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How to Attract HNWI
Mortgage & Insurance Broker Conference,
October 2008
Gary Connolly, Merrion Capital
Glossary of Terms
Bull Market - A random market movement causing an
investor to mistake himself for a financial genius
Market Correction - The day after you buy stocks
Bear Market – When you are able to sleep like a baby.
Waking up every hour crying.
Economist – Someone who talks in somebody else‟s sleep
Broker - Poorer than you were last year
Institutional Investor - An investor from the past 12
months who's now committed
Profit - Religious guy who has a direct line to God
Credit Crunch – Lending market disruption - Not a new
cereal from Kelloggs
New Financial Disclosure – Past performance is not a useful
guide to the future. Unit prices may fall as well as plummet
Time Tellers
Agenda
Understanding Ireland‟s High Net Worth market
Lessons learned from High Net Worth clients and advisors
How can you build your High Net Worth business?
Who are HNWI?
Ultra High Net Worth Individuals
€10M+ in liquid financial assets
UHNW
Individuals with €1M-
HNW €10M in liquid financial
assets
Individuals with €100K-€1M
Mass Affluent in liquid financial assets
Individuals with less than
Mass €100K in liquid financial
assets
Source: Guideline Analysis
Understanding Ireland’s High Net
Worth Market
Between 1995 and 2005, household wealth grew more than
threefold:
71% of Irish wealth is in residential property assets
Lowest weight^ in Financial assets
First generational wealth has important implications:
Tends to be higher risk, in an effort to generate high
returns
Eschew diversification
Demographics are important
Population set to expand by 23% by 2020 ^^
Key wealth generating cohorts will see accelerated
growth
^Includes Spain, France, Belgium, Portugal, Germany, UK, Italy, USA and Japan.
^^ United Nations world population forecast
Source: BOI Private Banking, Wealth of the Nation, 2006.
Ireland’s Asset Allocation
Bonds
Cash 12%
3%
Public & Private
Equity Property
14% 71%
Source: BOI Private Banking, Wealth of the Nation, 2006
International Diversification
Source: Cap Gemini/ Merrill Lynch, World Wealth Report 2006
Diversification
Hedge Against Stupidity….Warren Buffett
Most Basic Tenet of Investing
Some of Your Portfolio Underperforming All of the Time
Dangers of Over-Concentration
Property – 71% of Wealth Attributable to Residential Property
Past Performance…
Cisco during tech-bubble
Dangers of extrapolation best
demonstrated by the King…
Extrapolations on Elvis
In 1960 there were 216
Elvis
impersonators
In 1970, there were 2,400
By 1980, there were an
estimated 6,300
By 1992, there were 14,000
By the year 2020, ONE in
FOUR people will be Elvis
impersonators, bringing the
total to 1.7 billion
worldwide
Diversification
Next decade will see much greater diversification
Emphasis on Property will decline
Quality advice should be tailored accordingly
What leads one bull market NEVER leads the next
May re-assert itself at some point
Trying to predict next bull market leader is far from simple
Demographics…
Population Over 65 Years
Num ber % Total Population (rhs)
2,000,000 35
1,800,000
30
1,600,000
1,400,000 25
1,200,000 20
1,000,000
800,000 15
600,000 10
400,000
5
200,000
0 0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
NCB Ireland’s Demographic Dividend, June 2006
The Economically Active Age Groups
(15 to 64 Years)
3 ,7 5 0 ,0 0 0
3 ,5 0 0 ,0 0 0
3 ,2 5 0 ,0 0 0
3 ,0 0 0 ,0 0 0
2 ,7 5 0 ,0 0 0
2 ,5 0 0 ,0 0 0
2 ,2 5 0 ,0 0 0
2 ,0 0 0 ,0 0 0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Average Annual Growth Rates: 2005-10: 2.1%
2010-15: 1.5%
NCB Ireland’s Demographic Dividend, June 2006 2015-20: 1.0%
The Baby Boom Generation
2005
Male Female
90 years
80 years
70 years
60 years
50 years
40 years 9
30 years
20 years
10 years
Under 1 year
-60,000 -40,000 -20,000 0 20,000 40,000 60,000
NCB Ireland’s Demographic Dividend, June 2006
The Baby Boom Generation
2020
Male Female
90 years
80 years
70 years
60 years
50 years
40 years
30 years
20 years
10 years
Under 1 year
-60,000 -40,000 -20,000 0 20,000 40,000 60,000
NCB Ireland’s Demographic Dividend, June 2006
The Baby Boom Generation
2050
Male Female
90 years
80 years
70 years
60 years
50 years
40 years
30 years
20 years
10 years
Under 1 year
-60,000 -40,000 -20,000 0 20,000 40,000 60,000
NCB Ireland’s Demographic Dividend, June 2006
Household Income & Spending
(By Age of Head of Household, % of Total)
Disposable Income Total Household Expenditure
30
25
20
15
10
5
0
< 25 25-34 35-44 45-54 55-64 65+
NCB Ireland’s Demographic Dividend, June 2006
Lessons learned from High Net
Worth Clients and Advisors
…evidence from Canada
Democratisation of Wealth Management
Institutions
Investor Expectations Supplier Product Push
• more planning Ultra HNW • value added services
• access to experts • sophisticated products
• customised solutions • leverage technology
• product choice HNW
• global choice
Mass Affluent
Investors behave like the wealth segment above them
Ultra HNW demands predict future HNW demands
Commoditisation of Investment Management
Solutions that have already migrated from Institutions to the
Mass Affluent:
efficient frontier analysis
index funds
product categorization (growth vs. value, small cap vs. large cap)
manager of managers
style diversification
hedge funds / alternative investments
Mass Affluent clients are already looking for “institutional”
services
Lessons from the Ultra High Net Worth
segment
62% have fired an Investment Manager in the last 18 months
Client: “I wish more advisors would...”
