There is a correlation amongst a firm’s and professional’s economic success, the firm’s regulatory survival, a holistic education with international exposure, and collaborative service models.  Servicing modern HNWIs who now demand international elements and risk management for their families and their business interests requires a dynamic ability to obtain economic and regulatory information, understand the clients’ and the markets’ issues and inefficiencies, and create solutions.

As noted in my previous blogticles, steady HNWI high growth continues within the OECD members, but rapid growth in HNWI numbers will continue in the BIC countries of Brazil, India and China, and probably again after the valuation adjustment in Russia/Eastern Europe.  The BIC countries, in particular Brazil because of its vast natural commodities base and recent discovery of what is probably the world’s largest offshore oil field, will continue to lead the world in both economic and HNWI growth.  Cap Gemini estimates that by 2011 Asia Pacific will overtake North America in HNWI growth, just as China overtook the UK last year in total number of HNWIs.  Thus, wealth managers seeking to attract these HNWIs, be in their home country, or in the USA, will evolve to provide services reflective of the needs of these BIC clients, as well as speak their local languages.

The HNWI is seeking the one-stop shop model.[1] The relationship manager must be able to source information and services leveraging a team approach, assimilate the pieces, and communicate it in a collaborative, transparent manner with the HNWI .[2] Wealth mangerss must be able to employ a holistic and collaborative team approach for a HNWI including (1) business, (2) tax, (3) estate, (4) legal, (5) accounting, (6) intra-family governance, (7) philanthropy (8) compliance and (9) lifestyle issues, and communicate operations and solutions to the HNWI and family members.[3] New breed HNWIs want communication by email weekly from theirwealth manager.  Sophisticated advisors will leverage secure, though inexpensive, video conferences to establish more efficient and effective face time.

By example of collaboration and communication skills, the trusted advisor may need to source compliance and due diligence skill sets from risk management, compliance, legal, and audit team members in order to analyze a multinational business that a HNWI is targeting, synthesize the different jurisdictional regulatory requirements, and communicate effectively the team’s findings to the client via a video conference.

Thus, education in these aforementioned skill sets, leading to a potential employee’s retooling, is a key to competing in today’s wealth management industry and job market.  Moreover, ‘soft skills’ such as client communication, and even more relevant in this economic downturn, the ability to counsel through economic and personal stress, will decide for HNWIs who is to become trusted advisors, and who are simply hawking services.[4] A polling by American Academy of Financial Management of its membership found that while communication soft-skills are recognized by wealth managers and by private clients themselves as critical to attracting HNWIs and in choosing their trusted advisors, less than 20% of wealth managers receive any formal soft skill communication education during their graduate education, which mainly focused business or finance (lawyers primarily responded that communication skills training had formed a part of their formal education).  MindFrame Persuasion www.mindframepersuasion.com/ is an example of advanced soft skill communication training to establish attraction and connection between trusted advisor and their prospective HNWIs.

In my next blogticle, I will address Winning Strategies of the Holistic Service Model.   Prof. William Byrnes (http://www.llmprogram.org)

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[1] The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients JP Morgan at 5.

[2] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 43.

[3] In an interview with Dr. George Mentz, Chairman of the American Academy of Financial Management (www.aafm.us), who is consulted by the Department of Labor’s Bureau of Statistics for Financial Services employment information (http://www.bls.gov/oco/ocos259.htm), he stated that the US wealth management market has seen a commoditization of financial product offering to private clients, thus requiring advisors to distinguish themselves upon other services.  Asset protection, estate planning, business issues, Dr. Mentz said, are areas that advisors are now focusing on to attract clients.  The Chronicle of Philanthropy reported that 2008 charitable giving did not substantially suffer, and in some cases increased amongst certain groups (112% amongst the 50 most generous US philanthropists).

[4] See The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients, JP Morgan at 11 and the section “Perspective” page 25.

In my 900-page economic report on the international financial services industry, I examined and calculated the economic size and impact of the sector on local jurisdictions, and in doing so reviewed the global industry as a whole.[1] But for the periods of global financial crisis, the sector had experienced double-digit annual global growth from the eighties and contributed robustly to local economies and society.  Since 1998, the international financial services sector client base has expanded nearly 10% on average during growth years.  Even with the dampening caused by the current global crisis, this industry is still projected for healthy growth in the high single digits over the next five years.

