Successfully powering away from the global financial crisis, the Australian wealth management industry continues to flourish in an economy dominated by financial services. Valentina Romeo looks at the latest WealthInsight’s report that forecasts Australian HNWI wealth to reach US$1.42 trillion by 2017.
The Australian economy has experienced two decades of recession-free growth, surviving the Asian financial crisis of 1997 to 2008 and more recently the US and European crisis.
Thanks to its strategic position, a highly structure banking system, a transparent regulatory regime and a large domestic HNWI market, the Australian wealth management industry is rapidly growing.
Recent research by WealthInsight, the London based global wealth consultancy, shows how the Australian wealth landscape performed during the crisis and how it will look in the near future, giving details on the major opportunities in the wealth sector together with a glance on the country’s wealthiest cities, and assets classes and allocation for HNWIs and UHNWIs.
Titled Australia 2013 Wealth Book- Western Wealth, Eastern Growth, WealthInsight’s report says that there were 302,000 HNWIs in 2012, holding US$899 billion in wealth which equates to 15.5% of total individual wealth held in the country.
The report estimates a 33% increase of Australian millionaires from 2012 to 2017. It estimates the number of millionaires will reach 402,000 with the majority of these 100,000 new millionaires earning their wealth from financial services. Furthermore, WealthInsight projected HNWI wealth to grow by 58% to reach US$1.42 trillion in 2017.
When compared to global average figures, Australian HNWIs overperformed during WealthInsight’s review period between 2007 and 2012. Worldwide, HNWI volumes decreased by 0.3% while Australian HNWI numbers increased by 19.7%.
An equal economy
Australia has also one of the healthiest distributions of wealth and the world’s second largest wealth per capita measure. The report shows that wealth per capita in Australia amounted to close to US$344,000, well above the average of US$28,000 and the second highest in the world after Switzerland, which stood at US$498,000 for 2012.
"This reflects a very equal distribution of wealth in Australia", said WealthInsight’s analyst, Oliver Williams. "Although we see billionaires earning stratospheric amounts, the reality is they are a tiny minority in what is a very equal economy", he adds.
HNWIs wealth’s engine
Australian economy has reacted well to the global uncertainty with its dominant financial services sector standing above other sectors. Australia’s extensive financial sector accounted for 10.8% of national GDP in 2013, the report says, and has undergone substantial changes especially due to new technologies and the emergence of new markets.
According to Williams, the sector is becoming the new bastion for Australia’s wealthy. "Although Australia’s established multimillionaires still have large stakes in the mining sector, most of the country’s emerging millionaires are profiting from financial services", he said.
During the review period, the number of HNWIs who acquired their wealth through the financial services industry increased by 28%, more than any other major sectors despite the effects of the global financial crisis. According to the report, 18.4% of millionaires and 15.7% of multimillionaires acquired their wealth from financial services.
"The move to financial services is likely to be fast and highly competitive. The sector already accounts for 10% of Australia’s national output and the nation has one of the world’s largest groups of investment funds," adds Williams.
Looking at Australian best performing asset classes, the report found that real estate remained the largest asset class for Australian HNWIs in 2012, accounting for 28.8% of total HNWI assets, followed by business interests (22.3%), and equities (16.9%). The figures also shows that, over the forecast period, equities are expected to recover as an asset class for HNWIs, followed by real estate, while cash will be the worst performing investment.
Boosting competition with bespoke services
Thanks to its strong capitalised banking sector, Australia can count on a highly developed wealth management market, although it tends to have a strong mass affluent bias.
Differently to other markets around the world, many private banks in Australia offer services to clients with as little as US$1 million in footings and annual income of US$250,000.
The report underlined that many new HNWI clients prefer the hands-on approach of managing their own investments by professional advisors, rather than the traditional discretionary investment control.
In addition to this, Australian banks and fund managers are, reportedly, focusing on better customer-centric IT solutions to gain market share, after years of technology investment focused on developing infrastructure. In 2013, Australia also recorded a high level of M&A activity in the wealth management and private banking industry, with a completion of more than eight deals throughout the year. Among the most recent, the acquisition of Deutsche Asset Management Australia (DAMAL) by Ironbark with approximately US$3 billion of AuM, and Bank of Queenland buying Virgin Money in a US$40 million deal.
A full suite of family offices
Family offices in Australia have increased in popularity over the past 15 years with the majority of the 200 wealthiest families in Australia. WealthInsight found that family businesses alone account for more than two-thirds of all businesses. Ranging from small to medium enterprises, through to large private and public companies, Australian family businesses contribute to 45-70% of the country’s GDP overall, and are present in almost every sector.
In particular, the single-family office (SFO) segment in Australia is extensive and far reaching. According to the report, the top 250 SFOs in Australia accounted for more than 21% (US$180billion) of HNWI assets, while the top 100 SFOs accounted for US$160 billion. Assets managed by these SFOs range from US$100 million to over US$6 billion.
Despite its competitive offer and excluding the family offices segment, the Australian financial hub is still low compared to Asian-Pacific centres such as Singapore and Hong Kong. The next priority for Australian wealth managers will certainly be to attract more offshore funds as well as widening the range of product offered and implement more strategic cost-reductions efforts.
Sydney steals a march
Australian wealth is mostly concentrated around the Sydney area, one of the most multicultural cities in the world and also one of the major immigrants’ destinations of the country. Thanks to its successful manufacturing and port industry, Sydney has become the wealthiest city in Australia overtaking Melbourne as the capital of Australia’s financial industry.
Compared to the other major cities, Sydney accounted for the largest number of HNWIs with a 27% share, equivalent to 81,400 individuals. HNWI volumes in Sydney increased by 18% from 2007 to 2012, which was slightly above the country average.
Followed by Melbourne, it also has fastest HNWI growth- forecast of 45% from 2012 to 2017, equivalent to 118,000 individuals, WealthInsight’s report says.
"Sydney has turned itself into Australia’s financial centre and has therefore attracted more millionaires than any other city in Australia. But cities with undeveloped financial hubs are likely to fall way behind", Williams commented.