cap-merrill world wealth report_2011_eng

8/3/2019 Cap-Merrill World Wealth Report_2011_Eng

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W Weath ret

2011


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Worlds Population of HNWIs and 4

Their Wealth Continued to Expand in 2010

2010 in Review: Global Economy Returned to Growth 8

and Markets Performed Solidly

HNWIs Equity Allocations Rose in 2010 and Emerging 16

Markets Provided Profit Opportunities

HNWI Demand for Investments of Passion Rebounded 20

as Wealth Grew in 2010

Demographic Profile of HNWIs Shows Slight Shift 22

but the Impact Will Likely Be Gradual

Spotlight: Wealth Management Firms Can Leverage Enterprise 25

Value to Better Address HNWIs Complex Post-Crisis Needs

HNWIs Have Regained Trust in Advisors and Firms but Are More 25

Conservative and More Vigilant Post-Crisis

Firms Face a New Industry Reality 28

Full-Service Firms Are Likely to Be Better Positioned 29

to Weather Client and Industry Shifts

Enterprise Value Could Be Key for Firms and HNWIs 30

in the Post-Crisis Paradigm

Highest Priority for Firms is HNW Value Levers 31

That Are Important but Poorly Served

Firms Stand to Reap Significant Benefits 33

After Overcoming Challenges

Some Firms Are Already Deploying Innovative 34

Enterprise Value Tactics

Priorities in Enterprise Value Implementation Are Communication, 34

Incentives, and Support Excellence

Appendix A: Methodology 36

Appendix B: Select Country Breakdown 37


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TO OUR READERS,

Capgemini and Merrill Lynch Global Wealth Management are pleased to present the2011 World Wealth Report.

Or two firms have been workin toether for more than 20 years to stdy the macroeconomic and other factors

that drive wealth creation and to better nderstand the key trends that affect hih net worth individals (HNWIs)

arond the lobe.

In 2010, many lobal financial markets performed well, albeit rowin at more modest rates than the sharp rebondsseen in 2009 after 2008s staerin losses. The nmber of HNWIs and their wealth also rew moderately, with

HNWIs remainin more conservative than before the crisis bt willin to be opportnistic in seekin yield.

The lobal economy retrned to rowth, driven by stron activity in emerin economies, most notably fast-rowin

Asia-Pacific nations sch as China and India.

Many nations are still workin throh the after-effects of the financial crisis, as evidenced by the still-simmerin

soverein-debt crisis in Erope and the lare fiscal deficits in many nations, which have been made worse by crisis-

related stimls.

HNW clients are very aware of these and other risks, incldin the political trmoil in the Middle East and the

hmanitarian and nclear crises in Japan. In these ncertain times, HNWIs are keen to preserve capital and expecttheir financial strateies to help them achieve life oals, not jst arbitrary investment benchmarks.

Wealth manaement firms and Advisors are bein challened to consider all these HNWI priorities, while manain

the rowin marin pressre and competition in their own indstry.

Fortnately, Firms and Advisors have reained the trst of their HNW clients since the crisis so their focs

can center on jstifyin that faith with a resonant, responsive and flexible proposition. For many, that will necessitate

an enterprise response, one that rallies capabilities beyond wealth manaementfrom investment and corporate

bankin for instanceto make sre HNWIs complex post-crisis needs can be flly met in a way that delivers vale

to the client and the Firm.

It is a pleasre to provide yo with or findins, and we hope yo find contined vale in the WWRs insihts.

World Wealth Report

John W. Thiel

Head, U.S. Wealth Management andthe Private Banking and Investment Group

Merrill Lynch Global Wealth Management

Jean Lassignardie

Global Head of Sales and MarketingGlobal Financial Services

Capgemini


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2011 World WEAlTH rEporT4

Worlds Poplation of HNWIs and Their

Wealth Contined to Expand in 2010

1 HNWIs are defined as those having investable assets of US$1 million or more, excluding primary residence, collectibles, consumables, and consumer durables.2 Ultra-HNWIs are defined as those having investable assets of US$30 million or more, excluding primary residence, collectibles, consumables, and consumer durables.

HNW SEGMENT RETURNED TO

MODERATE GROWTH AFTER

TWO TURBULENT YEARS

HNW Segment Grew at a More ModeratePace Than in 2009

The worlds poplation of HNWIs rew 8.3% in2010 (see Fire 1), moderatin to a moresstainable pace than the 17.1% increase seen in2009. The rowth in HNWIs financial wealthalso slowed to 9.7% (see Fire 2). This was still ahealthy rate, bt was less than the 18.9% jmp in2009 when there was a sharp rebond from thehefty crisis-related losses of 2008. The 2010increase was still enoh to psh lobal HNWIfinancial wealth p to uS$42.7 trillion, beyondthe pre-crisis hih of uS$40.7 trillion in 2007.

Asia-Pacific aain posted a robst rate of

HNWI poplation rowth. As a reslt, whilethe size of its HNWI wealth had alreadyovertaken Erope in 2009, Asia-Pacific hasnow srpassed Erope in terms of HNWIpoplation too.

The worlds population of high net worth individuals(HNWIs1) expanded in 2010, as did their wealth, but thegrowth was more moderate than in 2009 when manymarkets ricocheted back from the significant crisis-related losses of 2008.

Globally, HNWIs financial wealth grew 9.7% in 2010to reach US$42.7 trillion, surpassing the 2007 pre-crisis

peak. The global population of HNWIs grew 8.3% to10.9 million. Regionally:

The population of HNWIs in Asia-Pacific, at 3.3million individuals, is now the second-largest in the

world behind North America, and ahead of Europe for

the first time. The combined wealth of Asia-Pacific

HNWIs had already topped Europes in 2009, and that

gap widened in 2010.

Europes HNWI wealth totaled US$10.2 trillion aftergrowing 7.2% in 2010, while Asia-Pacific HNWI wealth

was US$10.8 trillion, up 12.1%.

North American HNWI wealth hit US$11.6 trillion in2010, up 9.1%.

Latin America saw another modest gain (6.2%) in itsHNWI population in 2010 and HNWI wealth rose 9.2%.

The Latin America HNWI segment has proved relatively

resilient and stable in recent years (the number of HNWIs

shrank just 0.7% in 2008) and HNWI wealth is now up

18.1% from 2007.

Indias HNWI population entered the Top 12 for the

first time and Australia edged up another notch toNo. 9. Over time, the HNWI population is very graduallybecoming more fragmented across the globe, but its

geographic distribution in 2010 was much the sameoverall as it has been, and 53.0% of the worlds HNWIswere still concentrated in the U.S., Japan, and Germany.

Ultra-HNWIs2 posted slightly stronger-than-average

gains in their numbers and wealth. The globalpopulation of Ultra-HNWIs grew by 10.2% in 2010 andits wealth by 11.5%. As a result, Ultra-HNWIs accountedfor 36.1% of global HNWI wealth, up from 35.5%, whilerepresenting only 0.9% of the global HNWI population.


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2011 World WEAlTH rEporT 5

Worlds populATion of HnWis And THEir WEAlTH ConTinuEd To ExpAnd in 2010

FIguRE 1. HNWI Population, 2007 2010 (by Region)

(in Million)

2010200920082007

0

2

4

6

8

10

12

North America

Asia-Pacic

Europe

Latin America

Middle East

Africa

6.3%

9.7%

8.6%

6.2%

11.1%

10.4%

% Change Total HNWI Population

2009-2010

10.1 8.6 10.0 10.9

CAGR 2007-2009 -0.2% Annual Growth 2009-2010 8.3%

Number of

HNWIs

Worldwide

(in Million)

3.3

3.1

2.8

2.7

2.6

2.4

3.1

3.0

3.0

3.4

3.3

3.1

0.40.40.1

0.40.4

0.50.40.1 0.5

0.40.1

0.1

Note: Chart numbers and quoted percentages may not add up due to roundingSource: Capgemini Lorenz curve analysis, 2011

FIguRE 2. HNWI Wealth Distribution, 2007 2010 (by Region)

(US$ Trillion)

0

10

20

30

40

50

2010200920082007

North America

Asia-Pacic

Europe

Latin America

Middle East

7.2%

12.1%

9.1%

9.2%

12.5%

Africa 13.6%

40.7 32.8 39.0 42.7

CAGR 2007-2009 -2.2% Annual Growth 2009-2010 9.7%

11.7

10.7

9.5

6.2

9.1

8.3

7.4

5.8

10.7

9.5

9.7

6.7

11.6

10.2

10.8

7.31.71.0

1.40.8

1.51.0 1.7

1.2

Global

HNWI

Wealth

(in US$Trillion)

% Change Total HNWI Wealth

2009-2010



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Other reion-specific findins inclde:

The Asia-Pacific HNWI poplation expanded 9.7% to3.3 million, while Europes rew 6.3% to 3.1 million.Asia-Pacific HNWIs wealth ained 12.1% to uS$10.8trillion, exceedin the uS$10.2 trillion held by HNWIsin Erope, where the wealth increase was 7.2% in 2010.Overall, HNWIs wealth in Asia-Pacific is now p14.1% since the end of 2007despite the sinificantcrisis-related losses incrred in the interim. NorthAmerica and Erope have yet to flly recop thoselosses so have neative rowth over the same period.

The poplation of HNWIs in North America rose8.6% in 2010 to 3.4 million, after risin 16.6% in 2009.Their wealth rose 9.1% to uS$11.6 tri llion. The u.S. isstill home to the sinle larest HNW sement in theworld, with its 3.1 million HNWIs accontin for28.6% of the lobal HNWI poplation.

In Latin America, the eneral poplation of HNWIsis still small, nmberin nder 0.5 million. However,the prevalence of ultra-HNWIs mltiplies theareate level of HNWI wealth, which rew 9.2% touS$7.3 trillion in 2010. The Latin American HNWsement was qite resilient at the heiht of the crisis(the nmber of HNWIs shrank jst 0.7% in 2008) andthe HNWI poplation has rown modestly since,ainin 8.3% and 6.2% respectively in 2009 and 2010.The disproportionate nmber of ultra-HNWIs hasalso contribted to the ains in HNWI wealth, whichis now p 18.1% since 2007.

