Wealth in the UK: Sizing the Market Opportunity 2017

Table of Contents

Table of Contents

EXECUTIVE SUMMARY 2

1.1. Growth in the UK will be muted after a strong 2016 2

1.2. Key findings 2

1.3. Critical success factors 2

2. SIZING AND FORECASTING THE UK WEALTH MARKET 8

2.1. The UK has a major offshore business 8

2.2. Growth in the onshore market is driven by the HNW segment 9

2.2.1. The UK affluent market remains the fourth largest in the world 9

2.2.2. Affluent individuals represent 28.9% of the adult population 10

2.2.3. The affluent population holds 91.8% of retail liquid assets, with the wealthiest set to record the strongest growth 11

2.2.4. The UK's onshore wealth is concentrated in London and the South East 13

3. DRIVERS OF GROWTH IN THE UK WEALTH MARKET 14

3.1. 2016 saw the highest growth in retail savings and investments since the financial crisis 14

3.1.1. The total value of savings and investments in the UK will exceed GBP3tn in 2018 14

3.1.2. Deposits account for 48.4% of the total market 15

3.1.3. Mutual funds will continue to drive growth 17

3.2. Retail deposits have outperformed GDP 18

3.2.1. After a strong 2016, shrinking real rates of return will limit future growth 18

3.2.2. Net inflows have been the primary driver for standard deposit growth 19

3.2.3. UK savers prefer instant access accounts to time deposits 19

3.3. Bonds account for only a fraction of UK retail savings, and inflation will limit future growth 20

3.4. Uncertainty regarding future stock market performance is restraining equity holdings but boosting mutual funds 22

3.4.1. Fueled by the weak pound, the FTSE 100 reached record levels in 2016 22

3.4.2. The performance of the stock market has had a direct impact on equities and mutual funds 23

3.4.3. Mutual funds are relatively well diversified, which shields performance from the vagaries of the stock market 25

4. HNW INVESTMENT PREFERENCES 27

4.1. UK HNW individuals show a strong preference for liquid investments 27

4.1.1. UK HNW investors have switched from direct property to ETFs 27

4.1.2. The wealthiest UK individuals are once again turning their attention to hedge funds 27

4.2. In addition to their onshore portfolios, UK HNW individuals hold 22.7% of their wealth offshore 28

4.2.1. Tax efficiency remains the number one motivation for offshore investment 29

4.2.2. The Isle of Man and Ireland are the primary booking centers for UK HNW offshore wealth 34

5. APPENDIX 38

5.1. Abbreviations and acronyms 38

5.2. Supplementary data 38

5.3. Definitions 49

5.3.1. Affluent 49

5.3.2. Domicile 49

5.3.3. DTC 49

5.3.4. Exchange of information 49

5.3.5. FATCA 50

5.3.6. HNW 50

5.3.7. Liquid assets 50

5.3.8. Mass affluent 51

5.3.9. Mass market 51

5.3.10. Net inflows 51

5.3.11. Onshore 51

5.3.12. Performance/interest growth 52

5.3.13. Residency 52

5.3.14. TIEAs 52

5.4. Methodology 52

5.4.1. GlobalData's 2016 Global Wealth Managers Survey 52

5.4.2. Global Wealth Model methodology 53

5.4.3. UK Retail Savings and Investments Methodology 53

5.4.4. Exchange rates 54

5.5. Bibliography 54

5.6. Further reading 56

List of Figure

List of Figures

Figure 1: Non-resident deposits accounted for 41.7% of the UK retail deposit market in 2016 8

Figure 2: HNW individuals account for 0.69% of the UK adult population, making the big opportunity mass affluent-focused 10

Figure 3: The affluent population hold 91.8% of retail liquid assets in the UK 12

Figure 4: London and the South East account for 29.2% of onshore affluent liquid assets in the UK 13

Figure 5: The value of UK retail savings and investments increased by more than 8% in 2016 15

Figure 6: Deposits account for half of the UK retail savings and investments market 16

Figure 7: Mutual funds will be growing faster than any other savings or investment products 17

Figure 8: Retail deposits have shown strong growth, outperforming GDP 18

Figure 9: 2016 saw record-high inflows into deposits as savers shifted from ISA accounts to regular bank products 20

Figure 10: Higher inflation will limit growth in direct retail bond investments 21

Figure 11: As of December 2016, the oil and gas industry is the top industry in the FTSE 100 index 22

Figure 12: Retail mutual fund and equity investments correlate strongly with the performance of the UK stock market 23

Figure 13: Stock market volatility has had a negative effect on direct retail equity investments 24

Figure 14: UK mutual funds have been continuously attracting new money 25

Figure 15: Mutual funds in the UK are predominantly invested in equities 26

Figure 16: Outside traditional assets, property ETFs and hedge funds are the most notable components of UK HNW portfolios 28

Figure 17: UK HNW individuals hold 22.7% of their portfolios offshore 29

Figure 18: Tax is the key driver of offshore investment among UK HNW individuals 30

Figure 19: The Isle of Man and Ireland combined host almost half of UK HNW offshore wealth 35

Figure 20: The UK has DTCs and TIEAs with a number of global offshore centers 36

List of Table

List of Tables

Table 1: UK Income tax rates 31

Table 2: Dividend tax rates 32

Table 3: Capital gains tax rates for individuals 32

Table 4: Stamp Duty Land Tax rates 33

Table 5: Land and buildings transaction tax rates in Scotland 33

Table 6: Annual tax on enveloped dwellings rates 34

Table 7: Total retail resident and non-resident deposits (GBPbn), 2006-16 38

Table 8: Total retail resident and non-resident deposits (GBPbn), 2006-16 38

Table 9: Total UK adult population by pound sterling asset bands (000s), 2010-15 39

Table 10: Forecast total UK adult population by pound sterling asset bands (000s), 2016e-20f 40

Table 11: Total UK adult population by US dollar asset bands (000s), 2009-15 41

Table 12: Forecast total UK adult population by US dollar asset bands (000s), 2016e-20f 42

Table 13: Total UK onshore liquid wealth by asset band (GBPbn), 2010-15 43

Table 14: Forecast total UK onshore liquid wealth by asset band (GBPbn), 2016e-20f 44

Table 15: Total UK onshore liquid wealth by asset band ($bn), 2010-15 45

Table 16: Forecast total UK onshore liquid wealth by asset band ($bn), 2016e-20f 46

Table 17: Total UK onshore liquid assets by region and affluent segment (GBPbn), 2016 47

Table 18: UK retail savings and investments by asset class ($m), 2010-15 47

Table 19: Forecast UK retail savings and investments by asset class ($m), 2016e-20f 48

Table 20: Net inflows and interest performance of UK retail deposits excluding cash ISAs (GBPm), 2007-16 48

Table 21: Net inflows and performance gains of UK retail equities (GBPm), 2007-16 48

Table 22: Net inflows and performance gains of UK mutual funds (unit trusts, OEICs, and investment trusts) (GBPm), 2007-16 48

Table 23: Pound sterling-US dollar exchange rate, December 31, 2015 and December 31, 2016 54