Asset servicing firms must rise to meet the challenge of increasing demand for socially responsible investing (SRI) from well-heeled clients, said Michael Yong-Haron, head of North Asia at RBC Wealth Management on the launch of the latest World Wealth Report.
That’s especially true in emerging markets, where SRI interest is being driven by a lack of social-welfare infrastructure, he told AsianInvestor.
High-net-worth individuals (HNWIs) are growing in number and wealth, but they are also growing more aware of SRI, found the 18th annual World Wealth Report published by RBC WM and consulting firm Capgemini.
While HNWI interest in SRI is rising, institutional investors are paving the way for product innovation, said Yong-Haron. Institutions that include SRI parameters in their mandates – such as Norway’s sovereign fund and the Canada Pension Plan Investment Board – are setting a trend for the industry, he noted.
“Once you have those models and mechanisms in place, you can replicate them for HNW clients,” he said. “We’ve started to look into this area. We have socially responsible funds, with about $3.3 billion in assets under management. You can actually get good returns by doing good.”
Incepted in November 2008, the PH&N Community Values Balanced Fund offered by RBC Global Asset Management averaged an 8% annual return from 2009-2013.
Yong-Haron was speaking after the release of the report, which surveyed 4,500 HNWIs across 23 countries. The survey found that the number of HNWIs and their investable wealth rose significantly in 2013, with Hong Kong and Japan recording particularly strong growth.
HNWIs are defined as having $1 million or more to invest, excluding property and collectibles, and ultra-HNWIs as having more than $30 million.
The world’s HNW population grew 14.7% last year to 13.7 million, the second largest increase since 2000, with growth driven by Asia Pacific (up 17.3%), the Middle East (+16%) and North America (+15%). Japan’s HNW population expanded 22.3%, powered mainly by real estate and financial market growth. Latin America was the laggard, with the number of wealthy there increasing 3.5%.
HNWIs saw their wealth increase to $52.62 trillion, up 13.8% from $46.22 trillion. Some 40% of that was created in the past five years.
Oil-rich Norway and Kuwait, finance hubs Hong Kong and Singapore and emerging markets China, India, Russia and Taiwan outperformed the countries surveyed in terms of wealth growth.
Hong Kong’s HNW population and its wealth increased 9.4% and 11.9% to 124,000 and $626.9 billion, respectively. Growth was driven chiefly by robust performance of the equity and real estate markets. Singapore’s HNW population and its wealth rose 4.5% and 6.8%, respectively, to 105,000 and $522.5 billion.
Asset allocation reflected a decreased concern for wealth preservation and increased demand for growth, the survey found.
Cash was the largest weighting of HNWI holdings at 26.6%, down 1.6 percentage points from 2012. That was followed by equities at 24.8%, down 1.2 percentage points. Allocations to fixed income and alternatives rose 4.1 percentage points to 29.9%. Hedge fund exposure rose 3.5 percentage points, but it remained the least favoured alternatives strategy. In Asia Pacific, investors continued to favour real estate over all other investments.
As for service provision, HNWIs prefer to seek professional advice, work with a single firm and receive customised services. While they continue to prioritise direct contact with their wealth manager, digital channels are gaining prominence, with almost two-thirds of HNWIs expecting most or all of their wealth management relationship to be run digitally within the next five years.
“We’re seeing a new level of sophistication on the part of HNWIs,” said Yong-Haron. “Direct human direct contact remains, as it’s very important in terms of engagement, but the digital piece supplements and complements the whole client experience.”
Ninety-two percent of HNWIs say that investing their time, money or expertise to make a positive social impact is important to them, with 61% describing it as very or extremely important. Health, education and children’s causes topped investors’ SRI considerations.
The preferred methods of SRI included investment choices with a defined socially responsible objective, giving to charity, and community activity.
Other survey findings included:
- HNWIs have taken on a more global mindset, allocating 37% of their assets outside their home region, up from 25% the year before;
- trust and confidence in the wealth management industry surged;
- confidence in financial markets and regulatory bodies also increased; and
- despite strong wealth growth and increasing confidence levels, HNWIs gave their wealth managers lower performance ratings than last year.
Capgemini forecasts global HNWI wealth will rise 22% by 2016 to $64.3 trillion.
Click here for a story on last year's report.