Wealth Management in Germany 2008

Published by: Datamonitor

Published: Sep. 22, 2008 - 7 Pages

Table of Contents

Overview

Catalyst

Summary

Methodology

Executive Summary

The high net worth's family is a lucrative source of business that can be retained through three types of initiatives

Fiscal restraint, high savings rates and moderate investment performance are driving the growth in Germany's wealthy population

German HNW investors are older and less liquid than their European counterparts

Wealth managers in Germany have fairly weak relationships with their clients compared to Europe as a whole

Table of Contents

Table of tables

Special feature: Customer retention initiatives for clients' families

The HNW's family is a lucrative source of business that can be retained through three types of initiatives

€190 billion will change hands in Germany in the next five years

Three kinds of initiatives can cement relationships

Involvement activities: innovative examples from other countries

Australia's Financial Wealth actively encourages its clients to involve its financial advisors in family meetings

Canada's BMO Harris Private Bank's enCircle Exec provides services to manage the affairs of clients' children and parents

America's Citi Trust works one-on-one to teach wealthy children the error of their ways

Education events: innovative examples from other countries

Thailand's Siam Commercial Bank offers a free 66 hour course to heirs of its business banking clients to prepare them for taking over the family business

Last year, Coutts launched its Assets and Responsibility course for clients' children

In the US, Deutsche Bank Private Wealth Management has run its summer seminar series for more than 10 years

In France, BNP Paribas held its 'next generation' seminar for clients' offspring in St Tropez

Sporting and social events: innovative examples from other countries

The Coutts family day at Christmas ensures a fun and relaxing day for everyone

For the last few years Coutts has held its client family day in early December. This Christmas event provides something for the whole family: one parent gets to go off for some Christmas shopping while the other is entertained at the event. There are many activities for the kids, from magicians and face painting to games. Historically, it has usually been the fathers that stay at the event, so big screen sporting events are on hand. The event, which can accommodate a couple of hundred people, is very popular with clients; in fact, it has always been oversubscribed.

The purpose of the event is for the clients and their families to have a relaxing day out. Jill Chimes, head of sponsorship and events, explained: There is obviously a networking opportunity for our clients, but a more relaxed one. Busy executives in particular don't necessarily have the time to take the day out to attend an event (this event is on a weekend). If they can involve the family they are more likely to see it as a benefit, and to go.

Credit Suisse sponsored an all-expenses paid holiday for its clients and their families in Bali

Action points for wealth managers

Germany's wealth

Fiscal restraint, high savings rates and moderate investment performance are driving the growth in Germany's wealthy population

German investors' unwillingness to increase their personal debt, and propensity to save, combine to ensure strong flows into liquid assets

Equity investment returns are moderately driving Germany's wealth accumulation

Capital gains tax changes make equities less attractive

Bond yields and deposit rates have added slowly but steadily to German investors' portfolios

Germany's property investment sector is recovering from its property fund scandal, and asset managers are finding opportunities amid the fallout

Germany's retail investors repositioned towards deposits in 2007 despite positive returns in other asset classes

German investors put €85.8 billion into deposits in 2007

Despite second half instability, both equities and bonds held by retail investors performed positively in 2007

Wealth in Germany is growing slowly but is increasingly concentrated

German savings habits and improving economy have combined to make Germany the largest wealth market in Europe

Outlook for Germany's wealthy population in 2008-12

2008-9 will be characterized by struggling economies worldwide

Data tables

The German high net worth investor

German HNWs are older and less liquid than their European counterparts

German HNWs are concentrated in the 31-50 age range, but there are relatively few under 30

Wealth management service implication: focus on products appropriate to the client's lifestage

Innovative example from Australia: Financial Wealth centers its entire strategy around lifestages

Innovate example from Canada: BMO Nesbitt Burns takes a 'five lifestages' approach to wealth management

In contrast to the European average, German wealth comes less from earned income and more from inheritance

Wealth management service implication: dedicated client management teams for entrepreneurs and inheritors are critical

Innovative example from Germany: Dresdner marries wealth management and corporate services for entrepreneurs

Innovative example from the UK: Coutts banks in excess of 18,000 of the UK's entrepreneurs