In the Middle East, the size of the HNWI poplationained 10.4% in 2010 to 0.4 million, while their wealthjmped 12.5% to uS$1.7 trillion. This helped thereions HNW sement to compensate for a relativelypoor showin in 2009 when the rowth in the HNWIpoplation and its wealth laed all other reions.

HNWI Ranks, While Still Heavily Concentrated,Are Fragmenting Gradually Over Time

The lobal HNWI poplation is still dominated by theu.S., Japan, and germany, bt the ranks are framentinradally over time. In 2010, those three contries

acconted for 53.0% of the worlds HNWI poplation,down from 54.7% in 2006. Their share will contine toerode if the HNWI poplations of emerin anddevelopin markets contine to row faster than thoseof developed markets.

At present, Asia-Pacific contines to contribte thereatest year-on-year additions to lobal HNWI ranks.In 2010, the HNWI poplations increased sinificantlyin Hon Kon (by 33.3%), Vietnam (33.1%), Sri Lanka(27.1%), Indonesia (23.8%), Sinapore (21.3%) and India(20.8%). In eneral, the strenth of those HNW

sements reflected robst macroeconomic indicators schas ross national income (gNI), and strenth in other keywealth drivers sch as eqity-market performance. Severalof these markets, most notably Hon Kon and India,had also been bi ainers in 2009 after fallinsinificantly in 2008.

Still, most of these HNWI poplations remaincomparatively small and have yet to featre amon thelarest HNWI markets lobally. However, Indias HNWIpoplation (at 153k) became the worlds twelfth larest in2010 (see Fire 3) as it switched places with Spain

(which dropped to forteenth). Astralia also ained anotch in 2010 as its HNWI poplation rose to 193k,bestin Italy for the No. 9 spot.


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FIguRE 3. HNWI Population by Country, 2010

(in Thousands)

0

1,000

2,000

3,000

4,000

IndiaBrazilItalyAustraliaSwitzerlandCanadaFranceUKChinaGermanyJapanUS

1 2 3 4 5 6 7 8 10 9 11 14

Number

of

HNWIs(in Thousands)

Position

in 2009

8.3% 5.4% 7.2% 12.0% 1.4% 3.4% 12.3% 9.7% 11.1% -4.7% 5.9% 20.8%

HNWI Growth

Rate (%)

2009-2010

20102009

53.0% of total worldwide

HNWI population

(53.5% in 2009)

862924

477535 448454 383396251282

147155 127153179170174193222

243

1,6501,739

2,866

3,104

India moved for the

rst time into the

Top 12


Ultra-HNW Segment Showed StrongGains in Population and Wealth for theSecond Straight Year

The lobal poplation of ultra-HNWIs rew 10.2% to103k in 2010, and their wealth jmped by 11.5%, aftersrin 21.5% in 2009.

A disproportionate amont of wealth remainsconcentrated in the hands of ultra-HNWIs. At the end of2010, ultra-HNWIs represented only 0.9% of the lobalHNWI poplation, bt acconted for 36.1% of lobalHNWI wealth. That was p slihtly from 35.5% in 2009.

North America still has the larest reional nmber ofultra-HNWIs. At the end of 2010, the nmber ofultra-HNWIs there totaled 40k, p from 36k in 2009(bt remains down from 41k in 2007). Reionally, LatinAmerica still has the hihest percentae of ultra-HNWIsrelative to the overall HNWI poplation2.4%,compared with the lobal averae of 0.9%.


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3 Unless otherwise spec ified, all macroeconomic data and p rojections are based on Economist Intelligence Unit Re gional and Country Reports from January, February and March 2011.4 International Monetary Fund, Shifting Gear s: Tackling Challenges on the Road to Fiscal Adjustment, Fiscal Monitor, April 2011.

THE FINANCIAL CRISIS HAS

ABATED BUT ITS LEGACY WAS

EVIDENT IN HOTSPOTS AND

FISCAL DEFICITS IN 2010

As Normalcy Began to Return, Crisis-RelatedHotspots Still Emerged across the Globe

The lobal effects of the financial crisis receded in2010, bt aftershocks still materialized in many forms,incldin the soverein debt crisis in Erope and therowin brden of a apin fiscal deficit in the u.S.These types of shocks showed the fraility of theeconomic recovery and cold still pose an obstacle torowth in 2011.

In the Erozone in 2010, soverein debt crisesclminated in the resce of greece and Ireland bythe Eropean union/International Monetary Fnd(Eu/IMF). In early-2011, Portal was also on the

vere of bankrptcy and other economies remain atrisk, especially Spain. given the enormity of thecrisis, the Eu has voted to establish a EropeanStability Mechanism to eventally replace thetemporary bailot mechanism (the EropeanFinancial Stability Facility). The soverein crisis andsbseqent bailots have threatened the solidarityof the Eu and still threaten the stability and healthof the financial markets.

In the u.S., the political and economic imperativeto tackle the contrys fiscal deficit (see next section)

is creatin an additional brden on already cash-strapped local overnments. This has led to concernsover the ability of states and mnicipalities toservice their debt.

Normalcy began to return in 2010, but legacies of

the crisis were evident in financial hotspots and

gaping fiscal deficits. Financial hotspots flared,such as the sovereign debt crisis in the Eurozone,and many governments grappled with how to pursueboth economic growth and fiscal consolidation. The2010 U.S. fiscal deficit was the largest amongadvanced economies at 10.6% of gross domestic

product (GDP).4

Emerging economies remained the key drivers ofthe global economy in 2010 and global GDP

returned to growth. Real GDP expanded by 3.9%in 2010, after contracting 2.1% in 2009, largely due to8.3% GDP growth in Asia-Pacific excluding Japan,and 5.7% growth in Latin America. The U.S., Europe,and Central Asia experienced modest growth,rebounding from contraction in 2009.

Equity, commodity, and other markets performed

well in 2010. Global equity-market capitalizationrose by 18.0% in 2010 despite losses in certain

markets where hotspots flared, but that was a farsmaller gain than in 2009. Many commodity pricesended the year higher due to robust demand for rawmaterials from fast-developing economies andstrong buying interest from investors. Real estateprices rose, but unevenly. Prices in Asia-Pacificincreased enough to spark intervention by somegovernments fearing an asset bubble.

Looking ahead, the global economy faces

short-term risks and an uneven recovery. GlobalGDP growth is expected to slow to 3.2% in 2011 andstay there in 2012, due largely to capacity constraintsin fast-growing developing economies such as Chinaand India. However, risks to the global recoveryremain, including turmoil in the European and MiddleEast economies and the destabilizing impact of highcapital inflows into emerging markets.

2010 in Review3

gLOBAL ECONOMY RETuRNED TO gROWTH

AND MARKETS PERFORMED SOLIDLY


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2010 in rEviEW

FIguRE 4. Financial and Economic Hotspots around the World, 2010 and Q1 2011

EUROZONE SOVEREIGN DEBT CRISIS:

Huge sovereign debts in Greece, Ireland,

Portugal, Italy and Spain have tested EU resolve

and required certain country rescues by EU/IMF

U.S. STATE AND LOCAL

GOVERNMENT DEBT:

There has been growing investor

concern around the ability of

states to service debt amid

gaping scal and budget decits

NATURAL DISASTER IN JAPAN:

Japan faced its worst ever natural disaster

when a 9.0 magnitude earthquake struck

on March 11, 2011, causing a tsunami and

a nuclear crisis that have affected the local

economy and could have global effects

ASIA-PACIFIC RESILIENCE:

Asia-Pacic excluding Japan

displayed resilience withaggregate real GDP growth

of 8.3% in the region in

2010-11, including

fast-growing economies

such as China and India

LATIN AMERICA RESILIENCE:

Latin American countries

collectively grew at a rate of

5.7% in 2010

REAL ESTATE CRISIS AND POLITICAL

UNREST IN MIDDLE EAST:Real estate prices dropped by up to 50%

in Dubai in 2010 from their peak in 2008

In 2011, political unrest is growing in the

Middle East and North Africa, pushing up

oil prices

Source: Capgemini Analysis, 2011

The Middle East faced its own financial problems in 2010as Dbai strled to manae the effects of the late-2009failre of state-owned conlomerate Dbai World, whichhad been hit by slmpin real estate prices. Fears thatthe conlomerates demise cold case soverein-debtproblems initially tihtened credit conditions in

international financial markets, bt the sitation wasresolved to the markets satisfaction, with no lastin effecton investin conditions in the reion.

Many of these financial hotspots have their roots in thelobal financial crisis, bt political trmoil and natralcatastrophes in early-2011 offered other examples of howthe recovery of the lobal economy cold still be slowed orderailed (see Fire 4).

For one, political trmoil spread throhot the MiddleEast. A poplar prisin bean in Tnisia in mid-December 2010 and similar revolts have since occrred inmany nations in Northern Africa and the Middle East,incldin Eypt, Syria, Libya, Bahrain, and Yemen. These

events have created widespread ncertainty abot thereion amon lobal investors, and have pshed oil pricessharply hiher, threatenin both the reional economicrecovery and the health of oil-dependent economies.

And in March 2011, Japan sffered a 9.0 manitde

earthqake, the larest in the contrys history. The qakeand conseqent tsnami also cased a nclear emerencywhen a nclear plant in the qake zone bean to leakradioactive as and water. The crisis in Japan initiallydisrpted spply chains and trade, as well as investmentactivity in the reion. The Bank of Japan reported inearly-April that the disaster has cased widespreadconcern abot bsiness conditions amon Japanesecompanies. However, it is not yet known what the broaderimpact miht be on lobal economic rowth.


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2010 in rEviEW

5 International Monetary Fund, Shifting Gear s: Tackling Challenges on the Road to Fiscal Adjustment, Fiscal Monitor, April 2011.6 Ibid.

