And it reveals that their liquid wealth is expected to register a total rise of 50% over the period.
The number of high net worth individuals in the UK grew by over 100,000 in 2003, with the UK is currently home to almost 750,000 individuals with more than Â£200,000 in liquid assets.Â Â Their combined wealth increased by 22%, from Â£358.5bn in 2002 to Â£436.6bn in 2003.Â
However, the past few years of investment turmoil have left their mark on HNW attitudes. Capital preservation and the achievement of a positive return are all-important.Â For wealth managers, the key to successfully retaining and winning high net worth business will very much lean of their ability to offer these customers a clear and achievable absolute return.
The UK HNW population witnessed a genuine recovery in 2003 following the investment turmoil of the past three years and a resultant decline in the numbers of wealthy individuals. The number of HNW individuals increased by 16% and their combined wealth by 22%. Some groups
have done better than others. The number of individuals with liquid assets of between Â£1m and Â£1.5m swelled by 31.5%.Â
Britain still has more wealthy women than men.Â Almost 393,000 women own at least Â£200,000 in cash, shares and bonds compared with just 355,000 men, but men are richer.Â Their combined wealth peaked at Â£238.6bn in 2003, compared to Â£198bn for women.
This recovery mirrors the 15.7% growth in household savings and investments balances in the UK in 2003 driven by improving stockmarket and economic conditions and rising average earnings.
Although the financial legacy of three consecutive years of bear markets has begun to ease, both HNW customers and competitors alike have been left reeling. The result is a fundamental shift in the way both parties are approaching the wealth management relationship.
ClientsÂ‚ confidence in traditional high-risk investments such as equity has fallen significantly and the losses incurred have driven them to seriously consider the concept of capital preservation and achieving returns with minimal risk. Recent good returns on cash deposits have led to its return as an attractive asset class and created a serious challenge for wealth managers. With deposit rates as high as 5%, wealth managers are at serious risk of losing share of wallet to high street providers if they cannot prove that, net of management fees, they can outperform cash.Â
At the same time, Laura Meachem, financial analyst at Datamonitor and author of the report, warns that outperformance of a relative benchmark will no longer win wealth managers any credit with HNW customers. Instead, the key to success in the UK wealth management market over the next few years will be the successful deployment of an absolute return strategy. Those players that have already shifted to such an approach and have a demonstrable track record, such as Ruffer, GAM and JO Hambro, have been clear winners in terms of client and asset acquisition.
Equally, many established managers have realised that HNWsÂ‚ supposedly higher risk tolerance does not extend to losing money over successive years. This has prompted others to follow suit and those players who have not yet moved over to an absolute return approach need to take swift steps to alter their product portfolio. Early movers that deliver on their promises will stand the best chance of success, before the achievement of positive performance becomes a threshold requirement rather than a differentiating factor.
Following the turmoil of the past few years, there is also a more general desire for a degree of absolutism across the whole of the wealth management relationship. Clients are now looking for absolute solutionsÂ‚. That is not to say that wealth managers need to offer everything, butthat they must offer a complete solution to a clearly defined and well-communicated set of problems.
Meacham says: “With the need to re-establish trust, wealth managers must ensure that they are capable of achieving what they promise and if not, being sincere and presenting solutions to the problems by bringing in outside experts or making clearly defined referrals”
In the wake of misselling and compliance scandals, significant financial losses and the resulting decline in confidence, clients need to see that their wealth manager can offer both absolute transparencyÂ‚ throughout the investment management process and an absolute commitmentÂ‚ to their financial welfare. This requires proactive identification of opportunities and threats to clientsÂ‚ wealth. Maybe then, wealth managers will be rewarded with the absolute client loyalty they so crave.