William Byrnes' Tax, Wealth, and Risk Intelligence

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

Wealth Management & Financial Planning

Posted by William Byrnes on April 22, 2010

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

[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

One Response to “Wealth Management & Financial Planning”

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