German HNWs are heavily invested in real estate, and light on cash

Wealth management service implication: frequent communication is critical because so little of the client's wealth is in a safe haven

Innovative example from the US: Merrill's cash management account allows clients to seamlessly liquidate investments when necessary

HNW German investment will shift towards alternative investments

Anecdotal evidence suggests that German HNW investors are putting money offshore

German HNWs' onshore investments are less Europe-centric than their peers across the rest of Europe

Wealth management service implication: look both West and East for investment opportunities for clients

German HNW customers are risk-averse, wanting to protect their asset base, but are also open to new ideas, and are more financially sophisticated than their European peers

German HNW investors want to protect their assets

Innovative example from Malaysia: capital protected infrastructure fund with opportunities to cash out early

German HNWs are risk-averse, but also open to new investment ideas

German HNWs are most demanding infrastructure funds and emerging market investments

Innovative examples from India: infrastructure funds outperforming other sectors

German HNWs are more financially sophisticated than average

While face to face relationship management is less important to HNWs in Germany today, personal recommendations are critical

Wealth management service implication: a structured referral program and regular client surveys

Innovative example from India: Standard Chartered runs both a formalized referral process and client survey

Perhaps because they are less 'connected' to their wealth manager, they are less loyal

The German wealth manager's view

Wealth managers in Germany have fairly weak relationships with their clients compared to Europe as a whole

German wealth managers have more medium-term customer bases than their European peers, and have to share their clients with at least one other bank

German wealth managers plan to drive revenue growth through capturing new clients and increasing existing clients' share of wallet

Although wealth managers in Germany are more keen than elsewhere to win new clients, their strategies so far have been rather lackluster

Increasing face to face contact will be the most effective means employed to increase share of wallet

Alternative investments hold the greatest business potential for German wealth managers in coming years

There is virtually no interest in the lending side of the business

The key to attracting clients will be personal relationships

German wealth managers can best attract new clients by leveraging personal relationships

Wealth managers' own clients are the best route to new clients

The key to keeping clients will be problem-solving, regular communication and extending services to HNW families

German HNWs may not be particularly loyal to their wealth managers, but they do follow them to other banks when they leave

Appendix

The drivers of growth in the wealthy population

Income growth (combined with inflation, changes in GDP by sector, household savings rates and debt levels)

Investment returns (market capitalization, interest rates and bond yields)

The following measures are not, in themselves, drivers of wealthy population growth

Market capitalization

GDP

The following measures are not drivers of wealthy population growth except under very restricted circumstances

Primary residence value growth

Inheritance

Methodology

Wealth Management Market Leaders Survey 2008

Global Wealth Model

The UK sub model

Global sub model (for all other countries)

Forecasting methodology

Continuous refinement to the understanding of liquid wealth distribution

Datamonitor's wealth numbers compared with other wealth numbers

Bibliography

Definitions

Western Europe

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Number of affluent individuals in Germany by liquid asset band, 000s, 2003-7

Table 2: Number of affluent individuals in Germany by liquid asset band, 000s, 2008-12

Table 3: Aggregate onshore liquid assets of affluent individuals in Germany by liquid asset band, EURbn, 2003-7

Table 4: Aggregate onshore liquid assets of affluent individuals in Germany by liquid asset band, EURbn, 2008-12

Table 5: What proportion of the HNW customer base in Germany is in each age band?

Table 6: What proportion of the HNW customer base in Germany accumulated their wealth through (source)?

Table 7: What proportion of HNW customers' portfolios in Germany is allocated to (product)?

Table 8: HNW customers' portfolio allocation now versus in two years time

Table 9: What proportion of the HNW customers' portfolio in Germany is allocated to (region)?

Table 10: What are HNW customers in Germany most interested in today?

Table 11: HNW customer attributes in Germany on a scale of one to four (investment openness)

Table 12: For which investment opportunities is there a lot of demand from HNW in Germany?

Table 13: HNW customer attributes in Germany on a scale of one to four (knowledge)

Table 14: HNW customer attributes in Germany on a scale of one to four (relationship drivers)

Table 15: HNW customer attributes in Germany on a scale of one to four (customer loyalty)

Table 16: HNW customer attributes in Germany (customer contact and customer involvement)

Table 17: How long have HNW customers in Germany been with their wealth manager?

