The Capgemini Research Institute’s World Wealth Report 2024, published today, reveals the number of high-net-worth individuals (HNWIs) and their wealth reached unprecedented levels in 2023, sparked by a rebound in the global economic outlook.
According to the report, global HNWI wealth expanded by 4.7 per cent in 2023 reaching USD86.8 trillion. Similarly, the HNWI population increased by 5.1 per cent to 22.8 million globally and continues to grow despite market unpredictability. This upward trend offsets last year’s decline and puts HNWI trends back on a growth trajectory.
HNWI growth soars globally
In 2023, North America registered the strongest HNWI recovery worldwide with year-on-year growth at 7.2 per cent for wealth and 7.1 per cent for population. According to the report, solid economic resilience, cooling inflationary pressures, and a formidable US equity market rally drove momentum. This trend continues in most markets, for both wealth and population respectively, but to a lesser extent:
– The Asia-Pacific HNWI segment (4.2 per cent and 4.8 per cent) and Europe (3.9 per cent and 4.0 per cent) experienced more modest wealth and population growth.
– Latin America and the Middle East recorded limited HNWI growth, with wealth up 2.3 per cent and 2.9 per cent, and population up 2.7 per cent and 2.1 per cent.
– In contrast, Africa was the only region where HNWI wealth (-1.0 per cent) and population (-0.1 per cent) fell due to falling commodity prices and declining foreign investment.
As HNWI growth thrives, asset allocations are starting to shift from wealth preservation to growth. Early 2024 data reveal a normalisation of cash holdings to 25 per cent of portfolio totals, a stark contrast to the multi-decade highs of 34 per cent seen in January 2023. The report indicates two out of three HNWIs are planning to invest more in private equity during 2024, to leverage possible future growth opportunities.
Ultra-high-net-worth individuals (UHNWIs), the most concentrated among the wealth bands, hold over 34 per cent of total HNWI wealth and make up just over 1 per cent of the total HNWI population. It is estimated that, over the next two decades, aging generations will transfer over USD80 trillion, driving appetite for financial (investment management and tax planning) and non-financial (philanthropy, concierge services, passion investments and networking opportunities) value-added services, representing a lucrative opportunity for wealth management firms. The report reveals 78 per cent of UHNWIs consider value-added services essential and over 77 per cent count on their wealth management firm to support them with their inter-generational wealth transfer needs. As HNWIs seek thoughtful guidance, 65 per cent say they are concerned about the lack of personalised advice tailored to their changing financial situation.
“Clients are demanding more from their wealth managers and the stakes have never been higher. There are active steps firms can take to engage and retain clients for a personalized, omnichannel experience as the great wealth transfer unfolds and growth of HNWIs continues,” says Nilesh Vaidya, Global Industry Head of Retail Banking and Wealth Management at Capgemini. “While the traditional way of profiling clients is ubiquitous, the application of AI-powered behavioural finance tools, using psychographics, should be considered. They can offer a competitive advantage by understanding individuals’ decision-making to deliver a greater degree of client intimacy. The creation of channels for real-time communication will be crucial to manage biases that sudden, volatile market movements might trigger.”
More than 65 per cent of the HNWIs reveal biases influence investment decisions, especially during significant life events such as marriage, divorce, and retirement. As a result, 79 per cent of HNWIs want guidance from relationship managers (RMs) to help them manage these unknown biases. By integrating behavioural finance with artificial intelligence, wealth management firms can assess how clients react to market fluctuations and make data-driven decisions that are less susceptible to emotional or cognitive biases. The report highlights that AI-powered systems can analyse data and detect patterns that may be difficult for humans to recognise, enabling RMs to take proactive measures in advising clients.
According to the report, UHNWIs have increased the number of relationships they have with a wealth management firm from three in 2020 to seven in 2023. This trend signals that the industry is struggling to deliver the expected range and quality of services demanded by this segment. On the contrary, single-family offices, exclusively serving one family, have grown by 200 per cent during the past decade. To further cater to the HNWI and UHNWI segment, wealth management firms must strike the balance between competition and collaboration with family offices. One-in-two (52 per cent) UHNWIs want to set up a family office and want guidance from their primary firm to do so.