7 Ibid.

WORLD GDP RETURNED TO

EXPANSION, LED BY ASIA-PACIFIC

Domestic Demand in Developing EconomiesProvided Fuel for Global Growth in 2010

Despite onoin challenes, the world economy rew atan annal real rate of 3.9% in 2010, bt developineconomies were the real enines of expansion. Thisdynamic was mch the same as in 2009, when rowth indevelopin economies had limited the contraction inlobal gDP to 2.1%.

In 2010, every reion delivered positive economic rowth,incldin those reions sch as Erope, North America,and Japan that had sffered sizeable contractions in 2009(see Fire 5). However, the drivin force was aainAsia-Pacific excldin Japan, where stron domestic

demand in markets sch as China, India, and Sinaporehelped to boost gDP by 8.3%. Japan also posted a stronrecovery, rowin 4.0% in 2010 after a 5.2% contraction in2009. gDP rowth in North America and WesternErope was far more moderate than in emerineconomies in 2010 at 2.9% and 2.0% respectively.

The recovery in Latin America was also considerable, withthe reion postin gDP rowth of 5.7% in 2010 after acontraction of 2.4% in 2009.

Globally, Private and Government Consumption

Rose SlightlyConsmer confidence eded back p lobally in 2010,promptin a sliht rise (3.1%) in personal consmption.Bt aain, Asia-Pacific excldin Japan saw the stronestpersonal-consmption recovery (p 10.0%), while thedeveloped reions of North America and Western Eropesaw little or no chane.

In the u.S., personal consmption increased by 2.0% andconsmer confidence was little chaned as nemploymentremained hih and post-crisis stimls measres wonddown. In Erope, private spendin was static amidonoin worries abot the soverein debt crisis.

Post-Crisis Fiscal Deficits Also Remained aMajor Challenge in 2010

The financial crisis and economic downtrn have alsoworsened fiscal deficits and pblic debt levels, especiallyin developed contries where economic activity has been

slower to recover. In 2010, pblic debt as a percentae ofgDP was close to 200% in Japan, topped 80.0% ingermany and France, and rose 12.9% in the u.K. to77.0%. In the u.S., that ratio jmped 16.4% in 2010 to62.3% and apin fiscal deficits at the federal and statelevel threaten to ndermine the economic recovery.

For many economies, it became a sinificant challene in2010 to prse both economic rowth and policies aimedat redcin overnment deficits and debt (fiscalconsolidation). In 2010 at least, developed economiestended to favor rowth over consolidation. The u.S. and

Japan, for instance, adopted new stimls measres,frther delayin fiscal consolidation. As a reslt, theirfiscal balances (tax revenes pls proceeds from asset sales,mins spendin) were in deficit by 10.6% and 9.5% ofgDP respectively in 2010.5 The 2010 u.S. fiscal deficitwas the larest amon advanced economies, and whiledown from 12.7% in 2009, the deficit is expected toexpand aain to 10.8% of gDP in 2011 de to theonoin effects of stimls measres.6

In many emerin markets, however, overnments weresensitive in 2010 to sins of overheatin as capital flowed

in seekin retrns, and sins of inflation rew. Manycentral banks raised interest rates, potentially redcinareate demand and slowin rowth, and providinovernments with fewer resorces to ct deficits. Still, theaverae fiscal deficit across emerin nations in the g20was still less than the averae amon advanced economiesin the g20 (-3.6% of gDP vs. -8.2% of gDP).7


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2010 in rEviEW

global overnment consmption expanded 2.2% in2010. That followed a 3.4% increase in 2009 andreflected the onoin efforts by many overnments tose stimls measres to blnt the effects of thefinancial crisis. Matre economies still accont for thelarest share of total spendin by overnments lobally.government consmption remains hihest in WesternErope and North America (uS$3.2 trillion anduS$2.8 trillion respectively in 2010), thoh the

economies of Asia-Pacific and Latin America alsoincreased pblic spendin sinificantly in 2009-10(by 9.1% and 25.0% respectively) to spport theonoin economic recovery.

National Savings Increased but HouseholdSavings Declined

In 2010, national savins increased in all reions exceptSb-Saharan Africa. As a percentae of gDP, nationalsavins eded p to 22.2% lobally from 21.3% in 2009,bt the rate remains hihest in Asia-Pacific excldinJapan (39.3%) and lowest in North America (10.9%).

Hosehold savins as a percentae of disposable hoseholdincome dropped in most g7 economies in 2010 de toonoin problems sch as hih nemployment, decreasedconsmer confidence, and onoin financial stresses in theEu reion. goin forward, hosehold savins rates arelikely to rise aain if and when central banks start totihten monetary policy, which will lead to more attractiveinterest rates on deposits.

FIguRE 5. Real GDP Growth Rates, 2009 2010

(%)

-10

-5

0

5

10

15

MexicoBrazilJapanIndiaChinaSingaporePolandRussiaU.K.FranceGermanyU.S.Canada

-2.6 -2.4 -2.2 -2.0

-6.6

-0.2

-5.0 -5.0 -5.2

-7.9

5.0

7.5

4.0

9.1

10.3

14.8

3.84.0

1.31.5

3.52.92.9

1.7

8.7

6.8

NorthAmerica

Western Europe EasternEurope

Asia-Pacic LatinAmerica

Percent

Change

(%)

20102009

Source: Capgemini Analysis, 2011, Economist Intelligence Unit, March 2011 (Real GDP variation over previous year)


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2010 in rEviEW

8 Capgemini analysis.9 Ibid.

10 London PM FIX prices, ww w.kitco.com.

FIguRE 6. Equity Market Capitalization, 2003 2010 (by Region)

(US$ Trillion)

0

20

40

60

80

20102009200820072006200520042003

31.3

15.7

6.3

9.3

37.3

11.5

7.5

18.2

42.2

13.0

9.3

19.9

16.6

12.0

22.7

19.3

17.9

24.3

61.5

31.8

9.4

8.5

13.9

46.5

13.0

14.6

18.9

15.3

17.4

22.2

54.9

CAGR

(03-07)

18.4%

GROWTH

(07-08)

-48.3%

GROWTH

(08-09)

46.3%

GROWTH

(09-10)

18.0%GROWTH (09-10)

EMEA 17.2%

APAC 19.2%

Americas 17.5%

Americas

Europe /Middle East /

Africa

Asia-Pacic

51.251.2

US$Trillion

Source: Capgemini Analysis, 2011, World Federation of Exchanges, January 2011

KEY MARKET AND OTHER DRIVERS

OF WEALTH CONTINUED TO RISE

IN 2010

The performance in many markets helped to contribteto the rowth in wealth in 2010. Eqity and other assetclasses rose in vale, thoh not at the exberant pace of2009s bonce-back. Commodities and real estate endedthe year hiher as did many hede fnds. Hiher interestrates in some developin economies attracted investorcapital from lower-rate developed economies.

The followin developments were notable amon thosemarkets that heavily impact lobal wealth:

Global equity market capitalization rose 18.0% 8despite the weak lobal recovery and sporadiceconomic and political trmoil arond the world.

Market capitalization ended the year at uS$54.9trillion, which was still below the 2007 hih ofuS$61.5 tril lion (see Fire 6).9 Eqity market pricesremained nderpinned by onoin overnmentstimls measres. The u.S., for instance,implemented a Treasry-prchase proram in order tokeep interest rates from risin, which made eqitiesrelatively attractive as an investment. global eqity-market volatility remained hiher than pre-crisislevels, and spiked mid-year as concerns abot the Eusoverein debt crisis flared (see Fire 7).

International debt markets grew in size in 2010 asinvestor confidence retrned to financial markets,providin more demand and liqidity for financialinstittions, corporations, and overnments lookin to issedebt. Prices of over-the-conter (OTC) derivative contractsand credit defalt swaps (CDS) declined. However,

investors remained catios abot investin in those kindsof instrments iven their demise drin the crisis.

Interest rates in emerging markets rose, attractingdollars. Most developed economies kept interest rates lowin 2010 so risin rates in many emerin economies lredcapital inflows. In the process, the crrencies of manyemerin markets rose. By the end of 2010, the u.S. dollarhad depreciated by 4.6% aainst the Brazilian real, 3.4%aainst the Indian rpee and 3.3% aainst the Chineseyan. The u.S. dollar ained rond, however, aainst theBritish pond (p 5.2%) and the ero (p 8.1%).

Commodity prices rallied broadly. Commodities were instron demand both as raw materials and as investments in2010 (see Fire 8). Demand for aricltral prodcts andmetals, especially from fast-developin nations sch asChina and India, pshed prices of many commodities tonew hihs and frther increases are likely in 2011. Investordemand for old and silver was evident from hede fndsand other instittional investors, individals, and centralbanks. The Dow Jones-uBS gold Sb-Index jmped28.6% and silver otperformed most asset classes iventhat prices sred nearly 80.3%10.


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2010 in rEviEW

FIguRE 8. Performance of Select Commodity Indices, December 2009 March 2011

(December 31, 2009 = 100)

60

80

100

120

140

160

Mar-11Dec-10Sep-10Jun-10Mar-10Dec-09

Commodity Index

Gold Sub-Index 28.6%

16.7%

Wheat Sub-Index 24.3%

Corn Sub-Index 30.5%

GROWTH

2009-2010

Value

(%)

Source: Capgemini Analysis, 2011, Dow Jones-UBS Daily Values for Commodities Index (DJUBS), Gold Sub-Index (DJUBSGC), Wheat Sub-Index (DJUBSWH3), andCorn Sub-Index (DJUBSCN)

FIguRE 7. Daily Volatility of DJ World Index, January 1997 December 2010

(%)

0

1

2

3

Jan-11Jan-09Jan-07Jan-05Jan-03Jan-01Jan-99Jan-97

Asian

Debt Crisis

Russian

Crisis

Tech

Bubble

Eurozone

Sovereign

Debt Crisis

Global Financial

Crisis 2008-09

Sept 11,

2001

Daily

Volatility

of DJ

World

Index (%)

Source: Capgemini Analysis, 2011, Dow Jones World (W1) Index Daily close values from January 1, 1997 to December 31, 2010


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2010 in rEviEW

11 Global Property Guide, January 2011.12 International Monetary Fund, Shifting Gear s: Tackling Challenges on the Road to Fiscal Adjustment, Fiscal Monitor, April 2011.

