Australia’s buoyant HNW population is dominated by men and their wealth has been created predominantly through earned income. However, as the entrepreneurial market heats up, more women entrepreneurs are expected to join the Australian HNW segment in coming years, creating shifts in the industry dynamics. Vania Goncalves finds out more
The Australian wealth management market is booming. It is as mature as it is multicultural. According to a Bloomberg article published in March 2017, the total wealth held in Australia increased by 85% in the last 10 years, compared to 30% in the US and 28% in the UK. The buoyancy is aided by Australia having experienced no recession in the last 25 years.
The average Australian, thus, is now significantly wealthier than the average American or British person. The private banking client base in Australia is made of essentially three different client areas: families inheriting wealth, professionals with high annual income who dominate the country’s wealth market, and the fast growing segment of first-generation entrepreneurs.
Australia ranks fourth among developed economies by the Global Entrepreneurship Monitor (GEM). Currently this entrepreneurs bracket is largely male dominated but the Australian high net worth (HNW) segment is likely to have more women entrepreneurs joining in as female participation in entrepreneurship is significantly high in the country.
According to the Wealth in Australia: HNW Investor 2017 report published in May by GlobalData Financial Services, approximately 39% of the almost 2 million Australians starting new businesses are women (GEM, 2016), and If only 1% of them move up the wealth ladder into the HNW space, this would mean 750 new female entrepreneurs joining the current figure of approximately 16,000.
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With the majority of HNW investors aged above 50 years in Australia (78.3% of the wealthy population), the number of wealthy women can also increase as they inherit wealth from their spouses.
A lack of time is driving uptake of professional advice for the all-round HNW population in Australia. Australian HNW investors shown strong demand for tax, pension, and financial planning. According to GlobalData’s report, demand for all planning services is on the rise, making a multi-service proposition from private banks critical.
The financial services industry is the first wealth generator for nearly half of the Australian HNWIs who made their fortunes through business, entrepreneurship, or earned income, while the mining, oil and gas industry constitutes the second wealth generator, according to the recent GlobalData report.
The mining sector has been loosing its importance as measured by its contribution to GDP, according to GlobalData’s Global Macroeconomic Indicators, in addition to the fall of investment in this sector. However, those who have sourced their wealth from mining have experienced a somewhat lucrative market due to the remnants of the mining boom.
The Australian HNWIs heavily invest in equities, with 45.2% of their investment portfolios allocated to this asset class in comparison to 27.3% in the overall Asia Pacific region.
Real estate investment trusts (REITs), local currency deposit products, and direct property investments are also popular among the HNW population in the country. Over the next year, HNW allocation into alternative investments is expected to increase at the expense of bonds.
Number of expats set to decline
Long-term expats who have been living in Australia for over three years account for approximately 11,855 of the country’s HNWs and are an attractive segment of the wealthy population.
However the number of expats is expected to decline because of rigorous visa conditions, according to GlobalData.
One of the conditions of the Significant Investor Visa, launched in 2012 by the Australian government, is making investments of a minimum value of A$5m into complying investments such as bonds, mutual funds, and equities for at least four years.
Since July 2015, visa applicants have had to invest at least A$500,000 of the investment in eligible Australian venture capital or growth private equity funds, alongside another A$1.5m in Australian Securities Exchange (ASX)- listed small companies. In light of the higher risk profile of these investments, the visa has lost some of its appeal.
Approximately 1,746 Significant Investor Visas have been granted since 2012, while only 136 visas have been issued since the government announced changes to the investment rules in mid-2015 (SBS, 2017).
The UK is the biggest provider of expats to Australia, who account for almost half of Australia’s resident expat HNW population, according to the 2015−16 GlobalData Global Wealth Managers Surveys.
International and local banks in Australia, including ANZ, Credit Suisse, HSBC and Westpac, are already offering visa programs to enhance their appeal to expats.
HNW expats constitute a large target segment for private banks in Asia Pacific, on the whole, with 88.4% of the expat population being Chinese, according to the Department of Immigration and Border Protection.
Credit Suisse Private Banking offers investment portfolios that meet the requirements stipulated by the Australian government.
To facilitate visa processes for expats, the bank offers a dedicated desk with staff fluent in Mandarin and Cantonese, in addition to its Significant Investor Visa desk and products, which are promoted alongside traditional services such as wealth planning and lending advice.
However, wealth managers will need to differentiate their services, according to the report, as a significant number of banks already support HNW expats during these processes.
The provision of business start-up services could be a solution, as GlobalData’s previous surveys suggest that a significant number of expats move to the country to start a business.
Digital platforms and robo-technology demand to rise
While a reluctance to relinquish control has seen advisory asset management become the service of choice for Australia’s HNWIs, automated investment services are not being ignored – particularly by younger investors.
According to the GlobalData report, robo-advisers and digital platforms need to be integrated with other channels to appeal to both the old and new generations.
An opportunity to exploit this sector is rising as only a third of wealth managers, currently, offer automated investment services to HNW investors.