Investing in you: wealth management rises to the challenge
The 2011 Credit Suisse Global Wealth Report estimates that there are 71,000 USD millionaires in South Africa and this number may rise over the next five years to almost 250,000. These figures, coupled with estimated growth rates for Sub-Saharan Africa outstripping most developed markets, provide hope for those servicing the new affluent in South Africa that the wealth management industry is set for growth. Banks and investment managers in South Africa are beefing up their teams both to tap into these new pools of wealth and in order to adapt to the needs of a more globalized High Net Worth (HNW) client.
5 Sep 2012 08:58
Today's HNW clients are more demanding than ever and, with a plethora of competitive wealth management services to choose from, they are in a good position to be picky. Moreover, they are not just choosing one partner but placing their golden eggs into multiple baskets as they diversify to minimize risk. Purist wealth discretionary investment houses are now having to fend off the fast approach of South Africa's top private banks that have secured top personnel, enhanced their capabilities and are now pushing forward with the determined drive to deliver a more dynamic, holistic suite of services to HNW clients. Banks have the capability to bring together full-service management of a clients wealth in their business, in their individual capacity and in terms of managing their legacy under one comprehensive offer.
Speaking at the SALA Wealth Summit that took place in Sandton earlier this year, Dr Michael Jordaan, CEO of First National Bank, expressed a simple but effective formula for investing succesfully: embrace diversity, be involved and partner with specialists. Dr Jordaan's words certainly reflect the current school of thought that in order to succeed both as an investor and as an institution, that one needs to invest time into relationships and ensure that the overall client experience is not just focused on performance, as markets change, but equally in a bilateral partnership for growth with the right people. FNB offers a team of engaging experts in each of their fields, working in symphony, that provide advice and work with private clients to increase their net asset value. By working together in unison, they hold that they can offer superior advisory to clients individual needs. This also has the added benefit of limiting the risk of capital flight by broadening a clients relationship so that the relationship is with a few key specialists within the bank versus holding relationships with a sole wealth manager that may then be poached from another bank. With FNB's backing of the JHB Art Fair and the personal art collections of their original founders having the potential to position them to the fore in the art space, they have yet to truly capitalize on art as an asset in their wealth segment through an art advisory offer. However, given the team and their strength under FNB Wealth, one can only imagine how the private banks and Ashburton will evolve in the next few months with innovative offers as more focused attention is placed on this division. Other large banks like Investec, Nedbank, Standard Bank and Absa (with the strength of Barclays Wealth underpinning its wealth offer) are equally securing share of market and developing more aggressive plans to service the affluent.
The findings of the PWC 2011 Global Private Banking & Wealth Management Survey highlight some key trends about today's HNW clients and describes them as 'cautious, smart, less loyal and expecting excellent service and clear value.' The global financial crisis provoked a 'back to basics' mentality which saw, across the board, a return of focus to the level of service, quality and transparent advice and an emphasis on building trust and addressing the client's individual needs. The financial crisis led to a crisis of confidence and a trend for clients to be more active in managing their financial affairs whilst simultaneously placing more emphasis on reputation, regulatory compliance and risk management of their chosen wealth management service provider.
Of course, whilst some of the larger private banks have greater staff retention issues relative to some niche houses that advocate the Coutts-ian philosophy of 'single-point of relationship building', they remain trusted to bring in effective returns. In a global world, with clients travelling more and diversifying their investments across markets and companies, choosing to place your wealth with an investment house (particularly when part of that is offshore) boils down to trust and often a direct relationship with not just the wealth manager - but equally with the company - that they will safeguard your wealth.
Although not a traditional bank, Sanlam as a financial services company has a history of being trusted with savings and investments and Sanlam Private Investments (SPI), their private client wealth management business, is entrusted with over R60bn under management. Securing sustainable revenue growth is key and private wealthcare providers are thinking in a more global way to service a more global client. One such way to ensure you meet clients needs, and build on revenue opportunities, is to buy into or work with international firms, as SPI has done, under the guidance of CEO Daniël Kriel, through a combination of ownership and partnership relationships with UK-based Merchant Securities and Principal Investment Management, Swiss offshore trust company Summit Trust International and private bank Pictet & Cie, and Calibre Investments in Sydney. Their assets under management have seen consistent growth under his watch. Alwyn Van Der Merwe, SPI Director of Investments, stated "We have expanded our offering to include a wider range of funds to satisfy the diverse, and increasingly international, needs of our clients."
The old school 'valued-client to a traditional stockbroker' approach of sharing monthly factsheets and occasional visits isn't enough for today's HNW client. Literally, they want the world. Like a reluctant lover, with many suitors after their prize value, they expect to be courted and have their every passion catered for.
Wealth Management companies have reacted by offering alternative services, not traditionally considered part of an investment portfolio, such as art advisory services. Sanlam Private Investments has secured Stefan Hundt, curator of the Sanlam Art Collection and one of South Africa's art experts, to offer an art advisory service for their clients. Hundt, aware of the must-buy South African pieces, also manages the Sanlam Art Collection which has seen significant growth in value over time. Citadel Private Wealthcare has launched an Art Price Index in association with AuctionVault and Econex to turn existing credible information that is already in market into meaningful analysis of the art industry and as a vehicle to analyse the investment returns for prospective buyers looking at art as an alternative asset class diversification strategy. The index now includes Christies London results too and will be released quarterly and has already shared some interesting insights into mood of buying in the art market.
Whilst for the most part these offers are complimentary services to a clients core investment portfolio, they are ultimately increasing their share of clients assets in a small way and improving overall client experience in a big way. Clients feel like their personal interests are being catered to and that builds the foundation for longevity of relationship: a skillset that the team particularly at Citadel excel at. Citadel, beyond striving for solid investment returns, goes that one step further to personalise client relationships by understanding the unique personal circumstances and goals before constructing a customised financial roadmap for them and servicing their particular interests and one is introduced to a team that truly does have authentic family-values.
Part of the new client-centric approach means wealth management firms are also increasingly acting upon the ethical wishes of their clients. There has been an increase in Shariah-compliant funds based on the principles of Islam and prohibited from making investments in activities not condoned by Islam (for example industries related to gambling or alcohol). Equally there has been an increase in socially responsible investing whereby companies have developed environmental, social and ethical screens in order to select suitable companies for their more socially aware client to invest in.
The shift away from the traditional transactional 'broker' towards 'advisor relationships' and the new service model of a client-centric approach has become an intrinsic part of the way successful wealth management services now operate. A static traditional approach no longer cuts the mustard: what is required is dynamism, powered by client needs, and an emphasis on building a more inclusive, positive client-advisor relationship. Wealth management firms have reacted by providing their clients with dedicated, sophisticated advisors who can serve the entire spectrum of 'net worth' and understand the often ultra complex financial needs of their clients. In the talent war for the few with the skills to service at HNW's and UHNW's with confidence, there is a need to build up a broader base of experts in the fields of trust & fiduciary as well as the simple etiquette of managing affluent clients in a more engaging tone. This will be a key factor in ensuring continued growth for wealth managers and their capability to put you first.