Guest Comment: Never Mind The Economic Chill, The Search For Wealth Patterns Is Critical

Andrew Shirley

Knight Frank

13 March 2013

Editor's note: Following the recent publication of Knight Frank's annual wealth report, which looked at trends around the world in terms of wealth "hotspots", Andrew Shirley, head of rural property research and editor of this report, comments on its findings and the relevance of such studies. This publication is delighted to share these insights; as ever, it does not necessarily endorse all the views expressed in this article.

Every year since 2007 Knight Frank has published The Wealth Report. Given the economic events that have unfolded since then – the collapse of Lehman Brothers, the credit crunch, double-dip recessions, the eurozone crisis, the list goes on - journalists have sometimes questioned why we create a report that includes the word wealth in its title when many people are getting a lot poorer.

It’s obviously a spurious question; a magazine can’t keep changing its title just to reflect the current economic climate. The editor of WealthBriefing, who has been kind enough to invite me to write this article, won’t, one assumes, suddenly change the name of this publication to: “Diminishing WealthBriefing”, for example.

But it’s easy to be flippant. One of the reasons why we continue to produce The Wealth Report is because in many parts of the world fortunes continue to be created and our audience wants to know where and how those fortunes are being spent and what the attitudes of the people spending them are towards property, investments and other issues such as philanthropy.

The economic uncertainty that continues to grip the world has only seemed to fuel the demand for more information. As traditional wealth markets in the West become more challenging, professionals look increasingly to new parts of the world.

To reflect this demand we have increased the range and volume of data in the report to provide, what we hope, is the global perspective on prime property and wealth.

A key part of the research that informs the content of the report is what we call The Attitudes Survey. The survey is based on the responses from leading private bankers and wealth advisors from around the world. This year’s survey results reflect the decisions and attitudes of a client base worth almost $1 trillion.

One of the findings that might be of most interest to readers of this publication is that 81 per cent of the respondents said their clients were taking an increasingly hands-on approach to their investments. This could be interpreted in a number of ways, but it suggests to the outsider that wealth advisors need to work harder to convince their clients that they are adding value to the management of their investment portfolios.

Even those inside the industry admit the old approach may not be good enough. Arnaud de Servigny, global head of discretionary portfolio management and investment strategy at Deutsche Bank, was happy to be quoted saying: “If the industry is being paid simply to follow a static recipe it is not really adding a lot of value.”

So that’s a challenge for the wealth sector to address, but the report also contains a lot of positives. The good news, according to The Attitudes Survey, is that a positive net balance of respondents said their clients’ wealth increased in 2012 and is likely to grow further this year. There are also likely to be a lot more HNW individuals needing advice.

The world’s HNW individual population is set to grow by 50 per cent over the next decade. Unsurprisingly, much of the growth will be in Asia , but Latin America and Africa are also areas of opportunity that should not be overlooked. Europe and North America will see numbers increase by around 30 per cent.

From the results of our survey it also looks like HNW individuals could need a lot more advice regarding alternative “investments of passion” such as wine, classic cars, art and the like. Their popularity is increasing, but given that this is probably an area where HNW individuals feel they are experts, convincing them to pay for advice could be tricky. But, as the report explains, not all of these markets are as transparent as they first appear.

The Wealth Report also contains a lot of unique data on the performance of the key luxury property markets around the globe. No prizes for guessing that safe-haven locations such as London continue to attract HNW spending, but some new trends are emerging. Dubai and Dublin, for example, are starting to rebound after being hit hard by the credit crunch.