Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Wealth Management Trends: Are You Positioned For the Frame Shift of the Next Decade?

Posted by William Byrnes on July 16, 2009


This first short ice-breaker presentation of a multiple part series will serve as a resourceful backdrop upon which to embark upon our exploration of the coming “frame shift”, for those of you familiar with neuro linguistics, regarding what attributes are necessary for a wealth manager to successfully compete and attract high net wealth individuals and families  (“HNWIs”) in this coming decade – just six months away.   The inevitable conclusion of the intensive research including a survey from 1998 to June 2009 of all industry based reports, both independent, examples including IBIS and S&P, and internal, examples being Merrill Lynch Cap Gemini and JP Morgan, is that this decade has seen a global HNWI requirement shift from what is coined the USA (a.k.a. broker-dealer, transaction-based) model to the European (a.k.a. advisory service, fee-based) model.  Basically, HNWIs want a holistic wealth management services approach and are willing to pay for it.   If you are tooled for collaborative advisory delivery required by example for family office counsel, you will make more money.  If not, well, employment is a Darwinian marketplace.

In the past decade, the number of global high-net-worth individuals (HNWIs) served by practitioners, such as my able graduates, has doubled to more than 10 million by 2008 (though the global financial crisis has caused a decline to less than 9 million) —and their assets have more than doubled from $17 trillion to at least $40 trillion (just under $33 trillion currently as the crisis matures).  The average HNWI, excluding primary residences and collectibles, is now worth more than $4 million! In the next four years, the pool of HNWI client assets is projected to grow to nearly $50 trillion.  (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.)

The new-breed of HNWI are the majority of the nearly double-digit HNWI increasing fold who are no longer being knighted via wealth transfers but instead are earning this status upon developing their own fortune via business and investment acumen.  The systemic iceberg that in the first quarter of 2008 gouged our Titanic and lead to the inevitable sinking of many titans of the economy is commonly projected to have completely melted in the first quarter 2010.  However, the impact of our Titanic to wealth management is that new-breed trends that first surfaced in 2006, have been accelerated according to the most recent studies (December 2008 through April 2009).  These trends now clearly show a lack of institutional fidelity by HNWIs, as well as the desire for strategic allocation that includes leveraging international investments, and finally the demanding of trusted planner relationships that are holistically and dynamically approached.

Moreover, another development that has shaken institutional fidelity both for the government and for HNWI the past year regards the acknowledgement in Congressional testimony (and the subsequent prosecutorial agreement) that UBS had not complied with its qualified intermediary agreement regarding approximately 19,000 (the most recent figure exceeds 52,000) non-tax compliant US HNWIs of its total of 20,000 US HNW clients.[1] It is widely reported that UBS is not the exception as regards this situation.  The consequence of the prosecutorial agreement is that inevitably, whether through declaration by UBS or via the latest IRS amnesty program, no less than 19,000 HNWI worth (as of June 2008) $17.9 billion, and by a extrapolation estimate using a rounded multiple range of five to ten, 100,000-200,000 USA HNWIs worth $100 – $200 billion (before taxes, interest, penalties, and tax claw back for last year’s losses) will be swimming ashore over the next twelve months.  Based upon Forbes billionaire Igor Olenicoff suit against UBS, this class of HNWIs’ institutional fidelity has been permanently severed.

The good news is that those of you holding the Master and Doctorate from the Walter H. & Dorothy B. Diamond Graduate Program (http://www.llmprogram.org) are the best positioned to compete for these new-breed HNWI.  This blog over the coming weeks will examine the frame shift and identify the corresponding opportunities to successfully compete for these HNWI clients.  Over the coming weeks, as I post the follow up parts (another ten sections) I will share with you at least two strategies from my out-of-the-box thinking and perspectives that I am known for on your preparation for the new-breed HNWI.


[1] Tax Haven Banks and US Tax Compliance, Staff Report, Permanent Subcommittee On Investigations, United States Senate (2008).

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