Ten-year perspective: The Wealth Report’s Attitudes Survey looks at the changing outlook of UHNWIs
To mark the The Wealth Report’s 10th edition, the latest results from our annual Attitudes Survey shed light on how the outlook of the world’s wealthy has changed over the past decade and takes a look forward to the next 10 years. This year’s survey, conducted in conjunction with ultra-wealth intelligence consultancy Wealth-X, is based on the views of around 400 of the world’s leading private bankers and wealth advisors who, between them, manage assets for about 45,000 ultra-high-net-worth individuals (UHNWIs) with a combined wealth of over half a trillion US dollars.
As ever, the Attitudes Survey covers a wide range of topics from investment decisions to succession planning. Some of the highlights are analysed over here, but you can find a comprehensive summary of the survey responses, broken down by world region, by downloading the full report.
The launch of The Wealth Report in 2007 was, ironically, quickly followed by the beginning of the global financial crisis. At first it seemed as if subsequent editions would be focusing on wealth diminution rather than creation, but that proved not to be the case. As our analysis of global wealth distribution in the Global Wealth Trends section shows, UHNWI numbers have burgeoned around the world, particularly in emerging markets.
Growth is slowing and the wealthy are under increased scrutiny, yet significant opportunities remain for those who truly understand how to identify, understand and serve this group
But our forecast for the next 10 years is more cautious, with the UHNWI growth rate predicted to slow considerably. This is echoed by the Attitudes Survey. When we asked the respondents if their clients’ wealth had increased at a faster rate over the past 10 years than it would do over the next 10, two thirds agreed. In Australasia, 84% of respondents predicted a slowdown – unsurprising perhaps as much of the wealth creation in the region has been powered by China’s economic growth, which is now slowing.
Globally, succession and inheritance issues, wealth taxes and the global economy were identified as the three main factors threatening wealth creation over both the past 10 years and the next decade.
“We find our clients to be more multijurisdictional than ever before, with families often ending up dispersed across the globe. Many of our clients are also very concerned about matters of succession and how their children will deal with the pressures of inherited wealth,” confirms Deon de Klerk, Head of Africa and International Wealth and Investment at Standard Bank.
At a regional level, personal security and safety was high on the agenda in Latin America, with 63% of respondents citing it as a concern that has grown over the past 10 years. Looking forward, personal and family health was the third most important issue for North American UHNWIs.
Increased scrutiny of UHNWIs and their affairs, by both the public and authorities, was acknowledged by the survey. Almost 70% of respondents said their clients had become more conscious about displaying their wealth in public.
A significant number also felt UHNWIs were being made scapegoats by governments for their own failure to address wealth-inequality issues.
"This year promises to be a very significant year for the ultra-wealthy and for those who advise them", says Marc Cohen, Regional Managing Director EMEA at Wealth-X. “Growth is slowing and the wealthy are under increased scrutiny, yet significant opportunities remain for those who truly understand how to identify, engage, understand and serve this group.:
Focusing on how UHNWIs manage their wealth, a number of interesting trends have developed over the past 10 years. Not only do 87% of those polled believe that their clients are taking a more active role in the management of their wealth, but 92% agree that the wealth industry has to work harder to earn the trust of its clientele.
Advisors may also need to refocus how they engage with clients. On average almost 80% of respondents said women were taking a more significant role in managing family wealth, while 64% said clients were involving their children in their businesses at an earlier age.
“Having served the parents does not provide us a birthright to serve their next generation. We have to earn it,” says Money K, who heads Citi Private Bank’s Next Generation programme.“They prefer online delivery for market intelligence and execution of transactions.”
As mentioned earlier, succession issues are the biggest worry for UHNWIs around the world with recent research suggesting that it is the second generation, rather than the oft-quoted third, that is most likely to squander the family fortune.
When asked why their clients were so concerned about handing their wealth to the next generation, 62% of respondents said they didn’t feel their children would be encouraged to make their own wealth, while almost half said they wouldn’t know how to handle the investments.
Encouraging them to get involved in the family business from a younger age appears to be an obvious solution. However, as many as two thirds are generally not inspired to join the family business, preferring to pursue entrepreneurial ambitions or other professional careers, says Mr K.
“There is a certain restlessness in them to make a difference in whatever they do.” Many of those who do join the family business say they are not satisfied with the status quo. “Because of globalisation and new technologies, they desire to expand, modernise or reinvent the business to be more relevant and sustainable for the future,” says Mr K.
Although protecting their wealth is a preoccupation for many UHNWIs, giving much of it away is also important. Facebook founder Mark Zuckerberg and his wife Priscilla Chan hit the headlines last year when they pledged to give away 99% of their shares– currently worth $45bn – in the social media giant.
On average, 67% of those who took part in the Attitudes Survey said their clients’ philanthropic activities had increased over the past 10 years, with almost 80% saying activity would increase further over the next 10.
A sense of personal fulfillment was cited as the main motivator, although in the Middle East religious beliefs were considered almost as important. However, the way the wealthy are giving is changing. The Zuckerbergs, for example, have created a more flexible limited liability company, not a traditional charitable foundation, to oversee their endeavours.
“This is indicative of a wider trend that we have seen across our client base,” says Tom Hall, Head of Philanthropy Services (UK) at UBS. “Not only is philanthropy increasing, so too is the desire to ensure that it is truly effective and actually solving the social and environmental problems of our time. Philanthropists are becoming increasingly sophisticated in how they structure their giving and investing, with social impact emerging as a key third dimension along with risk and return in every investment decision.”
How UHNWIs feel about property as a place to live and as something to invest in, is an important part of the Attitudes Survey. Residential real estate accounts for a quarter of the average UHNWI’s investable wealth, according to the survey, while commercial property investments make up 11%. Over the past 10 years, 54% of respondents said their clients had increased their allocation to residential property.
Just over 40% expected it to increase further over the next 10 years, with 30% of clients likely to consider a residential purchase in 2016. When asked what factors had been growing in importance as a reason for UHNWIs to buy residential property, the most popular (55% of respondents) was as an investment to sell in the future. Investment diversification (46%) and as a safe haven for funds (47%) also scored highly.
The safe-haven element was considered especially important by those respondents with clients in Russia and the CIS – 80% said it was becoming more important. “The majority of our high-net-worth clients across Africa seek international diversification, with an ever increasing appetite for real estate,” says Standard Bank’s Deon de Klerk.
“With the developing complexity of cross-border transactions, as well as a demand for real value and the most appropriate properties, the necessity to employ specialists in their respective fields to truly realise that safe-haven perception is vital.”
Interest in commercial property is also growing strongly, with 47% of wealth advisors predicting an increased portfolio allocation by their clients over the next 10 years.
Offices and hotels are predicted to remain the investments of choice, although investment in warehousing and logistics could overtake shopping centres and highstreet retail, according to the survey. Lack of experience was considered the main reason hindering more private investment into the sector. See the Commercial Property section for further information.