Drawing on the industry’s largest HNWI experience survey, the 2015 World Wealth Report (WWR) by Capgemini and RBC Wealth Management offers detailed insights into High-Net-Worth Individuals (HNWIs) across the globe.
Who and where are they? How much wealth have they amassed? How do they allocate this wealth? What are their preferences, their most pressing concerns and needs with regard to wealth management?
Here, we present the critical highlights from the report which capture a candid picture of HNWIs today and the characteristics that will define them in the future.
“ Nearly one million people rose to the millionaire ranks in 2014 ”
More Millionaires Are Emerging, But At A Slower Pace
Nearly one million people rose to the millionaire ranks in 2014, however, this year’s study found that HNWI population and wealth grew more modestly in 2014 than in most of the past five years.
Global HNWI population and wealth expanded at moderate rates of 6.7% and 7.2% respectively in 2014, the second slowest rates of the last five years.
Specifically, the global HNWI population grew by 6.7% in 2014 to 14.6 million, while the group’s total wealth grew by 7.2% to $56.4 trillion. This compares to growth rates in 2013 of 14.7% and 13.8%, respectively.
Asia-Pacific and North America Lead The Pack
The overall increase in the global HNWI population was widely driven by robust growth in Asia-Pacific and North America.
In fact, the findings revealed that Asia-Pacific and North America were the only regions to outpace their five-year (2009 to 2014) annualized wealth growth rates (10.4% and 8.8%, respectively) in 2014.
North America was helped by strong equity market performance (10.3% vs. a global average of 2.9%), while Asia-Pacific benefited from superior economic performance. Asia-Pacific’s GDP growth, led by the region’s emerging economies, reached 5.8% vs. 2.5% globally (see Figure 6).
Taking a closer look, Asia-Pacific overtook North America to become the region with the largest HNWI population.
Asia-Pacific recorded the highest HNWI population increases in 2014 (8.5%) and, as predicted, edged past North America to become the region with the most HNWIs (4.69 million, compared to North America’s 4.68 million).
While the two have traded places before, Asia-Pacific is expected to retain and extend its leadership position.
However, on the wealth front, North America continued to have the greatest amount of HNWI wealth (US$16.2 trillion, compared to Asia-Pacific’s US$15.8 trillion), but Asia-Pacific registered the greatest gain (11.4%, compared to North America’s 9.1%).
Having already overtaken North America in terms of HNWI population though, Asia-Pacific is also forecast to surpass North America in HNWI wealth in 2015.
Regions Below Par
The solid performance of Asia-Pacific and North America contrasted with below-par performance in Latin America and Europe.
Latin America was the key reason for the slower pace of global HNWI growth. It was the only region to experience declines in HNWI population (-2.1%) and wealth (-0.5%), largely due to a crash in commodity prices and the resulting 14.8% decline in the Latin American MSCI Index, according to the report.
Brazil, which accounts for more than 50% of Latin America’s HNWI wealth, was a particular drag. A fall in commodity prices, the slow pace of reforms by the re-elected government, and a corruption scandal at the country’s state-owned energy firm brought equity markets down by 17.4%, contributing to declines of 6.4% in HNWI population and 1.4% in HNWI wealth.
Europe maintained a relatively slow and steady growth rate (approximately 4%) for both HNWI population and wealth as its economy continued to sputter. While the economy in Western Europe grew by 1.3% in 2014 (compared to 0.3% in 2013), aided by improved performance toward the end of 2014, the equity markets in most of these countries declined (see Figure 6).
This led to HNWI population and wealth increases that were below the global average and less than the annualized rate of the last five years (2009 to 2014).
Slow growth in Brazil and Latin America also constrained the annualized five-year expansion rate from 2009 to 2014 for ultra-HNWIs globally.
“ Global HNWI wealth is forecast to top US$70 trillion by 2017 ”
Regions To Watch
Global HNWI wealth is forecast to top US$70 trillion by 2017, growing by 7.7% annually from the end of 2014 through 2017.
However, India emerged as a key driver of Asia-Pacific’s growth in 2014. Following increases of only 2.0% in HNWI population and 4.0% in HNWI wealth in 2013, India recorded the highest growth rates across the globe for HNWI population (26.3%) and wealth (28.2%) in 2014.
A decisive mandate in the mid-2014 elections proved critical in creating a more business-friendly environment in India. That, combined with sound monetary policies, ushered in a wave of positive investor sentiment.
China was another engine of growth in Asia-Pacific, adding to HNWI population at a rate of 17.5% and HNWI wealth by 19.3%. Even though China’s 7.4% GDP growth was lower than previous years, it remained relatively high compared to other major economies (see Figure 6).
Additionally, Chinese equity markets performed better than in 2013, and the country benefited from an increase in overall exports in 2014.
In terms of HNWI population growth specifically, as in previous years, most of the growth in the global HNWI population occurred in just a handful of markets. The U.S., Japan, Germany, and China accounted for more than two-thirds (67%) of HNWI population growth in 2014 (see Figure 4).
Together, China and the U.S. drove more than half the global HNWI population growth.
Again, India experienced strong HNWI population growth in 2014. It’s expansion of 26.3% helped it move up the market rankings by five places (to 11th globally).