WORLD ECONOMY IS ON THE ROAD

TO RECOVERY BUT DOWNSIDE

RISKS REMAIN

global gDP rowth is expected to slow to 3.2% in 2011and stay there in 2012 as rapidly rowin developin

economies sch as China and India face capacityconstraints and developed economies tackle fiscalimbalances. However, the path to lobal recovery willlikely be neven and varios risks remain. Amon them:

Many governments must still tackle their fiscaldeficits. Deficits and debt levels pose short-term risksand loner-term strctral challenes for manyovernments and, in trn, for the lobal economy.Crisis-related overnment stimls has boostedborrowin by many major economies and raisedovernment debt levels. Nevertheless, fiscal consolidationamon the advanced g20 nations is projected to be lessthan 0.25% of gDP in 2011, while the averae debt ratiois expected to rise to 107% of gDP.12

Many developed nations will need to deal with lon-termstrctral isses sch as entitlements (e.., pensions,medical care, edcation) as they seek to et a rip onfiscal deficitsand they will need to do that whileremainin spportive of economic rowth. The fiscalotlook has worsened too for many fast-developinemerin markets, which have started to focs onrestrainin overheatin and inflation.

Inflation is rising in both mature and emerging

economies. Food and fel prices are risin in bothdeveloped and emerin economies, bt it is fast-rowinemerin markets that have experienced the fastestinflation pace becase of capacity constraints (seeFire 9). The Asian Development Bank estimates thatinflation averaed 4.4% in 2010 in Developin Asia(which incldes China and India) and will rise to anaverae 5.3% in 2011. u.S. inflation, by contrast, averaedjst 1.5% in 2010. However, inflation pressre is clearlyrisin across the lobe, especially iven srin oil prices,and many emerin economies are already increasininterest rates to moderate the trend. The lobal approach

to manain inf lation pressre cold, however, have animpact on the pace at which economic recovery proceeds.

Oil prices had increased significantly by the end of2010. Oil prices traded in a fairly narrow rane formch of 2010, nderpinned by stron demand fromfast-developin economies. By December, thoh,spply constraints had started to show, and the priceof crde oil rose to end the year at uS$91.4 per barrel,

p from uS$79.4 a year earlier. In mid-December2010, political nrest broke ot in Tnisia andinstability spread in early-2011 to many other MiddleEast nations. The trmoil pshed oil prices evenhiher and frther ains are possible.

Hedge funds rose in line with equities. The DowJones Credit Sisse Hede Fnd Index finished 2010p 11.0% and above end-2007 levels. Hede fnds hadexperienced hefty redemptions and sharp declines inasset vales drin the crisis bt net inflows started topick p sinificantly in the second half of 2010.

Drin the year, eqity strateies enerallyotperformed fixed-income fnds, bt fnds investedin mortae-related secrities were amon thebest-performin of any cateory. The volatility ofhede fnd performance also declined in 2010 asmarkets contined their recovery. However, oversihtof the indstry has increased and any neativepblicity or chanes in relations cold ndermineinvestor confidence.

Real-estate investment rose. global investment inreal estate rose as markets sch as the u.S. stabilizedand others sch as the u.K. bonced back qite

sharply. However, the near-term prospects for realestate investment are ncertain. In the u.S. and u.K.,overnment initiatives to spport hosin have larelyexpired so demand and prices cold lanish. InAsia-Pacific, real-estate prices have jmped in manymarkets and the policy focs in several contries isnow on restrainin a possible asset-price bbble. Realestate prices in Hon Kon jmped 19.5% in 201011amid stron economic rowth and heavy byininterest from mainland China. The Dow Jones globalSelect REIT Index rose 18.6% in 2010 after ainin23.8% in 2009.


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2010 in rEviEW

FIguRE 9. Rate of Inflation,a Select Mature and Emerging Economies, 2009 2010

(%)

-3

0

3

6

9

12

15

South AfricaChinaBrazilRussiaIndiaJapanU.S.GermanyFranceCanadaU.K.

20102009

Percentage

(%)

Mature Economies Emerging Economies

2.8

3.7

1.3

2.3

0.9 0.8

1.8

2.8

14.9

9.7

8.8 8.8

4.3

1.5

4.8

7.2

4.1

5.9

1.4

0.0

2.0

-1.4

a Inflation is measured as the percentage change in consumer price index (end-period), over previous yearSource: Capgemini Analysis, 2011, Economist Intelligence Unit, March 2011

Loose monetary policies are contributing tomacroeconomic volatility. Central banks in developedeconomies have kept interest rates low to spporteconomic recovery while many emerin economieshave started to psh interest rates p to cool theireconomies down. This has led to a fliht of capital from

developed to developin economies in prsit of hiherretrns. Lare forein capital inflows have cased thecrrencies of most of the developin economies toappreciate, nderminin the competitiveness of theirexports and destabilizin their macroeconomic health.

High unemployment remains a concern. Thedeveloped economies of the u.S. and Eu stil l face hihlevels of nemployment, even thoh jobless rates haveshown early sins of abatin. In 2010, headcont andwaes had yet to show sinificant rowth, and theInternational Labor Oranization reports lobal

nemployment was essential ly nchaned at 205.0million or 6.2% in 2010. The speed of the jobs recoverywill be a key factor in the strenth of personal-consmption rowth, especially as hoseholds in

developed economies are still deleverain.(Hosehold debt is more than 125.0% of disposableincome in the u.S., Canada and Japan and is hihestin the u.K. at 170.6%).

Conclusion

The macroeconomic imbalances between matre anddevelopin economies have increased since the financialcrisis, as evidenced by the reater-than-averae rowth inAsia-Pacific HNWI wealth. In the comin year or so, eachovernment will need to manae the contry-specificeffects of these imbalances on economic rowth, incldinemployment levels, interest rates, fiscal and trade deficits.At the same time, many are expected to wean theireconomies from crisis-related stimls to redce apinfiscal and crrent accont deficits, and many will need tomanae inflation pressres. The resltant overnmentactions will affect the pace of lobal recovery, anddetermine the extent to which Asia-Pacific and otheremerin economies remain a taret for lobal investorsseekin hih-rowth retrns.


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HNWIS ASSUMED CALCULATED RISK IN SEARCH

FOR BETTER RETURNS IN 2010

Many HNWIs took on more risk in 2010 as markets contined to rebondfrom crisis-related losses. As a reslt, areate portfolio holdins shiftedfrther toward eqities and away from cash/deposits and predictablefixed-income instrments. However, HNWIs contined to favor specificasset classes based on market opportnity and/or lon-standin preferences.

For example: HNWIs from North America have lon favored eqities as an asset classand they held 42% of all holdins in eqities at the end of 2010, p from36% at the end of 2009 and above the lobal averae of 33%. The increasedexposre to eqities larely ref lected rowin investor confidence as theu.S. and lobal economies showed sins of improvement.

HNWIs in Asia-Pacific excluding Japan contined to prse retrns inreal estate, which acconted for 31% of their areate portfolio at the endof 2010, p from 28% a year earlier and far above the 19% lobal averae.Residential real estate remains especial ly attractive and lcrative for theseHNWIs iven the stron fndamentals in the reion, where the rowinmiddle classes in emerin economies are strainin the relatively tihtspply of hih-qality residential real estate.

HNWIs from Japan remained the most conservative in the world andheld 55% of their areate portfolio in fixed-income and cash/depositvehicles at the end of 2010, p from 48% a year earlier and above thelobal averae of 43%.

Overall, HNWIs Moved Further into Equities and Edged Awayfrom Fixed Income and Cash/Deposits

HNWIs were keen to captre a piece of the 2010 rn-p in stock prices,which saw lobal eqity-market capitalization rise 18% after a 49% jmpin 2009.13 As a reslt, HNWIs ended 2010 with 33% of their assets ineqities, p from 29% a year earlier. At the same time, their allocation tocash/deposits dropped to 14% from 17% and the share held in f ixed-income investments dipped to 29% from 31% (see Fire 10).

The prominence of eqities in 2010 reflected the search for retrns andthe desire of HNWIs to recop more of their crisis-related losses. goinforward, the eqity share of overall HNWI holdins is expected to expandby another 5 percentae points to 38% by the end of 2012 as investorconfidence and risk appetites solidify and row. The allocation to morepredictable fixed-income investments is expected to hold steady at 29%,bt the share held in cash/deposits is expected to drop to 11% from 14%.

HNWIs further shifted their

holdings toward equities in

2010 while slowly reducing their

holdings of cash/deposits and

fixed-income instruments.These moves reflected acontinued but gradual easing ofcrisis-related concerns and a

guarded search for returns. By theend of 2010, HNWIs held 33% ofall their investments in equities, upfrom 29% a year earlier.

Emerging markets provided

profit opportunities. At the endof 2010, HNWIs held about thesame portion of their assets inemerging markets as they had ayear earlier, but that comparisonbelies significant activity duringthe year. In the first 11 months,

investors poured record amountsinto emerging-market stock andbond funds before selling tocapture profits as the year endedand after the value of manyemerging-market investmentstopped pre-crisis highs.

HNWIs are expected to

increase their equity

allocations even more in 2012,especially if the global economyshows clear signs of a sustained

recovery. At the same time,HNWIs overall are expected tokeep reducing their allocations toreal estate and cash/deposits.Regional preferences are lesscertain as the extent of emerging-market opportunities will dependon whether those markets canpush to new highs whileeconomies are being weaned ofgovernment stimulus.

