That familiar adage “think globally, act locally” doesn’t’ apply to the wealthy—at least not anymore. That’s because high-net-worth investors are increasingly thinking and acting globally: seeking international investment opportunities and living abroad part-time, according to the latest Merrill Lynch Capgemini World Wealth Report, released June 20. And that means wealth managers need to have greater expertise in global markets and professional contacts abroad, the report says.
“When we did interviews of U.S. advisors, 65 percent actually told us that their high-net-worth clients are more globally aware, meaning they were asking for wealth-management strategies that encompass an international flavor,” says Donie Lochan, who leads the wealth-management practice in North America for Capgemini. “It’s not just that they have a residence abroad, but they’re actually spending three to four months a year in that country, which means they’re also looking for investments there.”
According to the report, 28 percent of high-net-worth individuals have residences in multiple countries, and 19 percent have children living abroad. Another 28 percent have financial advisors abroad, and 37 percent have offshore financial accounts. And this global emphasis among the wealthy is expected to grow as overseas markets are, and should continue, delivering higher returns than the U.S. market. As a result, service approaches must change, says the report.
The private-client departments of most financial-services firms already have global wealth-strategy teams—or networks of financial professionals abroad—but some firms, like Morgan Stanley and Merrill Lynch, are starting to set up similar networks for their high-end retail advisors, says Lochan. “If you look in the $50 million-and-above range [of investors], this is already being done. When you come down to the $1 million-to-$10 million or $5 million-to-$20 million range, it’s just emerging,” he says.
But where such global professional networks are not available, some wealth managers have to develop their own alliances. Oftentimes, a client will hire an independent attorney or tax specialist in the foreign country of choice, and then the advisor will have to coordinate with that individual. “The way they’re working is more reactive,” says Lochan. “If they had the alliances in-house they could be more proactive. There is a resistance there, because advisors don’t want to give up that data.”
Another service area that will need an upgrade is reporting technology. Paradoxically, as their portfolios get more complex, investors are demanding more transparency in their statements. “Country and multicurrency breakdowns are examples of basic reporting transparencies that are being demanded by clients as they attempt to maintain control of their global positions,” says the report.
On a regional basis, the Asia-Pacific will probably demand the most attention from wealth managers. In 2005, the Asia-Pacific surpassed Europe as the second most popular destination for investments among high-net-worth individuals, after North America, accounting for 23 percent of their total assets. Last year, the MSCI AC Asia-Pacific Index returned 21 percent in 2005, up from 14.1 percent in 2004. “A number of emerging economies with large growth prospects, combined with strong performance in the region’s more mature market, is likely to keep international interest focused on this part of the world for some time,” says the report.
Europe, by comparison, captured 22 percent of high-net-worth individuals’ assets in 2005, while Latin America, an area that the wealthy generally view as unstable, accounted for just 7 percent of total assets. “Our research suggests that [high-net-worth individuals’] investments in North America and Europe will continue to decline over the next few years as [they] reallocate funds to Asia-Pacific and other emerging markets,” the report asserts.
