Investment managers should be rethinking portfolio diversification strategies for their HNW clients as recent regulatory changes will encourage flows of assets to the US, already leading as the world’s biggest offshore market.
Although there are some delays, in 2019 the vast majority of committed countries will be exchanging information under the Organisation for Economic Co-operation and Development’s (OECD) common reporting standard (CRS).
The OECD’s CRS has a focus on clamping down on tax evasion but it will not largely disrupt the offshore market. Tax benefits are not the only motivator to look overseas for investments, geographic diversification, and access to a better range of investments, are all unaffected by CRS. Nevertheless, the US market which is exempt from CRS, will continue to benefit from not participating. The country already has 27% of HNW global offshore wealth, and this proportion can increase.
Further flow of assets to the US might jeopardize investment managers’ efforts to geographically diversify client portfolios. According to the report, only a third of wealth managers GlobalData surveyed are concerned about a potential market downturn. However, it will be paramount that wealth managers make their clients aware of its possibility, to avoid them being taken by surprise if the markets do descend.
Advisors should encourage diversification both onshore and offshore. In particular, alternatives will be a key way to diversify portfolios as they cope with market downturns better than traditional asset classes. In order to drive uptake in alternatives, client trust and education will be vital.
The latest report, "2019: Trends to Watch in Global Wealth Management", identified four main trends to come in the year -
- In the wake of CRS, non-participating countries such as the US will continue to grow as offshore centers.
- Volatility will require a rethink of diversification.
- As use of technology increases, wealth managers will have to take more serious action towards cybersecurity.
- New client demographics will become more prevalent.
- The value of non-resident deposits in the UAE surged in 2018, with the Common Reporting Standard (CRS) potentially contributing to this trend.
- The US, where 27% of HNW offshore wealth is already booked, will continue to benefit from not participating in CRS.
- Only 43% of wealth managers are concerned about the effect of data breaches on their company’s brand, although nearly 60% agree their clients are increasingly worried about data breaches and cybercrime.
- The older demographics are more prudent and less likely to be a victim of financial fraud, but their losses are likely to be higher than among younger age groups.
- Female millionaires are younger than men. In the Middle East and Africa, 71.7% of female HNW individuals are 50 and under, while 70% of HNW men are 51 and over.
Reasons To Buy
- Understand the key trends impacting the wealth management industry in 2019 and how to respond.
- Discover the effect of CRS on the offshore industry and how to benefit.
- Understand the recommended approach to client portfolio strategies in the context of current market conditions.
- Learn about risks resulting from the industry’s growing dependence on technology and how to hedge against cyber threats.
- Stay ahead of your competitors by reaching out to new emerging client demographics that offer huge revenue growth potential.