HNWIs Eqity Allocations Rosein 2010 and Emerin Markets Provided

Profit Opportnities

13 Capgemini analysis.


17/40


HnWis EquiTy AlloCATions rosE in 2010 And EmErging mArkETs providEd profiT opporTuniTiEs

markets of these reions bt is lanishin in moredeveloped markets. In the u.S., commercial vacancy ratesneared historic hihs in 2010, averain arond 10.9% forretail space and 17.6% for office space across the contry.14Amon North American HNWIs, commercial propertyacconted for jst 20% of real estate holdins in 2010.

That compared with 30% amon HNWIs in Erope,where illiqid markets have made it difficlt to offloadcommercial assets.

Overall, HNWIs REIT holdins rose to 15% of all realestate investments at the end of 2010 from 12% a yearbefore as the Dow Jones REIT index ained 24%. REITallocations were proportionally hiher in North Americaand Japan (24% and 23% respectively), larely becaseREIT vehicles are more readily available and more widelyaccepted amon investors in those markets.

By the end of 2012, HNWIs real estate holdins overallare expected to decline to 15% of all assets from 19% atthe end of 2010. Investment interest is expected to remainstron in certain real estate sements, and especially inemerin markets, bt many HNWIs remainapprehensive abot real estate iven the sectors enerallyslow recovery from hefty crisis-related losses.

Globally, HNWIs Real Estate Holdings WereLittle Changed but Allocations to REITs Rose

The lobal allocation of HNWIs to real estate was 19% bythe end of 2010 verss 18% a year earlier bt declinincommercial property rates and hih residential inventory

levels created ncertainty in the real estate markets ofdeveloped markets.

HNWIs exposre to residential real estate dipped to 46% ofall real estate holdins from 48% in 2009. Residential wasstill the sinle larest sb-sement of real estate in 2010, btit clearly felt the effects of declinin prices and thencertain economic and hosin otlooks. Overall, HNWIsexposre to commercial real estate was little chaned at 26%of all real estate holdins in 2010 verss 27% in 2009.

Holdins of residential real estate were proportionallyreatest amon HNWIs from Asia-Pacific excldinJapan, bt their residential assets still declined to 51% of allreal estate holdins from 60%.

The commercial share of real estate holdins rose amonHNWIs in Asia-Pacific excldin Japan to 37% from 24%and in the Middle East to 34% from 29%. Commercial realestate is still perceived as an opportnity in the emerin

FIguRE 10. Breakdown of HNWI Financial Assets, 2006 2012F

(%)

0

25

50

75

100

2012F20102009200820072006

31%

21%

24%

14%

10%

33%

27%

14%

17%

9%

25%

29%

18%

21%

7%

29%

31%

18%

17%

6%

33%

29%

19%

14%

5%

38%

29%

15%

11%

8%

%

Equities

Fixed Income

Real Estateb

Cash / Deposits

Alternative Investmentsa

a Includes structured products, hedge funds, derivatives, foreign currency, commodities, private equity, venture capital.b Comprises commercial real estate, real estate investment trusts (REITs), residential real estate (excluding primary residence), undeveloped property, farmland and other.Note: Percentages may not add up to 100% due to roundingSource: Capgemini/Merrill Lynch Global Wealth Management Advisor Surveys 2007, 2008, 2009, 2010, 2011

14 Reis, Inc. analysis.


18/40



15

Includes structured products, hedge f unds, derivatives, foreign currency, commodities,private equity, venture capital.

Among Alternative Investments, Many HNWIsFavored Foreign Currency and Commodities

globally, the allocation of HNWI assets to alternativeinvestments15 dipped to 5% of all holdins at the end of2010 from 6% a year earlier, bt varios shifts occrred

amon component cateories: Commodityinvestments acconted for 22% of allalternative investments in 2010, p from 16% in 2009.Prices of many commodities rose to all-time hihsdrin the year as rapidly rowin economies sch asChina and India sprred demand for raw materialssch as base metals, platinm and palladim (sed incar parts) and crde oil, and investors flocked to oldamid volatility in both the dollar and the ero.

Foreign currencyholdins increased to 15% of allalternative investments in 2010 from 13% as investorsboht into crrencies where contry interest rateswere hiher than in the developed markets of theu.S. and Erope.

Hedge-fund holdins declined proportionally to 24%from 27%. The Dow Jones Credit Sisse Hede FndIndex rose 11.0% in 2010 and the Hede FndResearch, Inc. (HFRI) Fnd Weihted CompositeIndex ained 10.5%. However, HFRI noted most ofthe ains were posted at the end of the year, and itwas only late in the year that inflows picked ppshin total indstry assets to uS$1.9 trillion, nearthe historical peak set in the second qarter of 2008.

Alternative investment preferences also varied by reion.HNWIs from North America and Latin America heldmore commodities than averae (30% and 26%respectively). HNWIs in Japan allocated 34% to foreincrrency verss the 13% lobal averae and 26% tostrctred prodcts, which was more than HNWIs inany other reion. HNWIs in Asia-Pacific excldinJapan allocated 22% of alternative investments tostrctred prodcts compared with the lobal averae of17%. Hede fnds were still an important vehicle forHNWIs in Latin America, where they acconted for

35% of all alternative investments bt that portion wasdown sbstantially from 49% a year earlier.

goin forward, HNWIs allocations to commoditiesand forein crrency are expected to keep risin,nderpinned by the demands of fast-developineconomies. Hede-fnd interest cold be nderminedby onoin relatory scrtiny of fnds. Neativeheadlines or new oversiht measres cold lead HNWIsto allocate less to sch fnds.

ASIA-PACIFIC IS KEY IN REGIONAL

DISTRIBUTION OF HNWI ASSETS

Arond the world, HNWIs invest foremost in their homereions and then North America. (North American HNWIsinvest first at home and then in Erope.) However, the

reional distribtion of assets shifts as HNWIs seek abalance between the search for yield and the need todiversify. This dynamic was evident drin 2010 and isexpected to contine to drive reional asset re-distribtionby HNWIs in the comin year or so.

On areate, the reional distribtion of HNWI assets wasvery similar at the end of 2010 to the year before. Forexample, 39% of lobal HNWI assets were held in the formof North American investments, p from 38%, while 21%was in Eropean assets, down from 23%. The proportionsheld in Asia-Pacific (22%), Latin America (13%), and the

Middle East (3%) were all the same as the year before.However, that apparent stability belies some importantintra-year shifts.

Drin the first 11 months of 2010, investors pored arecord uS$80 billion into emerin-market stock fnds anduS$34 billion into emerin-market bond fnds accordinto EPFR estimates. The retrns on many of those assetssred and srpassed pre-crisis hihs drin that time. TheMSCI Emerin Market Index, for example, was p 104%since 2008 while the MSCI Developed Market Index wasp 39%. By the end of the year, however, many investors

took profits on emerin-market assets, especially as theopportnity in other markets started to improve.

For one, u.S. investments became relatively more attractiveas 2010 wore on. The Federal Reserve initiated a concertedmonetary easin in September, which nded investors intohiher-yieldin investments sch as eqities. In December,the u.S. overnment nveiled new fiscal stimls, whichboosted investor confidence, and more sins emered thatconsmer spendin was pickin p. In jst three weeks inDecember, investors re-allocated uS$22 billion into u.S.stock fnds, accordin to EPFR estimates.

Asset-Distribution Strategies Also Differ byHNWIs Home-Region

At the end of 2010, North America HNWIs had 76% oftheir assets in home-reion investments, nchaned from ayear earlier (see Fire 11), bt that fire is expected todrop to 68% by the end of 2012 as North AmericanHNWIs re-distribted assets toward emerin markets tocaptre hiher retrns and toward alternative developedmarkets to diversify their risks.


19/40



Latin-America HNWIs investment allocations were littlechaned in 2010, bt sinificant shifts are expected in 2012,when home-reion allocations are expected to drop whileinvestment in North America rises.

Despite these shifts, the lobal distribtion of HNWI assets

will likely look mch the same at the end of 2012 as it doesnow as investors wait for the lobal economy to work morethorohly throh its post-crisis recovery phase.

There is likely to be a reater proportion of HNWI assetsheld in Asia-Pacific in 2012 (24% verss 22%), bt the extentof the shift toward emerin markets in eneral will dependin part on whether those markets can psh to new hihs whiletheir economies are bein weaned of overnment stimls.HNWIs North American holdins are expected to dip to38% while the proportions held in other reions stay the same.

This trend is already evident amon Eropean HNWIs,where home-reion allocations in 2010 dropped to 56%from 59% while North American holdins rose to 23%from 21% and the emerin-market share also eded p.By 2012, Eropean HNWIs home-reion allocation isexpected to slide another seven percentae points to

49% while North American and emerin-market assetsbecome even more prominent.

Amon Asia-Pacific HNWIs, home-reion allocationsalso dropped in 2010, to 57% from 64%, as NorthAmerican investments bonced back from 19% to 25%,near pre-crisis levels. Those home-reion allocations areexpected to be mch the same in 2012, bt NorthAmerican investments are likely to dip proportionally asAsia-Pacific HNWIs seek opportnities in otheremerin markets.

FIguRE 11. Breakdown of HNWI Geographic Asset Allocation, 2007 2012F

(%)

0

20

40

60

80

100

2012F2010200920082007

0

20

40

60

80

100

2012F2010200920082007

0

20

40

60

80

100

2012F2010200920082007

0

20

40

60

80

100

2012F2010200920082007

North America

Europe

Asia-Pacic

Latin America

Middle East

Africa

Asia-Pacific HNWIs Europe HNWIs

Latin America HNWIs North America HNWIs

26%17% 19%

9%

64%

6%

25%

7%

57%

8%

22%

8%

57%

10%

10%

68%

12%

53%

6%2%

3%2%1%

2%1%

1%1%

1%1%1%

24%18% 21%

59%

11%

5%

23%

56%

12%

6%

25%

49%

14%

8%

65%

10%

4%

56%

11%

6%2% 2% 3%

1% 1%2%1%

2%2%2%

38%32% 32%

12%

8%

47%

29%

13%

8%

47%

35%

14%

11%

38%

15%

7%

45%

18%

10%

31%

2% 1% 1%1%

2% 2%1%

76%

8%

76%

9%

7%

6%

76%

10%

9%

5%

68%

12%

11%

7%

81%

6%3%

11%

8%

4%1%

1%1%

1%1%

1%1%

1%1%

% %

% %

Note: Percentages may not add up to 100% due to rounding; Data for the Middle East is not depictedbut showed the same trend toward increased investment outside of the home region

Source: Capgemini/Merrill Lynch Global Wealth Management Advisor Surveys 2008, 2009, 2010, 2011


20/40


16 Capgemini/Merrill Lynch Global Wealth Management Financial Advisor Survey 2011.17 http://www.nytimes.com/2010/04/07/business/global/07auction.html.