#1 response: Listen (25%)
#2 response: Be more honest and open (19%)
Advisor: “I wish more clients would...”
#1 response: Educate themselves with our help (20%)
#2 response: Be more honest and open (18%)
#3 response: Communicate needs better (13%)
Lesson: HNW relationships are hard work. Superficial relationships don’t last.
Source: Institute for Private Investors, IPI Report 2002
Lessons from the Ultra High Net Worth segment
What Wealth Management services do you value the most?
Services most Valued
Investment Advice 92%
Portfolio Management 78%
Tax Planning 70%
Inheritance / Estate Plans 59%
Trust Planning & Administration 49%
Next Generation Mentoring 26%
Succession Planning 14%
0% 20% 40% 60% 80% 100%
Lesson: Investment management services are important, but they
are only part of the complete wealth management suite.
Source: Institute for Private Investors, IPI Report 2004
Lessons from the Mass Millionaires
Percentage of Mass Millionaires who:
??
Rely on an Investment Advisor 73%
Use two or more Investment Advisors 25%
Say a formal financial plan is important to them 75%
Do NOT have a formal financial plan 75%
Lesson: Investors are looking for increased effort from Advisors
in establishing and periodically reviewing their Wealth Plans.
Lesson: Unmet needs are going to be met by someone.
Source: Taddingstone 2003 Mass Millionaires Report
Building your High Net Worth Business
Wealth Management as distinct from
Fund (Asset) Management
The two can be confused as Irish Market has companies offering
both.
Asset management is a key feature, but Wealth Management has a
greater emphasis on financial advice and is concerned with gathering,
maintaining, preserving, enhancing and transferring wealth.
Products include:
Core banking-type products
Lending products, such as margin lending, credit cards,
mortgages and private jet finance.
Insurance and protection products, such as property and health
insurance, life assurance and pensions.
Asset management in its broadest sense: discretionary and
advisory, financial and non-financial assets (such as real estate,
commodities, wine and art), conventional, structured and
alternative investments.
Advice in all shapes and forms: asset allocation, wealth
structuring, tax and trusts, various types of planning (financial,
inheritance, pensions, philanthropic).
Family Offices– „concierge-type‟ services, including yacht broking,
art storage, real estate location, and hotel, restaurant and
theatre booking.
It’s a Crowded Field Out There!
…but room for quality offering
Clients Wealth & Investment Demands
Exclusivity, or at least appearance of
Less product driven sales approach
required
Lack of take-up of Discretionary
Mandates a sign
What Works Best
TRANSPARENCY, TRANSPARENCY, TRANSPARENCY
Fee-based advice
Solution driven sales, not product/ remuneration
driven
Product exclusivity is somewhat illusive
Can be bought on a transaction-only basis
Service is easier to make proprietary – Service
Exclusivity…
Don‟t be afraid to charge an ongoing fee for it
Challenges Advisors face in the HNW market
Deliver more service to HNW clients without significantly
increasing costs
Best practices:
Standardise your workflow
Take a broad view of client relationships
Rigorously segment your client base
Practice continuous professional development
Perform your core competency and outsource the rest
Final Thoughts
o This is a crowded market with many financial services firms
having a relationship with the same customer
o Competitors are continuously innovating. Therefore, it is
imperative to monitor their programs – targeted to take your
customers!
o No agreed single „preferred‟ model – though fee based offering
likely to stand the test of time
o With a quality offering, HNW market offers great rewards
o Current difficulties are CYCLICAL – the growth in wealth
management is SECULAR
THANKYOU AND BEST OF LUCK!
General Disclosures
Merrion Stockbrokers Ltd is a member firm of the Irish Stock
Exchange and the London Stock Exchange. Merrion Fund Management
Limited is authorised by the Financial Regulator as a Fund Manager
and Merrion Stockbrokers is regulated by the Financial Regulator.
Merrion Stockbrokers is the investment manager to the Funds. Both
companies are subsidiaries of Merrion Capital Group and part of
Landsbanki Group.
Past performance is not necessarily indicative of future
performance. The value of investments may fall as well as rise and
investors may not recover the amount invested. Any decision to
invest must be based on information contained in the prospectus.
