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Affluent and HNW Investing - UK - November 2014

INTRODUCTION
Report scope and definitions
Abbreviations
Key sources
EXECUTIVE SUMMARY
The market
Steady revenue growth
Figure 1: Total UK wealth management industry revenues – fan chart, 2009-19
Five-year forecast
Sub-sector performance
Portfolio composition
Market factors
Recent investment performance
Other important risk factors
Companies, brands and innovation
Product innovation
Leading players in the market
Continued growth in discretionary services
Figure 2: Investment assets held by wealth managers, by mandate type, 2009-13
The consumer
Identifying and profiling the wealth target audience
Approach taken to making investment decisions and managing portfolio
Figure 3: Segmenting the target wealth market, by approach to investment management and decision-making, July 2014
Level of contact with professional advisers and wealth managers
Figure 4: Frequency of contact for advice or to trade investments, by type of firm, July 2014
Client investment holdings
Figure 5: Investments and other assets held, by wealth tier, July 2014
Investor risk tolerance
Figure 6: Attitudes toward risk, by wealth tier, July 2014
Areas of client interest
Figure 7: Agreement with statements regarding investment interests, by wealth tier, July 2014
Attitudes toward product charges
Figure 8: Level of confidence in product charges being clear and transparent, fair and value for money, July 2014
Financial priorities over the coming 12 months
Expected investment activity over the coming year
Figure 9: Assets expect to buy, sell or maintain over the next 12 months, July 2014
What we think
ISSUES AND INSIGHTS
Wealthy investors need reassurance that product charges are ‘fair’ and ‘value for money’
The facts
The implications
Enter the new digital players
The facts
The implications
An ageing client base poses fresh challenges for wealth managers, but also presents an opportunity
The facts
The implications
TREND APPLICATION
Cool Vending
Brand Intervention
MARKET DRIVERS
Key points
Hold tight: it’s a bumpy ride
Figure 10: FTSE 100 and FTSE All-Share – daily index movements, January 2004-September 2014
Global market cap grew strongly in 2013, but can this be repeated in 2014?
Figure 11: Market capitalisation of global stock exchanges, by region, 2008-14
Legislative and regulatory developments
FCA investigated market abuse controls and agency responsibilities
Ban on new referral payments to discretionary fund managers
Platforms adjust to new charging rules in myriad ways
Pressure mounts over investment fund fee transparency
International initiatives
CRD IV brings added disclosure and reporting pressures
MiFID II aims to close ‘gaps’ in the existing regulatory framework and bolster investor confidence
MARKET SWOT ANALYSIS
Figure 12: Wealth management market – SWOT analysis, 2014
WHO’S INNOVATING?
Key points
Hargreaves Lansdown plans to launch a D2C discretionary service to help fill the ‘advice gap’
Others are set to follow suit
The rise of the ‘online’ wealth manager
Technology firm launches app for mass affluent investors
Digital innovation
MARKET SIZE AND FORECAST
Key points
Wealth manager revenues saw modest growth in 2013
Figure 13: Size of the UK wealth management sector, by number of client accounts, value of investment assets managed or administered and total revenues, 2009-13
Increased volatility in Q4 2014 could hit asset wealth
Looking ahead: steady growth forecast
Figure 14: Total UK wealth management industry revenues – fan chart, 2009-19
Figure 15: Forecast of total UK wealth management industry revenues, 2014-19
Forecast methodology
Fan chart explanation
SEGMENT PERFORMANCE
Key points
Full-service wealth managers put in the strongest performance in 2013
Figure 16: Number of wealth manager accounts and the value of assets managed, by type of firm, 2010-13
Private banks have seen their share of total industry turnover decline over the past four years
Figure 17: Wealth manager revenues, by type of firm, 2010-13
Investment management fee income is the dominant revenue stream
Figure 18: Proportional distribution of wealth manager revenue streams, by type of firm, 2012 and 2013
Firms managed to cut costs in 2013…
Figure 19: Operational costs as a proportion of revenue, by type of firm, 2010-13
…boosting profitability
Figure 20: Profit margin, by type of firm, 2010-13
PORTFOLIO COMPOSITION
Key points
Nearly a fifth of all client accounts are valued at over £250K
Figure 21: Number of wealth manager accounts/portfolios, by value band (nominee accounts only), 2013
Private banks have seen a 6% drop in client portfolios worth under £250K
Figure 22: Number of wealth manager accounts/portfolios, by firm type and value band (nominee accounts only), 2013
Asset allocations have hardly altered over the past five years
Figure 23: Proportional distribution of wealth manager assets, by type of asset class, 2009-13