Additionally, Hong Kong, which witnessed strong growth of 11% in HNWI population, was helped by moderate increases in GDP, equity markets, and real estate.
The Middle East and Africa, meanwhile, recorded higher growth rates than Europe, although their overall levels of HNWI population and wealth remained much lower.
Overall though, the top 10 HNWI population markets remained unchanged in 2014 compared to 2013.
Hot Spots For Ultra-HNWIs
Ultra-High-Net-Worth Individuals (Ultra-HNWIs) – those with more than US$30 million of investable assets – once again acted as a primary driver of growth for the overall HNWI population and wealth.
The ultra-HNWI segment, who make up only 1.0% of all HNWIs, but account for 34.7% of HNWI wealth, were again significant drivers of global HNWI population and wealth growth.
The UHNWI sector was the only one in 2014 to outperform its five-year annualized rates for population and wealth growth (see Figure 3).
UHNWIs grew their population by 8.6% in 2014, surpassing the 7.7% rate for mid-tier millionaires (those with US$5 million to US$30 million of investable assets) and the 6.6% rate for millionaires next door (those with between US$1 million and US$5 million).
Asia-Pacific grew ultra-HNWI wealth and population the most, while slow expansion for Latin American ultra-HNWIs continued to constrain overall wealth growth for both HNWIs and ultra-HNWIs globally.
Specifically, with an increase of 16.5%, Asia-Pacific experienced the greatest expansion in ultra-HNWI wealth, followed by North America with 10.7%. Significant growth in ultra-HNWI wealth in India (31.1%) and China (21.6%) contributed greatly to Asia-Pacific’s strong ultra-HNWI performance.
Together, India and China accounted for about two-thirds of Asia-Pacific’s ultra-HNWI growth in 2014, and more than half the segment’s overall wealth.
However, in step with similar results for HNWIs, for the second year in a row, Latin America constrained global ultra-HNWI wealth growth. Ultra-HNWI wealth declined by 0.1%, spurred by a 0.6% decline in ultra-HNWI wealth in Brazil, which accounts for 57% of all Latin American ultra-HNWI wealth.
Excluding Brazil, global ultra-HNWI growth in investable assets would have reached 9.3%, surpassing the 7.8% for mid-tier millionaires and the 6.7% for millionaires next door.
Slow expansion in Brazil and Latin America overall, however, caused global ultra-HNWIs to achieve a more modest increase in investable assets of 7.4%.
Social Impact Is Top Of Mind
It’s interesting to note that, in providing valuable insight for wealth management firms across the globe, the report has identified that it will be important to recognize that HNWIs are increasingly focused on giving back to society, as well as generating a financial return on investment.
Given the growing importance of social impact initiatives, Capgemini and RBC Wealth Management suggest that wealth management firms must seek to truly embed social impact discussions and advice into an overall goals-based planning approach.
Social investing is an investment whose financial return is aligned to a measurable social or environmental benchmark.
More specifically, driving social impact refers to making a positive impact on society by way of thoughtful investments of time, money, or expertise.
The concept holds high appeal for HNWIs. According to the 2014 World Wealth Report, 92% of HNWIs ascribe some level of importance to driving social impact, with younger HNWIs expressing the greatest interest in driving social impact, according to the study findings.
Driving social impact, thus, has the potential to become a larger part of HNWI wealth strategies.
While not wholly connected, this trend largely confirms the overall trend in consumer behaviour – and particularly the new millennials – to make decisions across the board, including purchasing decisions, on personal and family values.
As we’ve seen via other reports – including the recently covered BrandZ Top 100 study and the 2015 Global Powers of Luxury Goods report by Deloitte – consumers across the globe are now more conscious of, and inclined to look at, factors such as social impact, in this case for wealth management choices, as well as sustainability and environmental factors, and corporate social responsibility.
Thus, all these concerns in the majority of sectors, will weigh in on consumer decisions at every level and must become a key consideration for any business which wants to succeed in the evolving future.
“ Consumers across the globe are now more conscious of factors such as social impact ”
Fueled by expectations of an accelerating recovery in Europe and a generally improved global economy, HNWI wealth around the world is expected to grow at an average annual rate of 7.7% from the end of 2014 to 2017 (see Figure 5).
As previously mentioned, this translates to HNWI wealth forecast to top US$70 trillion by 2017.
With an annualized growth rate of 10.3%, Asia-Pacific HNWIs are expected to be a major driver of global HNWI wealth through 2017. With North American HNWIs likely to expand their wealth by a more modest 7.0%, Asia-Pacific is expected to surpass North America in 2015, and the gap between the HNWI wealth for these regions is on track to widen by 2017.
In a shift from recent years, Europe is expected to act as a more prominent engine of HNWI expansion. It is anticipated that HNWI wealth will grow at a rate of 8.4% annually, substantially higher than the 7.0% rate for North America and the 6.4% annualized rate for Europe from 2009 to 2014. The heightened growth reflects improved optimism for a more substantial recovery throughout the region.
In Latin America, expected HNWI wealth growth of 3.1% annually will continue to constrain overall global growth. Weak commodity prices and depressed equity markets throughout the region, as well as the faltering Brazilian economy, should contribute to the malaise in Latin America.
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