Wealth & Risk Management Blog

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

Observations About the State of the International Financial Services / Wealth Management Industry

Posted by William Byrnes on July 17, 2009


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 periods of global financial crisis, the sector had experienced double-digit annual global growth from the eighties and contributed robustly to the local economies and society.  Since 1998, the international financial services sector client base has expanded nearly 10% on average.  Even with the dampening of current global crisis, this industry is projected to grow in the high single digits.

During this period, the number of HNWI clients have more than doubled, to just over 10 million, as have their assets, from $17.4 trillion to between $40 and $50 trillion.[2]  By 2013, the pool of HNWI clients’ assets will grow another 50% to nearly $60 trillion.[3]  70% of this new wealth is self-generated, either through entrepreneurship or via executive level employment, representing a “new” breed of HNWI versus the inherited wealth clients of the past.[4] 

Since 1998, while the OECD continues to steadily generate HNWIs and their wealth, the substantial jumps in wealth generated and new HNWsI is and will continue to occur in Asia (China and India) and to a lesser extent in Latin America (Brazil) and the Middle East (GCC).  Based on the shifting geo-wealth creation pool, our new breed HNWI is more likely to be of Asian, Middle Eastern, and Latin American nationality, with a very different frame and perspectives from our OECD HNWI.  In 2008, China jumped the United Kingdom with the 4th largest number of HNWIs (364,000), while Brazil has climbed over Spain to 10th position (with 131 HNWIs).  Cap Gemini estimates Asia Pacific to overtake North America in HNWI growth in just two years.

The average HNWI, excluding the value of primary residences and collectables, is worth more than $4 million!  HNWI’s continue to leverage offshore skill sets, growing their assets from $5.8 trillion from 1998 to an estimated $8 to $11 trillion today.[5]  That $11 trillion under management represents, at combined fees for all wealth management services of just 1%, approximately $100 billion accrual to wealth management firms and their providers, such as asset management and investment banking business units.[6] 

The wealth management industry remains very fragmented, with likely even greater fragmentation on the horizon.  The global top ten wealth management firms manage less than 20% of high net wealth assets.[7]  50% of HNWIs do not even leverage the expertise of a wealth manager![8]  Thus, this expanding, fragmented client base leaves plenty of room for growth in employment.  Currently, the international-offshore financial service industry’s wealth management level employment has probably reached and maintaining 100,000.[9]  By example, the AIMR (aka CFA Institute) and the American Academy of Financial Management (http://www.aafm.us) both estimate over one-million employment globally for their segmentation of financial analysts (based on their respective global spread of their 100,000 members each).[10] 

The current stability with wealth management employment is in contrast to the instability in investment banking.  Investment banking within the USA, including securities dealing, employment has fallen from a high of 156,113 in 2006 to a low of 97,500 in 2008, though is estaimated to be stabalizing this year at 100,425.[11]  Financial planning and investment management services are now delivering a larger portion of an institution’s income, up to 12% from 5% in the late 1990s, as investment bank services and trading commissions have correspondingly fallen.[12]

Prof. William Byrnes (http://www.llmprogram.org)  

 


[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] 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.

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

[5] Tax Haven Abuses: The Enablers, The Tools and Secrecy” (Sen. Rep., Perm. Sub-Comm. On Investigations, August 1, 2006) and World Wealth Report 2008 estimate $11 trillion.  However, the Oliver Wyman Report which surveyed 25 top firms provides a lower estimate of only $8 Trillion offshore at 16% of HNW assets (see page 3) and the Swiss Bankers Association Wealth Management in Switzerland 2009 report (see page 4) supports this lower estimation.  A general survey of literature, by example IMF and World Bank reports, contrasted with data available from the Bank of International Settlements, has been inconclusive.

[6] Note that the $100 billion estimate based upon the $11 trillion base may be an exaggeration of fees earned from offshore HNWI, the application of the 1% fee base is supported by the Senate Report 2008 at page 86, wherein it states that UBS earned $200 million on its $20 billion under management from its 19,000 non-compliant clients (i.e. 1%).

[7] The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients JP Morgan at 11.

[8] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 4.

[9] With regard to the offshore employment estimate, see by example my 2004 Report, and the 2009 Swiss Banking Association report at 10. A survey of reports and articles written up until April 10, 2009 finds that the wealth management industry has NOT suffered the significant job losses as a whole as the financial services industry has.  By example, see Headhunter Boils Business Down to Wealth Management San Diego Business Journal March, 23, 2009 at 17 wherein a recruiter states “When times are good, services such as money mangers and financial advisers tend to get overlooked, but in tough times, customers are more inclined to professional help.”

[10] See CFA® annual report regarding its estimate, or the US Department of Labor Bureau of Statistics website (http://www.bls.gov/oco/ocos259.htm) that leverages data from the American Academy of Financial Management .

[11] IBISWorld Industry Report: Investment Banking and Securities Dealing in the US (Dec. 8, 2008) at 7.  (Updated Jan 5, 2009).

[12] IBISWorld Industry Report: Investment Banking and Securities Dealing in the US (Dec. 8, 2008) at 9.  (Updated Jan 5, 2009).

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