After a difficult few years, with regards to geopolitical affairs, wealth and the growth of wealth has started increasing again. Globally, the population of those with at least $1m in investable assets rose by 5.1% last year to 22.8 million, while their wealth rose 4.7% to $86.8trn
According to Capgemini and its World Wealth Report, wealth reached unprecedented levels in 2023.
North America recorded the stronger HNWI recovery worldwide in 2023 with year-on-year growth on 7.2% for wealth and 7.1% for population.
This was attributed to solid economic resilience, cooling inflationary pressures, and a formidable US equity market rally.
Other regions also performed well as APAC (4.2% and 4.8%) and Europe (3.9% and 4%) saw moderate wealth and HNWI population growth.
However, Latin America and the Middle East had quite limited HNWI growth, with wealth up 2.3% and 2.9%, and population up 2.7% and 2.1% respectively. Africa was the only region where HNWI wealth (-1%) and population (-0.1%) fell thanks to falling commodity prices and declining foreign investment.
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By GlobalDataSpeaking to PBI, Gareth Wilson, head of UK banking & capital markets at Capgemini, said: “North America has taken the lead in terms of relative growth, while growth in the UK was a little big more subdued. The US has really consolidated its position as the key market in terms of HNWIs by volume.”
Transferring and growing
The report also found that as HNWI growth thrives, asset allocations are beginning to move from wealth preservation to growth.
Early 2024 data recorded a normalisation of cash holdings to 25% of portfolio totals compared to 34% in January 2023.
In addition, two out of three HNWIs are planning to invest more in private equity during 2024 due to possible future growth opportunities.
“Clients are demanding more from their wealth managers and the stakes have never been higher. There are active steps firms can take to engage and retain clients for a personalised, omnichannel experience as the great wealth transfer unfolds and growth of HNWIs continues,” said Nilesh Vaidya, global industry head of retail banking and wealth management at Capgemini.
“While the traditional way of profiling clients is ubiquitous, the application of AI-powered behavioural finance tools, using psychographics, should be considered. They can offer a competitive advantage by understanding individuals’ decision-making to deliver a greater degree of client intimacy. The creation of channels for real-time communication will be crucial to manage biases that sudden, volatile market movements might trigger.”
Wilson added: “We have seen a little bit of a shift away from some of the more conservative shape portfolios. Again, when we looked at this 12 months ago, there was a significant level of investment capital held in cash, for example, and we’ve seen that reduced quite markedly.
“We have also seen probably a shift away from that more conservative investment profile into some more growth vehicles.”
Value-added services
Ultra-high-net-worth individuals (UHNWIs), the most concentrated among the wealth bands, hold over 34% of total HNWI wealth and make up just over 1% of the total HNWI population, according to the report.
It is estimated that, over the next two decades, aging generations will transfer over $80trn, driving appetite for financial and non-financial value-added services, representing a huge chance for wealth management firms to gain a foothold on this large amount of money.
The report revealed 78% of UHNWIs consider value-added services essential and over 77% count on their wealth management firm to support them with their inter-generational wealth transfer needs. As HNWIs seek thoughtful guidance, 65% say they are concerned about the lack of personalised advice tailored to their changing financial situation.
Wilson explained: “34% of the total wealth is held in 1% of the population. We have seen the ultra high net worth population grow quite significantly. We have also seen in the broader HNW population a greater awareness of investment biases, and a greater demand on the client front to ensure that their wealth management relationships, and the advice that they’re receiving, counteracts any potential biases that we have, from a historic or a personal point of view. There is real demand for things like behavioural finance analysis.”
