World Wealth Report offers CIOs insight

“There’s nothing surer, the rich get rich and the poor get poorer” said the jazz age song Ain’t We Got Fun. Sure or not, it’s a claim that gets new support from the latest annual World Wealth Report, published this month by Merrill Lynch and Capgemini. The report shows that in 2009 the number of HNWIs (High Net Worth Individuals – those with ‘investable assets’ of $1 million or more) worldwide increased by 17 per cent while their total wealth grew by 19 per cent to reach $39 trillion.

So what? You might ask. What’s that got to do with us poor labourers in the hot and dusty vineyards of IT? Well, quite a lot, actually, if you take a careful look at the report, and for three reasons in particular.

Firstly, the report reveals some highly illuminating trends in who the wealthy are, where they live and where they invest. There are some big changes happening, and perhaps the wilier CIOs might take care to know where their major investors are likely to be located in a few years’ time – and perhaps even try to figure out if their next boss is going to be British, American, Chinese or Brazilian! More seriously perhaps, I might argue that any senior executive of a multi-national – or an organisation that does business internationally – should get a broad understanding of those big investors who are, after all, the tail that wags the dog in many cases.

Secondly, the report highlights a sea change in the degree of scrutiny to which the wealthy subject their investments, existing and potential. It has become far more intense and detailed of late. This is hardly a surprising development after the knocks and shocks of the last few years, but it does mean that investors are looking hard at how well companies in their portfolio are managed – their strategies, products, markets and prospects. And that, inevitably in an IT-dependent age, sharpens the Board’s focus on IT and how well the company is supported, and seen to be supported, by its core systems capabilities.

Thirdly, of importance to financial services CIOs specifically, the report shows how the global financial crisis has caused a lasting shift in investor psychology, and a shift to which wealth management firms must respond, with new information and analytics (and therefore technology) playing a vital part in that response. HNWIs had their confidence shaken in 2008 and as a result are seizing a more active role in investment decisions. They are, for example, looking to their advisors for much more detailed and convincing ‘scenario analysis’ of their proposed investment plans, with future probabilities based on objective reviews of all the relevant historical data.

Let’s look at a few of the report’s findings. The remarkable global rebound in HNWI wealth in 2009 (after the sharp falls of 2008) continued to be driven by the world’s emerging markets -and especially China, India and Brazil. In fact Asia-Pacific’s HNWI population leapt from 2.4 million to three million from 2008 to 2009, and their wealth soared to $9.7 trillion, exceeding for the first time the $9.5 trillion held by Europe’s HNWIs. The report predicts that China, India and Brazil will remain the engines of HNWI growth in the coming years.

Even the UK, despite suffering a five per cent drop in GDP last year, showed the number of HNWIs rising by 24 per cent to reach 448,000 in 2009. However no prediction is provided for what will happen in 2011 following the recent emergency budget.

A key finding of the report is that HNWIs are educating themselves about financial products and investment risks before conferring with their advisors. And when they do meet, they are seeking more specialised advice, greater transparency and simplicity, and effective risk management capabilities from those advisors. All of which means that wealth management specialists are being forced to look in much more detail than ever before into how all aspects (including IT) of how companies are being managed. Or at the very least they have to stay a few steps ahead of their clients in this kind of analysis – clients who are themselves increasingly looking at far more detail into their prospective investments than just today’s share price.

It is perhaps encouraging to see a marked recovery in 2009 in the degree of confidence that HNWIs have in their wealth management advisors, a fact surely due at least in part to this increased commitment to detailed analysis. The bad side of the coin, albeit one that will surprise nobody, is the catastrophic collapse in the confidence that wealthy investors have in regulatory bodies. An astonishing 71 per cent of HNWIs worldwide say they lack trust in the regulators.

There are many other interesting facts and insights in the 14th Annual World Wealth Report (World Wealth Report 2010). The full report can be downloaded free of charge by going to www.capgemini.com/worldwealthreport.