The achievements and sagas of ultra high net worth individuals may grab headlines but, as far as the wealth management sector is concerned, a cohort of the global population known as “new wealth builders” is arguably more important for industry growth.
A report by Citi and the Economist Intelligence Unit said that the financial assets of such individuals, defined as persons with assets of between $100,000 and $2 million, stand at a total of $88.352 trillion and are expected to expand at a compound annual growth rate of 7.3 per cent by 2020, reaching $145.14 trillion - a rate which is faster than the growth predicted of high net worth persons (people with $2 million or more), at 7.1 per cent. The wealth of HNW individuals in 2014 was $43.291 trillion.
There are now 267 million such NWB households, and 136 million more households will join these ranks by the turn of the decade, with big winners coming from emerging market regions.
Citi and the EIU examined the NWB market in 32 countries, looking at the current state of play and likely growth prospects for this population group.
Among the take-home points of the study are that new wealth builders are overwhelmingly self-made (97 per cent); some 83 per cent don’t regard themselves as wealthy and 79 of them acquired their wealth relatively recently – in the last 10 years. They are also charitable – some 97 per cent give to charity. And they are global in their outlook and behavior, with 51 per cent traveling abroad for business three or more times per year and 48 per cent going abroad for pleasure two or more times a year.
Latin America is the region with the expected fastest expansion rate in NWB households over the next five years, with a growth rate of 11 per cent between 2014 and 2020; Asia-Pacific is expected to chalk up growth of 10.1 per cent; Russia and Central Eastern Europe will see a 9 per cent rise, with Western Europe lagging far behind at 2.5 per cent and North America at just 2.0 per cent, the report said.
Seeking to explain the Latin America prediction, the report said that Mexico, for example, enjoys a “powerful advantage” with its shared border with the US; capital and jobs moving south of the border “bode well” for NWBs living in Mexico. That country is expected to see 17.7 per cent growth in NWB financial assets through 2020, the report said.
“As for the other regional powerhouse, Brazil – the fifth most populated country in the world – is expected to post a respectable 8.7 per cent CAGR in NWB households through 2020, accompanied by 10.1 per cent year-on-year growth in NWB financial assets. A diversified economy, stable politics (compared to neighbors), and favorable government policy welcomes foreign investment and propels the seventh largest global economy forward,” it said.
Asia – a mixed picture
The report said that Asia’s performance will be strong for the NWB category, although the data for the region as a whole is weighed down by the inclusion of Japan - a mature economy that already has a large number of NWBs. As far as India is concerned, the number of such households is expected to surge by 47.4 per cent through 2020, creating 4.9 million households each with average wealth of $178,000. Four other nations with high growth statistics are Indonesia (41.2 per cent), Vietnam (34.9 per cent), Thailand (23.6 per cent) and the Philippines (22.8 per cent).
Interestingly, Singapore, already home to a large number of wealthy persons, is expected to see an actual decline (-0.3 per cent) in the number of NWBs, with projected financial assets in 2020 standing at $643.3903 billion. Singapore is, however, starting from a high base. In 2014, the average wealth of an NWB household was $702,200 and in 2020, it will be $795,900, ahead, say, of the US, at $653,700 in 2014 (expected to be $720,900 in 2020).
Russia and Central Europe
The report said the percentage gain in the number of NWBs in this region should be sharp after being held back by the recent economic downturn that has occurred amid sanctions stemming from Russia’s conflict with Ukraine and an exodus of capital. Forecasts for Hungary and Poland are more positive, however, with expected compound annual growth rates in NWBs at 19.8 per cent and 19.1 per cent, respectively.
Western Europe and North America
Sluggish economic performance in much of Europe will hold back growth rates, while the already-large number of new wealth builders in North America means that, in percentage terms, growth is expected to be slow.
The survey was based on interviews (for views about topics such as philanthropy and source of wealth) among 1,552 individuals meeting the NWB criteria. The report's authors projected sizes of NWB segments in 32 countries by estimating the number of households within specific asset bands. They calculated total household financial assets in a country and then measured distribution of financial assets in each country. All forecasts relate to conditions as at February 2014 apart from in Russia, where, because of changes in market fundamentals, figures were revised in February this year.
Among other findings, NWBs are overwhelmingly self-directed investors, with 84 per cent taking direct control of their money - although slightly more than half seek professional guidance on technical and tax affairs. Such investors are equity-heavy, favoring domestic equities, followed by mutual funds and pooled funds, with sovereign debt at the bottom. More than half of those surveyed favor high growth as their main investment objective.