The globally accepted definition of an HNWI is someone who has more than $1,000,000 in investible assets, excluding his/her primary residence.
Sheldon Halcrow, Wealth Manager at Nedbank Private Wealth, notes that there have been three big shifts in HNWI demographics over the past decade, namely more women, people of different race groups and entrants younger than 45 joining the ranks.
"There has been a particularly sharp rise in black millionaires, who tend to take up residence in the commercial centres of Johannesburg and Cape Town," says Halcrow.
Based on credible figures from different analysts, Halcrow cites the number of HNWIs in South Africa at 52,000 people. Halcrow, however, predicts that the qualifying criteria or hurdle rate for HNWIs will be revised upward over the near term, as the impact of inflation will see a swelling of the ranks, and the inclusion of more people as the purchasing power of money is eroded.
New wealth in SA
Nedbank Private Wealth segments its client base into three broadly defined needs-based categories, namely established, executive and entrepreneurial wealth.
"In the established-wealth category inheritance of assets is an important contributor and the preservation of funds for intergenerational transfer is of primary importance," he says.
The executive-wealth segment is driven by C-level executives who are still in the growth phase, with their accumulation being fuelled by salaries, bonuses and share options. "C-suite executives are gaining prominence fast, resulting in a steady rise in younger HNWIs and high-net-worth families," he adds.
The third dominant segment is made up of entrepreneurs, who, by definition, own their own businesses. "Here, we encounter traditional business banking clients approaching us for complex lending and structuring requirements," says Halcrow.
Transforming banking needs
Each of these segments requires a slightly different servicing model and approach to managing their risk and growing their wealth. "The needs of high-net-worth families have evolved and balance sheet management has become more sophisticated and complex," says Halcrow.
In the past clients used different specialists such as attorneys, private bankers, portfolio managers and traders to manage their wealth. "Diversification and the need for greater agility mean our clients require a comprehensive service offering that covers everything from estate planning and structured lending to private banking and global wealth management," he says. Full-service operators, such as Nedbank Private Wealth, with offshore offices and global capability are better positioned to cater for the evolving needs of the high-net-worth families.
"Banking service expectations among younger HNWIs, driven by technological advances, have led to an increased desire for digital contact and frequent access to remain constantly informed. That said, they still prefer face-to-face engagement for making financial decisions and obtaining advice."
With clients wanting to be more actively involved in the management of their portfolios, there is a demand and a drive to ensure the discipline of more regular review.
"Today our clients want to co-pilot the management of their portfolios more actively and maintain personal relationships with their team of specialists who manage different aspects of their balance sheet," he adds.
Changing investment preferences
Halcrow says there is a growing preference for direct equity holdings and global diversification into established and emerging markets in SA's HNWI market.
"New entrants are also open to invest in less risky traditional brick and mortar assets," he adds. "More individuals are demanding investments of passion, such as luxury collectables, high-end cars, watches, boats and art. However, traditional items such as jewellery and antiques are still popular among high-net-worth families."
Halcrow cites an increasing social conscience among local HNWIs, with more families and corporate clients taking on philanthropic causes: "This includes investing their assets in charitable trusts and foundations with the aim of supporting social causes such as education, child welfare, food security and climate change initiatives."
