clients to make better strategic decisions in the areas of Private Wealth Management, Cards & Payments, General Insurance, and Retail Banking. Our research on private wealth management will help you identify new market opportunities, track competitor activity, and develop tailored propositions for the HNW individual.
If you have questions about the research, data and findings within this document you can put your questions directly to the analysts. Simply email your questions to askfs@datamonitor.com To find out more about Datamonitor Financial contact us at: email: enquiries@datamonitor.com phone: EU: +44 20 7551 9201 | US: +1 212 686 7400 | AP: +61 2 8705 6900 Or visit our website: www.datamonitorfinancial.com
Datamonitor is owned and operated by Informa plc (“Informa�) whose registered office is Mortimer House, 37-41 Mortimer Street, London, W1T 3JH. Registered in England and Wales Number 3099067.