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Discretionary Asset Management: HNW Demand and Drivers

Discretionary Asset Management: HNW Demand and Drivers


Globally over half of HNW investment portfolios are placed in discretionary mandates. However, the uptake of these services differs by country. While wealth managers in developed economies such as the UK and the US can attract investors to discretionary services relatively easily thanks to their established reputations, players in emerging markets have a longer way to go. Nevertheless, despite the challenging competitive environment, the penetration of mandated offerings is expected to increase, in line with most global players’ business strategies.

Key Findings

  • With 81.5% of HNW portfolios placed in discretionary services, Singapore has the highest penetration of discretionary mandates. The UK and the US follow.
  • In absolute terms, China follows the US as the world’s second largest market for discretionary asset management. With increasing demand for these services from HNW investors, many players are likely to look for options to enter the market.
  • Lack of time and expertise are two major factors encouraging HNW clients to use the services offered by discretionary portfolio managers.
  • The relatively high cost of discretionary services can deter investors and make them more willing to opt for advisory mandates.
  • Although dubbed “robo-advisors,” a number of digital players in Europe in fact offer discretionary investment management at competitive prices.
  • A number of industry leaders, including UBS and Citi Private Bank, place higher mandate penetration at the center of their business strategies.

Verdict Financial’s “Discretionary Asset Management: HNW Demand and Drivers” report draws on our 2016 Global Wealth Managers Survey to analyze HNW investors’ preferences and attitudes towards discretionary asset management services across the globe. It sizes the market for discretionary mandates and examines key drivers behind wealthy individuals choosing such services. The competitive landscape is also analyzed.

Specifically, the report:
  • Estimates the value of HNW assets invested via discretionary mandates
  • Compares HNW individuals’ willingness to use discretionary services in different countries
  • Identifies target client groups for discretionary asset managers
  • Compares drivers for discretionary mandates between countries and regions
  • Examines the client targeting strategies of discretionary portfolio managers
  • Explores robo-advisors’ potential to disrupt traditional discretionary asset management business
Reasons To Buy
  • Discover how much HNW wealth is invested via discretionary mandates.
  • Identify markets offering the greatest growth potential for discretionary asset management.
  • Learn why HNW investors choose to opt for discretionary services, and how these motivations differ between countries, particularly in emerging and developed markets.
  • Gain an insight into best-practice examples from competitors operating within the discretionary mandates landscape.

Discretionary mandates remain the domain of developed markets
Key findings
Critical success factors
Defining discretionary asset management
Wealth managers offer a range of asset management solutions to cater for HNW investors
Globally, 51.9% of HNW wealth is placed in discretionary mandates
HNW investors in Asia Pacific show the weakest preference for discretionary asset management
The penetration of discretionary is higher in developed markets
Discretionary asset management has only started developing in emerging markets
The global HNW discretionary asset management market is worth $15.7tn
The value of the market will continue to expand with the growth of HNW assets
In regional terms, the US represents the largest opportunity
Wealth managers will be trying to win a share of the Chinese market
Demand for professional advice will increase, partially encouraged by market volatility
However, wealth managers expect higher demand for advised rather than discretionary mandates
Increased demand for discretionary portfolio management will come from investors already familiar with the service
Mass affluent investors show a higher tendency to self-direct
Discretionary mandates appeal to inheritors
Inheritors have been driving discretionary asset management
Intergenerational wealth transfer takes time
Motivations for using discretionary services vary between markets
In general, clients lacking time or expertise value discretionary mandates
European HNW investors are particularly time-constrained
A search for better returns is key in North America
Establishing trust is key in the Middle East and Africa, while investors in Asia Pacific are attracted by exclusivity
The high cost of discretionary asset management can deter HNW investors
Wealth managers offering discretionary mandates compete with a range of players
Most HNW-focused competitors provide discretionary asset management
In Europe, most robo-advisors are in fact discretionary investment managers
A range of discretionary options remain available for smaller investors
Fee models vary, though there is increasing pressure for transparency
Increasing mandates penetration forms the center of many wealth managers' strategies
Major players will continue to move clients to discretionary services
Boutique wealth managers will highlight their greater flexibility
Developed (mature) economies or markets
Developing (emerging) economies or markets
Liquid assets
Mass affluent
Mass market
Supplementary data
Sizing the market for discretionary asset management
Verdict Financial's 2016 Global Wealth Managers Survey
Verdict Financial's 2015 Global Wealth Managers Survey
Verdict Financial's 2016 Retail Banking Insight Survey
Exchange rates
Further reading
About Verdict Financial
List of Tables
Table 1: Minimum thresholds for discretionary asset management services offered by selected UK providers
Table 2: HNW portfolios by mandate type (%), 2016
Table 3: US dollar exchange rates, December 31, 2014 and December 31, 2015
List of Figures
Figure 1: Globally, discretionary mandates are the most popular form of investment management among HNW individuals
Figure 2: Discretionary asset management is most pronounced in North America
Figure 3: Among developed markets, Australia has the lowest discretionary mandates penetration
Figure 4: Just over a third of HNW portfolios in emerging markets are managed under discretionary mandates
Figure 5: The value of HNW liquid wealth will continue to expand
Figure 6: The US HNW discretionary asset management market is worth over $10tn
Figure 7: Advisory asset management will see the highest increase in demand
Figure 8: Two thirds of US wealth managers expect greater demand for discretionary mandates over the next 12 months
Figure 9: Discretionary mandates tend to be more pronounced in markets with a high share of inheritors in the overall HNW population
Figure 10: Discretionary mandates are a perfect match for time-constrained clients
Figure 11: For Asian investors, convenience is more important than saving time
Figure 12: HNW investors in North America expect discretionary portfolio managers to deliver high returns
Figure 13: In Europe and the Middle East, HNW investors tend to switch to discretionary mandates once they are sure of the quality of advisory services
Figure 14: A share of HNW wealth is invested in advisory mandates because it is cheaper than discretionary service
Figure 15: Less than two thirds of wealth managers in Asia Pacific offer discretionary asset management
Figure 16: The majority of wealth managers in North America and Europe disagree that robo-advisors appeal only to self-directed investors

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