Table 18: How many wealth managers do HNW customers in Germany have on average?

Table 19: What will most determine revenue growth in Germany's wealth management market in the next two years?

Table 20: What is the most effective means of increasing wealthy clients' share of wallet in Germany?

Table 21: How much business potential do the following product areas have among wealthy clients in Germany during the next two years?

Table 22: From the product areas just mentioned, which three will wealth managers focus most resources on in the next two years?

Table 23: What are the key influences that determine a client's choice of wealth management service in Germany?

Table 24: What are the most effective wealth management customer acquisition techniques in Germany?

Table 25: What is the best way to retain wealthy clients in Germany?

Table 26: What are the most likely reasons for clients in Germany to leave a wealth management service?

List of Figures

Figure 1: Over €40 billion per year in onshore liquid assets will change hands in Germany by 2011

Figure 2: German investors' low indebtedness growth and high savings rates combine to ensure flows into liquid assets

Figure 3: Germany's market cap has stalled compared to Western Europe as a whole

Figure 4: After holding steady at around 2% for two years, German deposit rates are rising again

Figure 5: Retail investors moved money from equities and bonds into deposits in 2007

Figure 6: Germany's affluent population grew weakly in 2007 as economic difficulties took hold

Figure 7: After stalling in 2008-9, Germany's affluent population will grow to nearly 12,000,000 by 2012

Figure 8: The 31-50 age band accounts for the greatest share of HNW customers in Germany at 39%

Figure 9: Financial Wealth's lifestages

Figure 10: Business/entrepreneurship is the main source of wealth in Germany accounting for 38% of all HNWs

Figure 11: 34% of HNW portfolios in Germany are invested in equities

Figure 12: In Germany over the next two years HNW customers will increasingly look to the 'alternative investments' category which will grow its share of HNW investors' portfolios from 13% to 18%

Figure 13: HNW investors in Germany have 49% of their portfolios invested in Europe

Figure 14: Protecting their current asset base' is a key priority for 93% of HNW investors in Germany

Figure 15: HNW investors in Germany have a lower level of investment openness than the average European HNW investor

Figure 16: Infrastructure funds is the investment opportunity most in demand from HNW clients in Germany

Figure 17: HNW investors in Germany have a greater level of knowledge than the average European HNW investor

Figure 18: HNW investors in Germany place less emphasis on provider relationships than the average European HNW investor

Figure 19: HNW investors in Germany have a similar level of loyalty as their European peers

Figure 20: Clients are demanding more face to face contact with their wealth manager now than two years ago in Germany

Figure 21: 38% of German wealth managers have had a relationship with their clients for more than five years on average

Figure 22: Obtaining new clients will be the key driver of revenue growth in the next two years for wealth managers in Germany

Figure 23: Increased face to face contact is the most effective means of increasing share of HNW wallet in Germany

Figure 24: Alternative investments have the greatest business potential for wealth managers in Germany during the next two years

Figure 25: 65% of wealth managers in Germany are planning to focus resources on the 'traditional investments' product area over the next two years

Figure 26: Personal relationship is the key influencer that determines a client's choice of wealth manager in Germany

Figure 27: Referrals from existing clients are the most effective customer acquisition technique for wealth managers in Germany

Figure 28: Providing services for their family is the most effective means of retaining HNW customers in Germany

Figure 29: Following key staff to other organizations is the most likely reason for clients to leave a wealth manager in Germany

Abstract

• HNW demographic and attitudinal attributes based on our Wealth Management Market Leaders Survey 2008
• Sizes, segments and forecasts the number of affluent invididuals across 10 liquid asset bands from EUR50k
• Extensive primary research from 20 wealth management companies highlights thier strategies for revenue growth, acquiring and keeping clients
• Aggregated data covers onshore liquid assets including cash and deposits, mutual funds, direct investment in equities and direct investment in bonds.

• Understand the HNW population's investments by sector and geography, appetite for risk, and reasons for choosing/leaving their wealth service
• Assess market attractiveness by reviewing size and growth forecasts for the potential wealthy client base through 2012
• Assess the threats and opportunities for wealth managers by understanding how peers are planning to grow revenues, acquire and keep clients

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