DEMAND FOR ALL TYPES OF INVESTMENTS

OF PASSION GREW IN 2010

Individal preferences play a lare part in HNWIs decisions to commit toinvestments of passion, especially iven emotive variables sch as aesthetic vale andlifestyle/stats appeal. Bt HNWIs also view many investments of passion asalternative vehicles for preservin and appreciatin their capital over time,diversifyin their portfolio exposre or even captrin short-term speclative ains.

As wealth levels rebonded in 2010, interest in all forms of investments of passionalso revived. HNWIs relative allocations to those investments chaned very littlefrom 2009, bt new and rowin demand was discernible from emerin markets.

The followin were amon the developments in major cateories of investments ofpassion in 2010:

Luxury Collectibles (e.., lxry atomobiles, boats, jets) remained the larestsinle sement (29%) of investments of passion. Demand for lxry cars rebondedbroadly in 2010, bt especially from emerin economies in Asia-Pacific, Rssia,and the Middle East. Mercedes-Benz, for example, said its worldwide sales rose15% in 2010, while sales in China incldin Hon Kon jmped 112% and sales in

other emerin markets incldin India, Brazil, and Rssia also rose sharply.Ferrari reported China sales in 2010 were p nearly 50% from 2009, its best everyear. Ferrari added that the greater China Area (incldin Hon Kon andTaiwan) is now one of its top five international markets.

Art acconted for 22% of investments of passion overall, bt that share washiher amon Eropean HNWIs (27%) and hihest amon Latin AmericanHNWIs (28%). Art is also most likely to be seen as a form of financialinvestment. In fact, 42% of Advisors say they believe their HNW clients invest inArt primarily for its potential to ain vale.16

While it is hard to eneralize abot Art vales, actions in early 2010 certainlyenerated headlines when two world records were broken for artworks sold atactionfirst a giacometti paintin sold for uS$104.3 million in Febrary, then

a Picasso sold for uS$106.5 million in May. Later actions were less ebllient,bt action hoses report demand remains stron for hih-qality pieces.

Newly wealthy Chinese byers are widely reported to be keen bidders and byersat alleries and action hoses, especially to acqire the fast-diminishin spply ofworks from native artists. In April 2010, Briht Road by Li Ye, a contemporaryChinese artist, was actioned for uS$2.45 million, almost three times the pre-action estimate. That sale was part of a Sothebys action of contemporary Asianart, which yielded uS$18.7 million, toppin the pre-action estimate by abotuS$2.5 million.17 Chinese demand is also reported to be stron for Eropean artand Fine Arts, and Chinese collectors were said to be aressive bidders on many

HNWIs appetite for

investments of passion

increased in 2010 asthe global economyrebounded and HNWIwealth levels grew again(after the strong growthof 2009). The value of

many categories ofinvestments of passionrose and HNWIs madeacquisitions for theaesthetic and emotionalappeal and theirpotential to return value.Collectibles such as Art,which are deemed tohave a low or negativecorrelation withmainstream financialinvestments, continued

to have portfolio-diversification appeal.

Growing wealth from

emerging economies

helped to spur a revival

in markets for

investments of

passion. Theexponential growth inthe number of emerging-market HNWIs and theirlevel of wealth isexpanding the globalmarket for investmentsof passion, and broaddemand from Chinesebuyers is widelyreported for all sorts ofinvestments.

HNWI Demand for Investments of Passion

Rebonded as Wealth grew in 2010


21/40


HnWi dEmAnd for invEsTmEnTs of pAssion rEboundEd As WEAlTH grEW in 2010

18 Ibid19 Koncept Analytics, Global Gem and Jewelr y Market Report 2010.

lots at the late-2010 sales at major New York actionhoses. Estimates pt the total sales of Chinese arts atjst over $4 billion between 2000 and 2009.18

Jewelry, Gems and Watches also acconted for 22% ofall investments of passion in 2010. Middle EastHNWIs had the hihest share at 29% bt that wasdown from 35% in 2009. Record prices for diamonds atinternational actions in 2010 exemplified the rowintrend amon the worlds HNWIs to see lare diamondsas a safe and hih-rowth investment alternative.Crrent demand at the hihest end of the marketappears to be larely from Rssia and the Middle East,bt demand from Chinese and other Asia-Pacificinvestors is also rowin fast.19 Demand for fine andrare watches is also evident, with ChristiesInternational postin a record uS$91.2 million in schaction sales in 2010 and reportin exponential rowth

in byer participation from Asian markets, led primarilyby China and Hon Kon.

Other Collectibles (e.., wine, antiqes, coins,memorabilia) acconted for 15% of all investments ofpassion in 2010. Risin old prices helped to boydemand for rare coins in 2010, with many pieces inactions sch as the Spink Ancient, Enlish and ForeinCoins and Commemorative Medals sale arnerin farmore than pre-sales estimates. Sales of fine wine alsosred in 2010. For example, Sothebys sold uS$88.3

million in wine at lobal sales, more than doble the2009 total, and the hihest in the companys 40 years ofwine actions. Sales from its Hon Kon wine actionwere p 268%.

Sports Investments acconted for 8% of HNWIs

investments of passion overall bt that nmber was hiheramon Middle East HNWIs (13%) and those fromAsia-Pacific excldin Japan (10%) and Latin America(10%). In recent years, nmeros soccer franchise dealshave been made by HNWIs from emerin reions,incldin Rssia, India, and the Middle East. Notableamon sports investments by HNWIs drin 2010 wasthe prchase by u.S. entreprener Stan Kroenke of St.Lois Rams American football team. Kroenkes othersports holdins inclde stakes in u.S. basketball, soccer, icehockey, and lacrosse teams and a u.K. soccer team. u.S.basketball icon Michael Jordan also boht a controllin

interest in the Charlotte Bobcats basketball team in 2010.

HNWIs are clearly motivated to acqire investments ofpassion by more than financial considerations, and theamont of money flowin into this cateory tends to riseand fall with overall levels of wealth. However, manyinvestments of passion are also solid financial investmentsand will contine to play a role in HNW portfolios,especially for HNWIs seekin investments with a lowcorrelation to lobal financial markets.

FIguRE 12. HNWI Allocations to Investments of Passion, 2008 2010

(%)

201020092008

Luxury Collectiblesd

Art

Jewelry, Gems, & Watches

Other Collectiblesc

Sports Investmentsb

Miscellaneous

27% 30%

22%

23%

14%

8%

29%

22%

22%

15%

8%

5%

25%

22%

12%

7%

7%3%

0

20

40

60

80

100

%

a Miscellaneous includes club memberships, travel, guns, musical instruments, etc.b Sports Investments includes sports teams, sailing, race horses, etc.c Other Collectibles includes coins, wine, antiques, etc.d Luxury Collectibles includes automobiles, boats, jets, etc.Note: Percentages may not add up to 100% due to roundingSource: Capgemini/Merrill Lynch Global Wealth Management Advisor Surveys 2009, 2010, 2011


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FIRMS COULD LOSE AUM IF THEY FAIL TO

MEET THE NEEDS OF EMERGING HNWI

DEMOGRAPHICS

There may be no sch thin as an averae HNWI, bt in 2010, 83% ofall the worlds HNWIs were over 45 years of ae (and 59% were over55) and 73% of all HNWIs were male. While older men may be in themajority today, the HNWI poplation is radally becomin more

diverse as lobal demoraphic, cltral, and bsiness shifts challene anybroad eneralizations abot who HNWIs are and how they acqire,manae and tilize their wealth.

Demoraphic diversification is natrally radal so it does not reqirethe same kind of rent response or fndamental transformation thatcold be needed to address post-crisis chanes in HNWI priorities andbehaviors (see Spotliht on Enterprise Vale). However, a look at jsttwo key shiftin demoraphic trendsfemale and yoner HNWIsillstrates how Firms may need to fine-tne their service models overtime to accommodate specific needs.

Notably, this stratey is consistent with the empathetic approach Firmsand Advisors have had to assme since the financial crisis. Firms andAdvisors have already seen their HNW clients become moreconservative as they focs first on flfillin life oals rather than chasinshort-term retrns as many were keen to do before the crisis. HNWIschanin post-crisis demands have reqired many Firms and Advisorsto hone their propositions, and demoraphic shifts will reqire a similarand lon-term focs on individal needs.

Of All HNWIs, Fewer than One in Five Is 45 or Younger butThose Numbers Vary by Region

HNWIs aed 45 and nder represented jst 17% of all HNWIs in2010, bt that was p from 13% jst two years earlier. Of all HNWIs,41% were 55 or nder, p from 37%. However, the nmbers vary byreion (see Fire 13), reflectin a variety of factorsfrom themake-p of the broader poplation and economy to hosehold size andformation and differences in wealth-transfer practices. For example:

In Asia-Pacific excldin Japan, where fast economic rowth hascreated a whole new breed of entrepreners, 41% of HNWIsare 45 or yoner.

The HNWI demographic is

gradually becoming more

diverse over time. For example,younger HNWIs (aged 45 oryounger) made up only 17% of thepopulation in 2010, but that was upfrom 13% just two years earlier.Similarly, women made up 27% of

the global HNWI population in2010, up from 24% in 2008.

Emerging demographics may

have different needs than

long-standing HNW clients. Firmsand Advisors cannot assume theirexisting value propositions willcontinue to resonate asdemographics change, and theymust be careful to avoidgeneralizing about the needs ofgrowing demographic segments

based on the historical demands ofthe majority.

