Wealth in Germany: HNW Investors 2017

Table of Contents

Table of Contents

1. EXECUTIVE SUMMARY 2

1.1. Business interests are the leading generator of German HNW wealth 2

1.2. Key findings 2

1.3. Critical success factors 2

2. PROFILING THE GERMAN HNW INVESTOR 8

2.1. The characteristics of the German economy have defined its HNW population 8

2.1.1. German HNW investors are typically older than their European peers 8

2.1.2. The majority of German HNWs are family business owners and entrepreneurs 9

2.1.3. A higher proportion of German HNW individuals are CEOs or chairpersons 10

2.1.4. Many HNW investors have built their fortunes in manufacturing 11

2.2. Expats form a small proportion of the overall HNW population 12

2.2.1. The number of HNW expats in Germany is in line with the European average 12

2.2.1. Most HNW expats are from EU or Schengen Area countries 13

3. GERMAN HNW INVESTMENT STYLE PREFERENCES 15

3.1. German HNW investors use several wealth management firms to save them time and to benefit from their expertise 15

3.1.1. German HNW investors use an average of three wealth management firms 15

3.1.2. Wealth managers are chosen for the time they save their HNW clients and their expertise 16

3.2. With a greater preference for advisory and execution-only services, German HNWs reveal their desire for control and lower costs 17

3.2.1. While discretionary mandates remain most popular, German HNW investors have a greater preference for advisory services than the European average 17

3.2.2. HNW investors choose discretionary asset management as a means of saving time, although many have transitioned from advisory services once trust has been built 18

3.2.3. HNW investors choose advisory asset management as a means of retaining control and lowering fees 18

3.2.4. German execution-only HNW clients have confidence and seek control while avoiding management fees 19

3.3. Demand for most forms of wealth management will increase, with wealth managers needing to keep a close eye on the rise of robo-advice 20

3.3.1. German wealth managers are currently experiencing the highest demand for advisory and discretionary mandates 20

3.3.2. Wealth managers are seeing weak demand from HNW clients for robo-advice 21

3.3.3. Wealth managers expect demand for advisory and discretionary mandates to increase further in the next two years 22

3.3.4. HNW demand for robo-advice will increase, requiring a strategic response from wealth managers 23

4. UNDERSTANDING ASSET ALLOCATION TRENDS AMONG GERMAN HNW INVESTORS 24

4.1. Poor yields will push bond investments down, with HNW investors chasing greater returns in equities 24

4.1.1. German HNW asset allocation has traditionally been underweight on equities 24

4.1.2. Equities, property, and alternatives will appeal to HNWs seeking greater returns over the next 12 months 24

4.2. HNW demand for equities will increase as investors seek higher returns 25

4.2.1. Equities constitute 36% of HNW investors' managed wealth and remain a turbulent asset class 25

4.2.2. While German HNWs have a higher propensity for direct equity holdings, the ETF market is growing rapidly 26

4.2.3. Dividend income and capital appreciation opportunities fuel HNW appetite for equities 27

4.3. Bond investments are forecast to decrease in popularity 28

4.3.1. German HNW bond holdings are in line with regional allocations, although government bonds are more popular 28

4.3.2. Bond investments will continue to decline in popularity 29

4.4. Cash and near-cash allocations will fall as real returns deteriorate 29

4.4.1. The German HNW cash portfolio is largely in local currency deposits 29

4.4.2. Demand for cash investments will decrease, pushed down by low interest rates and rising inflation 30

4.5. Property will be an increasingly attractive option for risk-averse investors 31

4.5.1. German HNW investors are more likely to hold direct property investments 31

4.5.1. Demand for property investments will increase over the next 12 months 32

4.5.2. The perception of safety, inflation protection, and rental income drive HNW appetite for property 33

4.6. Although only a small component of HNW portfolios, demand for alternatives is forecast to increase 34

4.6.1. Private equity forms the majority of alternative investments 34

4.6.1. Demand for alternatives is forecast to increase 35

4.7. Demand for commodities will increase as German HNWs seek inflation protection and safer havens 36

4.7.1. While exposure remains low, German HNWs are more likely to hold direct commodities 36

4.7.2. Commodities are chosen for safety and inflation protection 37

4.7.3. Demand for commodities is expected to increase over the next year 37

5. HNW PRODUCT AND SERVICE DEMAND 38

5.1. Demand for planning services is moderate 38

5.1.1. Overall German demand for planning services is more muted than in Europe 38

5.1.2. Demand for tax and pension advice lags significantly behind the regional average 38

5.2. Demand for planning services will increase 39

5.2.1. Demand for financial and inheritance planning is expected to rise 39

6. APPENDIX 41

6.1. Abbreviations and acronyms 41

6.2. Definitions 41

6.2.1. Affluent 41

6.2.2. Mass affluent 41

6.2.3. HNW 41

6.2.4. Liquid assets 41

6.3. Methodology 41

6.3.1. GlobalData's 2016 Global Wealth Managers Survey 41

6.3.2. GlobalData's 2015 Global Wealth Managers Survey 42

6.3.3. GlobalData's WealthInsight 42

6.4. Bibliography 42

6.5. Further reading 43

List of Figure

List of Figures

Figure 1: German HNW investors are typically older than their European peers 2

Figure 2: Business interests are the leading generator of German HNW wealth 3

Figure 3: A higher proportion of German HNW individuals are CEOs or chairpersons compared to Europe 4

Figure 4: Manufacturing is by far the leading industry from which German HNW investors have created their wealth 5

Figure 5: The proportion of German HNWs who are expats is largely in line with Europe 6

Figure 6: Almost a quarter of HNW expats in Germany are from the US 7

Figure 7: The majority of German HNW clients use three wealth managers and place over half of their investments with their main manager 9

Figure 8: HNW investors' lack of time and expertise drive demand for professional management 10

Figure 9: Allocations in advisory and execution-only mandates are above the regional average 11

Figure 10: HNWs use discretionary asset management to save time, and have often transitioned from advisory mandates 12

Figure 11: Execution-only clients seek control and have confidence managing their investments 13

Figure 12: German wealth managers are experiencing weak demand for automated advice from their HNW clients 15

Figure 13: Demand for robo-advice is expected to grow more than for execution-only services 16

Figure 14: Current German HNW asset allocation is broadly in line with European trends 18

Figure 15: Over half of Germany's HNW equity portfolio is held directly 19

Figure 16: HNW demand for equities is overwhelmingly expected to increase 20

Figure 17: German HNW bond allocations are broadly in line with the wider region 21

Figure 18: As elsewhere in Europe, bonds will continue to lose their appeal 22

Figure 19: HNW investors hold around 13% of their investments in cash and near-cash products 23

Figure 20: German HNW investors will shift their allocation away from deposits 24

Figure 21: German HNW investors hold almost 8% of their wealth in property investments 25

Figure 22: The perception of safety, rental income, and inflation protection are the main drivers for property investments 26

Figure 23: Private equity accounts for the largest proportion of German HNW investment in alternatives 27

Figure 24: Demand for alternatives is set to rise in the future 28

Figure 25: A tiny proportion of German HNW investments are held in commodities, aligned with the regional average 29

Figure 26: Demand for commodity investments will increase as investors seek safer havens 30

Figure 27: Demand for pension and tax planning services is particularly low in Germany 32

Figure 28: Over half of wealth managers expect demand for financial and inheritance planning to increase 33

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