How to Attract HNWI

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How to Attract HNWI

• Mortgage Insurance Broker Conference, October
  2008
• Gary Connolly, Merrion Capital

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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 elses
  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

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Time Tellers
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Agenda

• Understanding Irelands High Net Worth market
• Lessons learned from High Net Worth clients and
  advisors
• How can you build your High Net Worth business?

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Who are HNWI?
Source Guideline Analysis
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Understanding Irelands 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.
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Irelands Asset Allocation
Source BOI Private Banking, Wealth of the
Nation, 2006
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International Diversification
Source Cap Gemini/ Merrill Lynch, World Wealth
Report 2006
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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
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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
• 
  
  

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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

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Demographics
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Population Over 65 Years
NCB Irelands Demographic Dividend, June 2006
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The Economically Active Age Groups (15 to 64
Years)
Average Annual Growth
Rates 2005-10 2.1 2010-15
1.5 2015-20 1.0
NCB Irelands Demographic Dividend, June 2006
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The Baby Boom Generation
NCB Irelands Demographic Dividend, June 2006
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The Baby Boom Generation
NCB Irelands Demographic Dividend, June 2006
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The Baby Boom Generation
NCB Irelands Demographic Dividend, June 2006
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Household Income Spending(By Age of Head of
Household, of Total)
NCB Irelands Demographic Dividend, June 2006
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Lessons learned from High Net Worth Clients and
Advisorsevidence from Canada
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Democratisation of Wealth Management

• Investor Expectations
• more planning
• access to experts
• customised solutions
• product choice
• global choice

• Supplier Product Push
• value added services
• sophisticated products
• leverage technology

Investors behave like the wealth segment above
them Ultra HNW demands predict future HNW demands
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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
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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 dont last.
Source Institute for Private Investors, IPI
Report 2002
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Lessons from the Ultra High Net Worth segment

• What Wealth Management services do you value the
  most?

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
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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
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Building your High Net Worth Business
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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.

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Its a Crowded Field Out There!
but room for quality offering
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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

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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
• Dont be afraid to charge an ongoing fee for it

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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

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Final Thoughts

• This is a crowded market with many financial
  services firms having a relationship with the
  same customer
• Competitors are continuously innovating.
  Therefore, it is imperative to monitor their
  programs targeted to take your customers!
• No agreed single preferred model though fee
  based offering likely to stand the test of time
• With a quality offering, HNW market offers great
  rewards
• Current difficulties are CYCLICAL the growth in
  wealth management is SECULAR

THANKYOU AND BEST OF LUCK!
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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.