Demographic shifts are gradual

and require firms to make

balanced adjustments rather

than a full-scale, instant

transformation. These shifts indemography have been small inabsolute size so far, but over timecould result in a very differentindustry landscape. Being aware ofthe potential impact of these trends

can help Firms to utilize initiatives,such as blended team-basedapproaches and education ofpotential clientele, to help themremain responsive as these shiftsevolve over time.

Demoraphic Profile of HNWIs Shows SlihtShift bt the Impact Will Likely Be gradal


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dEmogrApHiC profilE of HnWis sHoWs sligHT sHifT buT THE impACT Will likEly bE grAduAl

In the Middle East, more than 50% of the totalpoplation is estimated to be below 25 and the HNWIpoplation is also yoner than averae: 21% are 45 ornder and 56% are 55 or nder.

In Japan, which has one of the fastest aeinpoplations in the world, 80% of HNWIs are over 55and only 8% are 45 or nder.

In North America, where the poplation is alsoainas it is in most post-indstrializedeconomies68% of HNWIs are over 55.

While the nmber of yon HNWIs is nlikely to riseprecipitosly, the trends show that Firms and Advisorscannot afford to inore the yoner demoraphic, whetherthe yoner element represents existin HNWIs orrecipients of wealth transferred from older enerations.

Crrently, Advisors lose an estimated 49% of assets ndermanaement (AM) drin enerational wealth transfer.The financial crisis may have made it even toher to retainthose assetsand to attract newly minted HNWIsbecase the yoner demoraphic is more likely to focson the difficlties of the crisis years and to be nsre that

partnerin with an Advisor is in their best interests.

As a reslt, next-eneration HNW clients may need amore lobal and holistic approach from their Firms andAdvisorsone that incldes a broad array of advice onoverall finances (incldin taxes), investment opportnitiesin faster-rowin international markets, and partnershipswith wealth-transfer attorneys and accontants. YonerHNWIs may also be more demandin of their Firms andAdvisors in terms of transparency, efficiency, technoloyand convenience in everyday interactions, as many favorpredominantly real-time diital media for commnications

and transactions.

FIguRE 13. Age Breakdown of HNWI Population, 2010 (by Region)

(%)

0

20

40

60

80

100

North AmericaMiddle EastLatin AmericaEuropeJapanAsia-Pacic

ex. Japan

Global

Average 2010

Global

Average 2008

Under 31

31-45

46-55

56-65

66-75

Over 75

Age in Years

11%

24%

32%

22%

9%

15%

24%

30%

20%

9%

38%

28%

16%

8%

7%

7%

33%

13%

32%

15%

2% 2%

15%

28%

31%

18%

5%

2%15%

28%

34%

17%

4%

2%

19%

35%

29%

11%

5%

2% 8%

22%

32%

23%

13%

2%3% 1%

%

Note: Percentages may not add up to 100% due to roundingSource: Capgemini/Merrill Lynch Global Wealth Management Advisor Surveys 2009, 2011


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dEmogrApHiC profilE of HnWis sHoWs sligHT sHifT buT THE impACT Will likEly bE grAduAl

beqestsbt they live loner on averae. It is importantfor Advisors to nderstand a female HNWIs economicpriorities, risk appetites, and other investment oals asthey may differ sinificantly from the averae male HNWclient when, for example, she has otlived a spose or atrst has already been established for heirs.

Advisors will also need to comprehend flly thenetwork of inflence on which their female HNWclients rely in makin sch financial decisions. Firmscold, for example, leverae team-based approaches tocombine complementary strenths and differentperspectives to iterate their response to the complexneeds of female HNWIs.

Conclusion

Demoraphic chanes do not happen overniht, bt they

do represent an inexorable move away from the stats qo.As sch, these chanes need to be on the radar as Firmsand Advisors contine to rebalance their HNW valepropositions over time. Most critical will be the need tostay relevant to individal HNW clients, sin tools andtechniqes that resonatewith emerin sements,incldin (bt not limited to) the female and yonerdemoraphics as well as to existin HNW clients.

More than One in Four HNWIs Is Female

Women acconted for 27% of the lobal HNWIpoplation in 2010, p from 24% in 2008 (see Fire 14).Aain there are differences by reion, most often reflectincltral and bsiness trends, bt the nmber of femaleHNWIs is qite likely to rise as the nmber of femaleentrepreners and hih earners contines to expand.

In North America, where women are well-established inthe bsiness world, women already accont for 37% of thetotal HNWI poplation. In the Middle East, 86% ofHNWIs are men, bt Sharia law protects womens assets,creatin a specialized need for wealth-manaementservices for female HNWIs.

Aain, Firms and Advisors will need to consider whetherthe vale proposition they offer to female HNWIs is apt

to retain and attract AM. At present, for example, Firmsinitially retain a seeminly impressive 66% of all assetstransferred to a woman from a man, bt the qestion iswhether they can retain that AM for the loner term.

Women need to plan for the same wide variety of possiblelife events as menfrom the sale of a bsiness to a jobloss, marriae, divorce, lon-term care, and enerational

FIguRE 14. Gender Breakdown of HNWI Population, 2010 (by Region)

(%)

0

20

40

60

80

100Female HNWIs as a

% of Total HNWIs

Male HNWIs as a

% of Total HNWIs

Middle EastLatin AmericaEuropeAsia-Pacic

ex. Japan

JapanNorth AmericaGlobal

Average 2010

Global

Average 2008

76%

24%

73%

27%

63%

37%

69%

31%

76%

24%

82%

18%

82%

18%

86%

14%

%

Note: Percentages may not add up to 100% due to roundingSource: Capgemini/Merrill Lynch Global Wealth Management Advisor Surveys 2009, 2011


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20 Enterprise Value: The ability to leverage capabilities from across different business units in order to differentiate in meeting client needs.

HNWIS HAVE REGAINED

TRUST IN ADVISORS AND

FIRMS BUT ARE MORE

CONSERVATIVE AND MORE

VIGILANT POST-CRISIS

HNWIs Faith in Advisors and

Wealth Management Firms HasSlowly Been Restored

In 2010, as financial markets and economiesrebonded across the lobe, 98% of HNWclients are believed to have trst and confidencein their wealth manaement Advisors and 88%in their wealth manaement firms (Firms).This endorsement stood in stark contrast to2008, when nearly 50% of HNW clients werelosin trst in their Advisors and Firms (seeFire 15, p. 26). Trst and confidence inrelatory bodies and instittions is far

from restored, however. Only 44% of HNWclients had faith in oversiht bodies in 2010and nearly one-third still actively distrstedthese instittions.

This mixtre of trst and misivins reflects alon and sometimes painfl jorney for HNWIsin which they have rethoht their investmentoals and weihed heavily the amont of riskthey are willin to assme to reach those oals.The process has also cased HNW investors tobe newly demandin of their Firms and

Advisors. This presents a sinificant opportnityfor leadin Firms that are able to address thebreadth and complexity of client needs,particlarly if they can leverae aainst theirbroader enterprise capabilities.

Wealth management firms and Advisors have

overwhelmingly regained the trust and confidence

of HNW clients since the financial crisis, so theimperative for Firms and Advisors is to help HNW clientsmanage the complex mix of goals, concerns, andpriorities they now face. The task is complicated by thefact that HNW clients still lack trust in regulators and, toa lesser extent, financial markets.

Firms could drive significant HNW client satisfactionby leveraging Enterprise Value to deliver an

integrated response to HNWIs complex post-crisis

needs. The highest priority will be to deliver a relevantenterprise proposition in areas where HNWIs seesubstantial value but are less than satisfied to date. Keyexamples of sought-after cross-enterprise capabilities(or value levers) are: Cross-enterprise expert adviceteams; unique investment opportunities through theinvestment bank; preferred financing for entrepreneurs;and advice/expertise from the private bank and theinvestment bank during the wealth-creation process.

Todays post-crisis, client-driven Enterprise Valueparadigm is very different from yesterdays Firm-

driven search for synergies. Many financial servicesfirms have tried to capture and leverage Enterprise Valuebefore, typically seeking the benefits of synergies, butthose attempts have often fallen short. Now, forward-thinking Firms need to build Enterprise Value strategiesand investment programs from a client-benefitperspective. This will still mean facing up to thesignificant challenges that exist in doing so, fromensuring strategic commitment to managing incentivesand establishing support mechanisms.

The Enterprise Value approach could be an

especially important differentiator for Firms thatneed to be more responsive in todays highlycompetitive market. It could also help Firms to positionthemselves better to respond to longer-term shifts in thedemographics of the HNW segment. At the same time,there is still potential for Firms to capture financialbenefits. Enterprise Value is a long-term evolution andcommitment, however, not a short-term fix.

SpotlihtWealth Manaement Firms Can Leverae Enterprise Vale

20

to Better Address HNWIs Complex Post-Crisis Needs


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spoTligHT 2011

HNW clients are heavily focsed on attainin specif iclife-oal benchmarks, not jst arbitrary investment oals.As a reslt, many are committed first and foremost topreservin capital bilt to fnd their life oals.

HNW investors are not easily convinced that alternativeor emerin opportnities are worth the riskor atleast not as easily convinced as drin the bll-marketyears when all investments seemed to retrn some typeof positive yield.

In this post-crisis environment, Firms and Advisors mstremain mindfl of client concerns bt cannot disreardtheir fidciary responsibilities. In 2011, for example,Advisors cold soon need to discss with HNW clientswhether they are bein overly conservative, especially asrisin inflation eats into already low retrns on certainasset classes. This conversation will be necessary whetherclients are lookin to preserve capital or captre hiheryields, and it will reqire Advisors to have a sophisticatednderstandin of their clients so as to deliver a viablestratey that resonates.

