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Market Research Report

Discretionary Asset Management: HNW Demand and Drivers

Published by GlobalData Product code 404555
Published Content info 40 Pages
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Discretionary Asset Management: HNW Demand and Drivers
Published: November 28, 2016 Content info: 40 Pages
Description

Although discretionary asset management can be considered the most traditional form of wealth management, the uptake of such services varies across different markets. HNW investors in developed countries have longstanding relationships with their private bankers, and trust their ability to successfully manage investments.

As with much of the terminology in wealth management, "discretionary" asset management, portfolio management, and mandates can cover a wide range of services and investments depending on the country. According to GlobalData discretionary asset management covers any investment portfolio or portion thereof whereby the investment manager has control over buy-and-sell decisions on securities and other investment products in the portfolio, after evaluating the client's investment preferences, risk tolerance, and goals.

Discretionary mandates are just one of the options of investment management services that HNW investors can choose from. While a share of millionaires' assets remains outside any wealth managers' platforms, on average it is no more than a tenth of the total portfolio.

Globally, 51.9% of HNW wealth is placed in discretionary mandates. Generally discretionary mandates appear to be more accessible to clients than advisory services, as many competitors (including UBS Wealth Management and JP Morgan Private Bank and their UK propositions) have set higher minimum investment thresholds for advised portfolios.

Only a third of HNW investors' portfolios in Asia Pacific are managed under discretionary mandates.

The wealthiest individuals in the region tend to place much importance on diversification when it comes to using different products and services for their investments. The opposite situation can be observed in North America. Here millionaires have long-established relationships with their financial advisors, which transfers to higher trust and concentration of wealth with their main wealth managers.

GlobalData's report "Discretionary Asset Management: HNW Demand and Drivers" report draws on 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
Table of Contents
Product Code: VF0095IA

Table of Contents

EXECUTIVE SUMMARY

  • Discretionary mandates remain the domain of developed markets
  • Key findings
  • Critical success factors

SIZING THE GLOBAL MARKET FOR DISCRETIONARY ASSET MANAGEMENT

  • 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

DRIVERS FOR DISCRETIONARY ASSET MANAGEMENT

  • 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

UNDERSTANDING THE COMPETITIVE LANDSCAPE

  • 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

APPENDIX

  • Definitions
    • Developed (mature) economies or markets
    • Developing (emerging) economies or markets
    • HNW
    • Liquid assets
    • Mass affluent
    • Mass market
    • Robo-advisor
  • Supplementary data
  • Methodology
    • 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
  • Bibliography
  • Further reading
  • About Verdict Financial
  • Disclaimer

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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