Wealth management firms are missing out huge new business opportunities in the former Soviet Union countries and should be gearing up to target the region’s rapidly growing base of high net worth individuals, according to new research from Datamonitor.

According to the firm’s market analysis there are still 1.4 million affluent individuals in Russia, Kazakhstan and the Ukraine, despite the effects of the financial turmoil of recent years, and this figure is set to see rapid growth. Among the research’s headline figures is the prediction that the number of HNW individuals in Russia will rocket up by almost 30 per cent by 2014. What makes the region even more attractive is the relative newness of the concept of wealth management in the region, meaning that there is ample scope for newcomers to the market to make their mark, the firm argues.

“The growth in the number of affluent individuals in former Soviet countries is significant for international banks for a number of reasons. One key reason is that although some local banks are starting to offer services for the affluent - Russia being the most developed market - wealth management is still a new concept and services remain limited, particularly in Kazakhstan,” said Michele Gorman, analyst at Datamonitor.

In its research paper, Targeting Key Ex-Soviet Bloc Clients in Wealth Management, the firm notes that the region’s HNW individuals are predominantly self-made and so while as entrepreneurs they may know a lot about their own industry, they typically know little about financial services. Additionally, there is an “inherent mistrust” of their own banking system among the region’s affluent – arguably well-justified sentiments which mean there are significant opportunities for international banks.

Offshore banking in particular presents attractive growth prospects, says Datamonitor, because entrepreneurial clients have no particular need to keep their assets onshore as they have already built their businesses. Such clients hold an estimated £34 billion ($55 billion) offshore and banks both local and international are understandably keen to tap this market.

However, Datamonitor warns that such banks face a number of hurdles, the first of which is the difficulty of attracting and retaining talented wealth managers in the region. Loyalty is particularly important to wealthy individuals in these countries so ensuring the right people are on the ground is essential, the research states.

“Understanding the wealthy in former Soviet countries will become increasingly important to international banks as the number of [HNW] individuals continues to increase over the next few years. This is important in Russia where the onshore wealth management industry is developing with a number of players having entered the market in the last few years,” said Gorman.

“To ensure they continue to dominate, international banks will need to work hard to make their products more attractive.”

One key consideration related to making products more attractive is that clients in the region tend to be risk-averse, particularly in light of recent events. Clients have often built their wealth from scratch and are understandably keen to hang on to what they have.

“Therefore, although they may have taken risks to make their money, they hold the majority of their investments in ‘safe’ products, making them particularly risk adverse, especially in the case of the Ukrainians and the Kazaks,” the report says.

The growth of the wealth management market in Russia and the CIS countries has certainly not gone unnoticed by WealthBriefing. A number of international firms have been rapidly expanding their capabilities in the region and making high-profile hires. Much has been said about the explosive growth of the industry in Asia, but it is probable that Western firms which neglect Russia and the CIS could be left kicking themselves for not looking closer to home for growth.