Wealth market continues to grow

(February 9, 2005) Advisors have heard time and again that to prosper they need to segment their client base, winnow out the chaff and focus on the high end of their market. The good news for those pursuing high-net-worth (HNW) clientele is that the market continues to grow, both in Canada and internationally, according to Capgemini’s World Wealth Report.

Globally, the number of individuals with investable assets of at least US$1 million grew 7.5% to 7.7 million in 2003, the year in which the data for the latest report was collected. Their wealth also grew, at an even higher pace, up 7.7% to US$28.8 trillion.

Not surprisingly, assets grew fastest in economic hotspots such as the U.S., China, India and Spain. The wealthy were quick to rejoin the equity markets and reaped the benefits of substantial stock market gains.

The Canadian wealth-management market is worth about $1.8 trillion, with the vast majority of these funds held by three broad categories of investors: the mass affluent, with between $100,000 and $1 million in investable assets; the HNW client, with between $1 million and $20 million; and the ultra-HNW segment, with more than $20 million in assets.

In Canada, there are now about 7,000 UHNW investors and 450,000 “regular” HNW clients, while the mass-affluent numbers just under 2 million.

“The relation between assets and income is not as strong as one might suspect,” says Paul Battista, vice-president of financial services, Capgemini. “Specifically, 75% of the mass-affluent segment report income of less than $50,000 per annum. A full third of the high-net-worth class also report less than $50,000 in income.”

This can likely be partially attributed to people who have retired and are living comfortably on income under $50,000 derived from a much larger nest egg. In fact, 70% of Canada’s wealth assets, or about $1.3 trillion, are held by people over 50, and 32% of the HNW segment are over 70.

While the number of HNW clients has grown, so too has their appetite for superior service. In the past, HNW Canadians have been reluctant to see themselves as wealthy, but they are now realizing their value to advisors.

“Their attitude toward wealth is changing very, very quickly,” says Globe and Mail columnist Andrew Willis, a guest speaker at a panel discussion on wealth services hosted by Capgemini in Toronto. “They’re finally waking up to the fact that they’re really rich people and that they should expect more in terms of services. The people that get that service offering right are going to do extremely well.”

In response, advisors have offered enhanced reporting and expanded product shelves, so much so that these are no longer differentiating factors for their practice. These enhancements have found there way into the lower portion of the advisory market, and the HNW client now wants more.

Wealthy clients in Canada continue to focus on preservation of capital and risk management. At least that’s what they say. In the hunt for yield, many HNW investors may have taken on more risk than they realize by investing in hedge funds or high-yield bonds, according to Warren Jestin, chief economist at Scotia Economics.

“There’s a potential for, if not blow-up, then at least a big surprise in that area as the industrial world economy slows down and financial stress arises,” he said at the Capgemini panel discussion.

He warns that investors need to remain diversified across asset classes as well as across currencies. The mistake of buying high and selling low can already be seen playing out based on currency fluctuations, as investors fled U.S. investments after the dollar plunged last year. For the same reason, he warns against over-investing in euro-zone companies, since the currency has already appreciated dramatically.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com