During the decade period until 2008, the international pool of high-net-worth individuals (HNWIs) potentially served by AAFM® Chartered Wealth Managers® had more than doubled, to just over 10 million, as had their assets, from $17.4 trillion to between $40 and $50 trillion.[2] By 2007, the average HNWI, excluding primary residences and collectibles, achieved an average of $4 million of worth![3]

The financial recession of 2008 through the first half of 2009 and the corresponding collapse of USA investment banking system temporarily decimated the available high net wealth pool, reducing it to just under nine million holding $33 trillion in assets.  Because of their substantial exposure to the USA economy and financial markets, the USA suffered the greatest impact, a loss of 18.5% of its HNWI pool and its overall investable wealth.[4]

Yet by the first quarter 2010 the high net wealth pool has rebounded to near 2007 levels as markets have regained nearly 85% of the lost ground of the past 24 months.  In 2009 some residential property markets experienced substantial price rebounds and increases, such as in China, India and Brazil with the top three in China.[5]

Over the next five years financial forecasters expect positive growth exceeding 8% annualized for the assets of high net wealth individuals.  In just three years, by 2013, the pool of HNWI clients’ assets will expand by 50% and exceed $50 trillion – accomplishing a decade’s record in one-third the time.[6]

70% of this new wealth is self-generated, either through entrepreneurship or via executive compensation, representing a “new” breed of HNWI versus the inherited wealth clients of the past.[7] These self-generated HNWIs bring new attitudes and requirements to their wealth managers.

This is the first of several update blogticles for the career services course of the International Tax & Financial Services Graduate Program.   Prof. William Byrnes

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[1] Report on the Economic, Socio-Economic, and Regulatory Impact of the Tax Savings Directive and EU Code of Conduct for Business Taxation upon Selected Offshore Financial Centers as well as a Competitiveness Report for Selected Offshore Financial Centers (Foreign Commonwealth Office 2004).[2] Cap Gemini Merrill Lynch World Wealth Report 2008 calculates $40.7 trillion.  However, see Oliver Wyman’s The Future of Private Banking: A Wealth of Opportunity? (2008) at 9 wherein using its own wealth model and reliance upon data from the OECD, IMF, WFE, UNECE, national banks and stock exchanges calculates $50 trillion.

[3] A High Net Wealth Individual has at least one million dollars investable assets, excluding the primary residence and collectables.

[4] Cap Gemini Merrill Lynch World Wealth Report 2009, p.2.  Note the U.S. is still responsible for nearly 29% of global HNWIs at $2.5 million.

[5] The KnightFrank (Citi Private Bank) Wealth Report 2010 at 7.

[6] Though the global re-calibrating of asset values may impact the nominal wealth value for HNWIs in the short term, historically, based upon both the recessions coined after the Asian Financial Crisis and the Tech-Bust, the wealth value will likely return to projected levels with a two-year lag.  While equity and real estate markets may have declined by January 2009 by as much as 50% of their highest value in OECD countries, HNWI portfolios are spread among other investments without such a sharp plunge.  A reliable decline in value estimate for HNW is 25% based upon the decline experienced in Switzerland, which accounts for 28% of the global asset management market.  See the report Wealth Management in Switzerland, Swiss Bankers Association (2009) at 8.

[7] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 21

Expanding employment opportunities

In 2008, Cap Gemini reported that wealth management firms will sharply increase hiring because of the impending retirement, from 2010-2020, of “baby-boomer” wealth managers. New employment opportunities will also be created by expanding opportunities within the wealth management market.   Over the coming decade, wealth management firms will have substantially more client opportunities because the pool of high-net-worth individuals (HNWI) globally, and their assets, continue to grow steadily, and because half of HNWIs do not have a wealth manager.

Half of HNWIs not receiving advice

According to Oliver Wyman, only 50% of HNWI assets are professionally managed. An unprecedented amount of retiring boomers who had not previously used a wealth manager now require one to transition their asset portfolios to income ones, plan succession, and balance potential medical care needs. Wealth management firms therefore have a pool of approximately five million (and expanding) new client opportunities.

Oliver Wyman reports that the new generation of HNWIs is predominantly (70%) self-generated wealth; through entrepreneurship or executive compensation. These HNWIs consider it normal business practice to seek outside expertise and are more likely to leverage wealth managers.

Senior staff salaries and jobs

The San Diego Business Journal reported in 2009 that wealth management salaries held steady in the midst of the crisis, ranging from USD150,000 to USD400,000.  Even more exciting, Cap Gemini reported that “bidding wars among firms for top advisors are not uncommon” and packages will include “bonuses equaling two or three times the payouts from just a few years ago”.  Reuters reports that brokerage firms offer sometimes triple an adviser’s fees and commission over the previous year, whereas private bankers receive one to two times their previous year’s salary and bonus to move.  (See Private banks battling for advisers to super-rich)  Reuters reports that “Wells, he said, is looking outside the private banking world in its bid to add 150 new recruits. Citi has looked to Goldman Sachs Private Wealth Management as well as Barclays Wealth, a Barclays unit built from a business acquired from Lehman Brothers.  Citi has said it aims to double its private banker ranks to about 260 within three years.”