While the international millionaire population’s wealth rose past pre-crisis levels in 2010, wealth managers need to prepare as that demographic gradually shifts to younger clients, according to a new report released on Wednesday.
The annual 2011 World Wealth Report, released by Capgemini and Merrill Lynch Global Wealth Management, showed moderate growth in 2010 for high net worth individuals, or investors with $1 million or more in investable assets.
In 2010, the high net worth individual population saw its financial wealth rise to $42.7 trillion, surpassing the pre-crisis high of $40.7 trillion in 2007. The high net worth individual population’s wealth grew by 9.7% in 2010, versus 18.9% in 2009. At the same time, the high net worth individual population grew to 10.9 million in 2010 with 8.3% growth, also down from the 17.1% growth seen in 2009.
Though 2010’s growth was modest, its steadiness made for a “refreshing” change from the market turbulence of the last several years, John Thiel, Bank of America’s head of U.S. wealth management and head of the private banking and investment group said Wednesday. “It’s more the same as usual, and we haven’t had that in a long time,” Thiel said.
North America still tops the list for the highest number of high net worth individuals, with 3.4 million. Asia-Pacific, which had 3.3 million, surpassed Europe, 3.1 million, for the first time. That marked continued growth for the Asia-Pacific region, which surpassed Europe in 2009 for the largest concentration of high net worth individual wealth.
North America also came in first for high net worth individual wealth in 2010, which rose 9.1% to $11.6 trillion. Asia-Pacific came in second with $10.8 trillion, a 12.1% increase from the year before. Europe’s high net worth individual wealth rose by 7.2% to $10.2 trillion.
One key way wealth management firms can work to improve their practices is to brace for the increasing share younger high net worth individuals, ages 45 and under, that will make up more of the millionaire population in years to come, the survey said.
Individuals age 45 and under comprised 17% of the high net worth individual population in 2010, up from 13% in 2008. Asia-Pacific, which has seen its population of entrepreneurs surge, had 41% of its millionaire population represented by those ages 45 and under. North America, by contrast, had just 10% of high net worth individuals in that category, while 68% of its high net worth population was over 55-years-old.
The demographic shift toward younger generations claiming wealth has been slow, changing only about one to two percentage points in recent years, but is expected to undergo a larger shift over time. But because financial advisors lose about 49% of assets under management through generational wealth transfers, they should be prepared with plans to both retain and attract younger clients, the survey said.
That includes emphasizing real-time communications with technology, as well as transparency and efficiency to curb any mistrust they may have following the financial crisis. For Merrill Lynch, part of the plans to address that population also includes bringing younger financial advisors into its ranks, particularly through its training and development program, Thiel said.
The industry should also expect equity allocations to increase even more in 2012, the survey said.
In 2010, the high net worth individual population has also moved increasingly toward equities from the cash, deposits and fixed-income instruments favored in recent years. At the end of 2010, 33% of high net worth individuals had all of their investments in equities compared to 29% in 2009. In North America, 42% of those investors had invested in all equities versus 36% in 2009.