Wealth in the UK: HNW Investors; Understanding HNW investors and wealth management strategies.
Summary
The UK wealth management industry has a long history, and this is reflected in the profile of the country’s high net worth (HNW) clients. The majority originate from the financial services industry and are sophisticated enough to deal with their financial affairs. However, to save time they opt for discretionary asset management services, as UK wealth managers maintain their reputation as trusted professionals. Investment portfolios are built around traditional asset classes such as equities and bonds, but alternatives are gaining importance. On the other hand, recent legal changes may cause a shift in demand for certain services, creating opportunities not only for existing competitors but for potential new entrants.
Key Findings
- Entrepreneurs account for 50% of the UK’s HNW population, but earned income and inheritance are also importance sources of wealth.
- The majority of HNW expats residing in the UK come from France, Germany, and the US. The expat population is likely to be affected by the government’s changes to taxation of the non-domiciled.
- Discretionary management is strongly preferred by UK HNW clients, who hire professional wealth managers in order to save time. Demand for execution-only platforms is very limited.
- Equities and bonds are major components of UK HNW investors’ well-diversified portfolios. No significant changes to asset management strategies are forecast, although wealth managers should prepare their clients’ portfolios for shifts in the Bank of England’s monetary policy.
Verdict Financial’s “Wealth in the UK: HNW Investors” report analyzes the investing preferences and portfolio allocation of UK HNW investors. The report is based on our proprietary Global Wealth Managers Survey.
Specifically the report:
- Profiles the average UK HNW investor in terms of the source of their wealth and age, as well as analyzing the expat opportunity in the UK.
- Analyzes which wealth management mandates are preferred among UK HNW investors and how demand will develop looking forward.
- Examines the allocation of UK HNW investors’ portfolios into different asset classes and how this allocation is expected to develop in the future.
- Analyzes product and service demand among UK HNW investors
- Develop and enhance your client targeting strategies using our data on HNW profiles and source of wealth.
- Give your marketing strategies the edge required and capture new clients using insights from our data on HNW investors’ drivers for seeking investment advice vs self-directing.
- Tailor your investment product portfolio to match the current and future demand for different asset classes among HNW individuals.
- Develop your service proposition to match the service and product demand expressed by UK HNW investors and react proactively to the forecasted change in demand.
- EXECUTIVE SUMMARY
- The UK's HNW clients believe in traditional wealth management
- Key findings
- Critical success factors
- PROFILING THE UK HNW INVESTOR
- The source of UK HNW wealth is dominated by entrepreneurs
- A diversified market still requires a focus on entrepreneurs and business owners
- Many HNW individuals have built their fortunes through financial services
- UK wealth managers should be targeting expats
- Expats account for 6.8% of the UK HNW population
- The vast majority of HNW expats originate from France, Germany, and the US
- HNW expats invest in the UK as they do not plan to return to their home countries
- Increased capital requirements for investor visas have impacted the flow of HNW individuals from outside the EEA
- The tax regime changes should be considered by wealth managers targeting expats
- HNW INVESTMENT STYLE PREFERENCES
- UK HNW individuals have professionals manage their wealth
- Lack of time triggers UK HNW investors to use wealth managers' services
- Over three quarters of UK HNW wealth is held in discretionary mandates
- Demand for advisory and execution-only services is limited
- The asset management competitive landscape is unlikely to change
- Demand for execution-only services will increase only slightly
- Self-directed HNW investors look for independence
- UNDERSTANDING ASSET ALLOCATION TRENDS AMONG UK HNW INVESTORS
- UK HNW investors see the point in long-term equity investments
- Equities dominate HNW portfolios and this is unlikely to change
- Equities account for 58% of the average HNW portfolio
- After equities, bonds are the second most important component of UK HNW portfolios
- Deposits are less important for HNW portfolios in the UK compared to Western Europe
- Property investment is underweight in UK HNW portfolios
- Commodities play a marginal role in UK HNW portfolios
- 8% of assets in HNW portfolios is invested in alternatives
- HNW PRODUCT AND SERVICE DEMAND
- Planning services provision is essential for UK wealth managers
- Changing regulations motivate UK HNW individuals to seek advice
- Demand for planning services will continue to grow
- The complex UK tax system boosts demand for tax advice
- Over 90% of UK wealth managers record strong demand for tax planning
- Changes in stamp duty land tax will increase demand for investment property advice
- APPENDIX
- Abbreviations and acronyms
- Definitions
- Affluent
- Mass affluent
- HNW
- Liquid assets
- Methodology
- Verdict Financial's 2015 Global Wealth Managers Survey
- Verdict Financial's 2014 Global Wealth Managers Survey
- Bibliography
- Further reading
- About Verdict Financial
- Disclaimer
- List of Tables
- Table 1: The UK's top industries by average annual income (£), 2015
- List of Figures
- Figure 1: First-generation entrepreneurs and family business owners account for half of the UK HNW population
- Figure 2: Financial services is the most significant driver of UK HNW wealth
- Figure 3: The vast majority of UK HNW expats have been in the country for over three years
- Figure 4: 75% of UK HNW expats come from France, Germany, and the US
- Figure 5: HNW expats living in the UK want to stay in control of their investments
- Figure 6: UK HNW investors do not have enough time to manage their money on their own
- Figure 7: 78% of HNW assets are managed in discretionary mandates
- Figure 8: Wealth managers experience weak demand for advisory and execution-only mandates
- Figure 9: UK wealth managers do not predict much change in demand for investment management services
- Figure 10: HNW investors self-direct to retain control over some of their portfolio
- Figure 11: UK HNW portfolios are dominated by equities
- Figure 12: Compared to Western Europe, UK investors allocate more assets to equity funds
- Figure 13: UK HNW investors think about diversification when investing in equities
- Figure 14: UK HNW investors prefer bond funds to direct debt securities holdings
- Figure 15: Risk-averse HNW investors opt for bonds
- Figure 16: UK HNW portfolios contain a smaller share of deposits than in Western Europe
- Figure 17: UK HNW investors will increase their allocations in deposits
- Figure 18: UK HNW clients are not fond of property investments
- Figure 19: Wealth managers do not expect demand for investment property to change
- Figure 20: Similarly to Western Europe, in the UK only 1% of portfolios is allocated to commodities
- Figure 21: Most UK wealth managers predict no change in demand for commodities
- Figure 22: 8% of HNW investments is allocated to alternatives
- Figure 23: Over the next year demand for alternatives will increase slightly
- Figure 24: Demand for inheritance advice is lower than for other planning services in the UK
- Figure 25: A significant increase in demand for all planning services is forecast
- Figure 26: Demand for tax planning is stronger in the UK than in Western Europe
- Figure 27: UK HNW individuals will show increasing demand for investment property advice
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