HNWI Asset Allocations Are Still MoreConservative than before the Crisis, Partly due toDiminished Trust in Markets and Regulators

Asset allocations at the end of 2010 showed a continedeasin of crisis-related concerns and a catios search for

retrns by HNWIs, bt HNWIs still held uS$18.6 trillionor 43.5% of all their assets in conservative instrments(fixed-income and cash/eqivalents)even thoh lobaleqity-market capitalization had risen 18.0% in 2010 and46.3% in 2009.

The fact that HNWIs still hold a sinificant portion oftheir assets in low-yieldin instrments clearlydemonstrates the effects of the crisis on the investor psyche:

HNWIs remain ncertain that markets will remainstable and that the financial crisis is over, and they fearthat new and nforeseen systemic shocks cold emere.

HNWIs are conizant that lobal politics and economicsare converin in decisions abot interest rates and manyother policies, which cold affect ftre market retrns.

FIguRE 15. HNW Client Trust Levels, 2008 2010

(%)

Strongly Disagree Disagree Somewhat Disagree

Financial

Advisor

Wealth

Management

Firm

Financial

Markets

Regulatory

Bodies and

Institutions

Strongly AgreeAgreeSomewhat Agree

Financial

Advisor

Wealth

Management

Firm

Financial

Markets

Regulatory

Bodies and

Institutions

Financial

Advisor

Wealth

Management

Firm

Financial

Markets

Regulatory

Bodies and

Institutions

Agreement that HNW Clients are

Losing Trust and Confidence in

the Following Entities, 2008

Agreement that HNW Clients are

Regaining Trust and Confidence

in the Following Entities, 2009

Agreement that HNW Clients

Have Trust and Confidence in

the Following Entities, 2010

32% 16%

17% 5%

0%

23%

32%

36%

71%

18%

32%29%

14%

25%

7% 7%

8%

6%

8%

4%

6%5% 2%

1%

3%

18%

19%

1%

5%

10%

3%4%

10%

4%8%

5% 7%

4%

5%

2%4%

8%

17% 15%

23%

23% 25% 20% 68%

16% 28% 40% 84%

17%

47% 23% 43%

28%

36%

25% 17%

19%

47% 13%

49% 98%

88%

57%

44%

11% 6%

2%

2%9%

8%

6%

25% 59%

25% 25%

30% 17%

56%

47%

17%

48%29% 17%

23%

11%

11%

Note: Questions asked each year were slightly different, but the message remains clear Firms and Advisors are well-trusted by clients globally but regulators and markets are less soSource: Capgemini/Merrill Lynch Global Wealth Management Advisor Surveys 2009, 2010, 2011


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spoTligHT 2011

FIguRE 16. Major Concerns of HNW Clients, 2010

(%)

Strongly AgreeAgreeSomewhat Agree

Rising Education Costs

Rising Healthcare Costs

Retirement Lifestyle Affordability

Real Estate Market

Income Lagging Ination

Ensuring Assets Last their Lifetime

Next Generation Not Adequately

Managing Inheritance

Possible Tax Increases

Impact of Economy on Goals 22% 40% 24% 86%

81%

69%

69%

69%

67%

65%

56%

43%

13% 37% 32%

28% 30% 11%

24% 31% 15%

27% 28% 15%

25% 27% 15%

20% 30% 14%

17% 21% 18%

20% 16% 7%

CRITICAL

MEDIUM

LOW

HIGH

Note: Percentages may not add up to totals due to rounding; Question asked: Please indicate to what extent you agree or disagreewith the following statements about which concerns your HNW and UHNW clients are most worried aboutSource: Capgemini/Merrill Lynch Global Wealth Management Advisor Survey 2011

HNWIs Are Sensitive to the Effects of MacroTrends and Taxes on Investment Performanceand Goals

Client conversations will obviosly depend on individalneeds, bt it is clear the crisis has enerally made HNW

investors more sensitive to the potential for macro trendsto ndermine the performance of their own portfolios andtheir ability to meet specific investment and life oals.

The financial crisis reslted in an economic downtrn indeveloped economies that has played ot very pbliclyas have the efforts by overnments arond the lobe tooffset the effects and pt their economies on a balanced-rowth trajectory. This has left HNWIs with a wholeswath of new concerns (see Fire 16). Most critical arethe eneral nease abot the impact of the economy onfinancial oals and fears that tax rates will be hiked,

redcin income and net portfolio retrns and potentiallymakin the movement of assets across jrisdictions moreinefficient and costly.

HNWIs other major concerns inclde worries that assetswill not last their lifetime, that the next eneration will notbe able to properly manae their inheritance, and thatincome will not keep p with inflation.

HNW clients have lived in recent years throh both

bll-market rn-ps and staerin losses, so thebreadth and depth of their concerns is hardly srprisin.Still, it will be a challene for Firms and Advisors todevelop a proposition that resonates in thisenvironmentwhere HNWIs have clear life andinvestment oals bt may be fearfl of riskin capital toenerate retrns to fnd those oals.


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spoTligHT 2011

FIRMS FACE A NEW

INDUSTRY REALITY

As Firms and Advisors work to respond effectively to theevolvin needs of HNWIs, it is important to note they alsoface chanin economics and operatin demands in their

own indstry. These dynamics mean Firms cannot afford todo more of the same to satisfy HNW clients oin forward.

Wealth Management Profit Margins, WhileResilient, Have Been Gradually Declining

Within diversified financial services firms, wealthmanaement profit marins have been more stable thanthose of the broader financial services oranization. Amona select rop of major financial services instittions (FSIs)that report wealth manaement profits separately, theareate pre-tax profit marin from wealth-manaement

nits dropped more than 300 basis points from 2006 to2009. Bt that compares with a massive decline drin thatperiod of more than 3,000 basis points for the FSIenterprises overall. That slmp was de larely to losses ininvestment bankin and asset manaement.

However, despite their relative resilience, wealthmanaement marins have been steadily erodin each yearsince 2006, and dropped 320 basis points in 2010. Thisdecline occrred as Firms absorbed increased costs fromcompensation (recritin and retention) and relations(new brdens in processin, IT and trainin) while

investors remained heavily invested in conservativeinstrments that enerate limited fees.

HNWIs Want to Preserve Capital,Demand Expertise

After the rollercoaster ride of recent years, nearly allHNWIs (97%) say capital preservation is important tothem and a lare nmber (42%) say it is extremely

important (see Fire 17). Similarly, effective portfoliomanaement is deemed important by 94% of HNWIsand extremely important by 30%. The crisis has not onlymade these needs more acte, it has raised or created thepriority for newer isses, incldin specialized advice(important to 93%) and transparency on statements andfees (93%).

As HNWIs look to attain life oals, they are also evenmore enaed in their financial affairs than in times past.This enaement itself creates new demands. Forexample, many HNWIs (84%) say more freqent /

innovative commnication is now important to them.And while the freqency of advisor contact is likely tobolster investor satisfaction, HNWIs also expect choicein the means of commnication, incldin tools sch asdiital media and mobile applications. The nderlyinimperative, thoh, is to make sre HNW clients feeltheir Firms and Advisors are flly accessible to themwhether the client wants to be proactively involved inmanain their assets or simply wants to check in.

Many HNWIs (82%) also say sccession-plannincapabilities are important to themanother indicator

that HNWIs do not want to jeopardize their leacy inthe search for investment retrns.

FIguRE 17. Top Six Priorities of HNW Clients, 2010

(%)

Independent Investment Advice

Global Asset Allocation of Portfolios

Transparency on Statements and Fees

Specialized Advice

Effective Portfolio Management

Capital Preservation

Extremely ImportantImportantSomewhat Important

8% 46% 42% 97%

15% 49% 30% 94%

19% 48% 25% 93%

16% 42% 34% 93%

26% 43% 19% 88%

24% 42% 21% 88%

Note: Percentages may not add up to totals due to rounding; Question asked: How important are the following to your clients?Source: Capgemini/Merrill Lynch Global Wealth Management Advisor Survey 2011


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spoTligHT 2011

FIguRE 18. Advisor Perceptions of Which Firms Are Well-Positioned to Address HNW Client Priorities, 2010

(%)

Succession Planning Capability

More Frequent/Innovative

Communication

Leverage of Enterprise Value

Independent Investment Advice

Global Asset Allocation

of Portfolios

Transparency on Statements

and Fees

Specialized Advice

Effective Portfolio Management

Capital Preservation

Independent Asset Managers

Pure Play Wealth Managers

Full Service Firms

84.4%

61.3%

59.1%

84.5%

70.4%

63.6%

86.0%

67.9%

65.9%

76.6%

59.3%

55.0%

88.7%

68.5%

60.1%

73.2%

65.1%

73.7%

82.7%58.5%

48.3%

78.3%

65.5%

64.8%

79.1%

59.0%

55.6%

TOP

SIX

CLIENTPR

IORITIES

OTHER

CLIENTPRIORITIES

Note: Question asked: Please rate to what extent you feel the following firm types are well positioned to meet new client demandsSource: Capgemini/Merrill Lynch Global Wealth Management Advisor Survey 2011

These dynamics illstrate the added pressre on Firmsto demonstrate a vale proposition for which HNWclients are willin to pay. Developin sch a propositionwill be critical to the sstainable rowth of Firms oinforward and will reqire a move beyond more of thesame into innovations sch as tre Enterprise Vale

(verss basic synery seekin).

Wealth manaement certainly remains an importantand fairly stable cash-revene stream for FSIs, whichmay face new relatory limits on other reveneenerators sch as proprietary tradin. At the parent-firm level, FSIs mst also set aside more capital inreserves than in the past, restrictin the amont ofcapital on which they can enerate retrns.

FULL-SERVICE FIRMS ARE LIKELY TO

BE BETTER POSITIONED TO WEATHER

CLIENT AND INDUSTRY SHIFTS

Well-capitalized, experienced, fll-service Firms are likely tobe well-positioned to address many of the new indstry and

client realities discssed (see Fire 18), and may have thescale to adapt.

More specifically, fll-service Firms are perceived to be farbetter positioned than pre-play wealth manaement firmsor independent asset manaement (IAM) firms to meetcrrent HNW client priorities

cap-merrill world wealth report_2011_eng

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