Just over a fifth of investment assets are held in some form of tax wrapper
Figure 24: Proportional distribution of wealth manager assets, by ownership, 2013
MARKET SHARE
Key points
St James’s Place closes the gap on market leaders, Coutts and Barclays
Figure 25: Largest 15 wealth managers, by assets under management – UK, 2012 and 2013
COMPANIES AND PRODUCTS
Coutts
Description
Position in the market
Private client proposition and investment philosophy
Distribution
Key corporate data
Figure 26: Coutts key data – UK private client business only, 2009-13
Figure 27: RBS Group’s Wealth division – key annual data, 2011-13
Recent activity
Barclays
Description
Position in the market
Private client proposition and investment philosophy
Distribution
Key corporate data
Figure 28: Barclays key data – UK private client business only, 2009-13
Figure 29: Barclays’ Wealth and Investment Management division – key financial data, 2011-13
Recent activity
St James’s Place Wealth Management
Description
Position in the market
Private client proposition and investment philosophy
Distribution
Key corporate data
Figure 30: St James’s Place Wealth Management key data – UK private client business only, 2009-13
Figure 31: St James’s Place Wealth Management – key annual data, 2011-13
Recent activity
BRAND COMMUNICATION AND PROMOTION
Key points
Wealth managers spend a limited amount on above-the-line advertising
Figure 32: Top ten advertisers of wealth management products and services, 2010-14
Figure 33: Total advertising expenditure on wealth management and other related products and services, 2010-14
Press and outdoor remain the most used advertising channels
Figure 34: Proportional distribution of adspend on wealth management, by media type, 2010-14
CHANNELS TO MARKET
Key points
Discretionary sector is the largest, by number of client accounts…
Figure 35: Number of client accounts/portfolios, by mandate type, 2009-13
…and by assets under management
Figure 36: Investment assets held by wealth managers, by mandate type, 2009-13
Discretionary returns under pressure
Figure 37: Revenue return on discretionary and advisory assets, 2009-13
SEGMENTING THE TARGET WEALTH MARKET
Key points
Survey background
Classifying respondents according to their level of wealth
Figure 38: Segmentation of total sample, by value of investable assets (wealth tier), July 2014
A note about the data
Demographic profile and variations
MANAGEMENT APPROACH AND USAGE OF PROFESSIONAL CLIENT SERVICES
Key points
Less than half of the target wealth market employ the services of a professional adviser, at least some of the time
Figure 39: Segmenting the target wealth market, by approach to investment management and decision-making, July 2014
Evidence of a shift towards self-directed decision-making among the wealthiest tiers
Figure 40: Approach to investment management and decision-making, by wealth tier, July 2012 and July 2014
Contact with professional advisers tends to be on an irregular or ad hoc basis
Figure 41: Frequency of contact for advice or to trade, by type of firm, July 2014
More than half of the affluent and HNW have never used the services of a wealth manager
Figure 42: Frequency of contact for advice or to trade, by type of firm and wealth tier, July 2014
Using technology to bridge the advice gap
INVESTMENT HOLDINGS
Key points
Asset holdings increase with wealth
Figure 43: Pensions, investments and other assets held, by wealth tier, July 2014
More regular contact with advisers helps to build more complex and diversified portfolios
Figure 44: Pensions, investments and other assets held, by management approach, July 2014
ATTITUDES TOWARD RISK AND INVESTMENT INTERESTS
Key points
The affluent and HNW are less likely to be ‘cautious’
Figure 45: Attitudes toward risk, geographic exposure and investment interests, by wealth tier, July 2014
Management approach influences investment choice
Figure 46: Investment approach and areas of interest, by management approach, July 2014
ATTITUDES TOWARD PRODUCT CHARGES
Key points
FCA imposes the unbundling of charges
Less than half of respondents are confident of investment product charges being ‘fair’ and ‘value for money’
Figure 47: Level of confidence in product charges being clear and transparent, fair and value for money, July 2014
INVESTMENT PLANS AND PRIORITIES
Key points
Retirement saving is the number one priority
Figure 48: Saving and investment priorities over the next 12 months, by wealth tier, July 2014
Financial goals vary according to level of wealth
A large proportion of new client money will flow into cash- and equity-based investments
Figure 49: Assets expect to buy, sell or maintain over the next 12 months, July 2014
APPENDIX – MARKET SIZE AND FORECAST
Total market forecast – best- and worst-case scenarios
Figure 50: Forecast of UK wealth manager revenues – best- and worst-case scenarios, at current prices, 2014-19
Forecast methodology
Fan chart explanation

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