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Temasek PolytechnicTemasek Informatics & IT SchoolDiploma in Financial Business InformaticsWealth ManagementTutorial wk 1 - Introduction to Wealth Management
At the end of this exercise, students should be able to:•Describe and discuss the key drivers for the wealth management marketQuote:
“Let me tell you about the very rich” (with undisguised envy). “They’re very different  from you and me.” F. Scott Fitzgerald 
Questions
1.Describe the key factors driving the growth in the wealth management market.A key driver of the wealth management market is clearly the growth of wealth itself and how it is distributed.As individuals grow wealthier, they
Make more use of financial services
Invest and spend more
Seek more protection for their existing wealth and lifestyle
Feel comfortable borrowing large sums of money
Seek advice for their financial needsIn principle, the revenues of most financial services are driven by ‘surplus’ wealth.For main drivers for growth in wealth:
Economic growth
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The growth in global wealth has exceeded that of global GDP in recent years.However, there are differences in different geographical regions – e.g. AsiaPacific and Latin America giving grown wealth in excess of their GDP growthrates, while Europe’s wealth share is disproportionately low.
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The strong economic growth, in turn, ultimately helps drive asset prices.
Asset Prices
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The 1900s surge in wealth largely due to the biggest ever bull market inequities.
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A shift of investable wealth from illiquid asst to the market.
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Many family-owned companies have been sold, including growing number through IPO.
WEM (CFI3C02) 2009 Page 1
 
Wealth Allocation
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Trend towards the increasing and wealth concentration among the moreaffluent segments of society as a whole.
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Forecast the wealth of the world’s wealthiest investors (i.e., > $5million) willgrow by 6.6% a year between 2004 to 2009.
Demographic factors
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The age group generally mattered most to the industry from the growth perspective is those aged 46065 (the baby boomers) – these are the peoplewho are the most likely to accumulating wealth for retirement.
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Economic and technological change has been driving the recent growth inHNWI wealth led to changes in profile of wealthy individual. Entrepreneurialwealth has become increasingly important.
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A redistribution of existing wealth through inheritance-related wealth transfer.2.Discuss the demographic factors as a powerful catalyst to wealth marketdevelopment for the following geographical regions:
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 North America
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Western Europe
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Asia-Pacific
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Latin America
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Middle East
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Africa
North America: Industry shift towards full-service model
Key wealth drivers are the high economic and productivity growth rates.
Wealth also driven by strong US financial market returns, particularly in equities,in which investors hold more than half their assets.
Bulk of the wealth is held onshore, reflecting low domestic tax rates and generaleconomic stability.
Early phases of economic development were dominated by family businesses.
From early 1950s to the mid-1970s, many millionaires were senior corporateexecutives.
Start-up businesses have grown significantly since the 1980s.
Form the early 1980s the bulk of the newly created wealth has come fromentrepreneurs.
During the mid-to-late 1980s there was a tendency for wealth to be liquidatedthrough leverage buyouts.
In the 1990s, a further pick-up in the number of entrepreneurs, and the boomingIPO market turned them into instant millionaires. E.g. the August 2005 IPO of Google (~$78), is reported to have created 5 billionaires and 1000 millionaires.
Western Europe: Wealth transfer between generations
Includes a significant proportion of global ‘old’ wealth – associated withinheritance and more traditional forms of asst growth rather than entrepreneurialwealth creation.
WEM (CFI3C02) 2009 Page 2
 
A tendency of wealth toe be tied up in land and property in some countries, hascontributed to illiquidity.
A significant proportion of European wealth is managed offshore reflectsrelatively high tax rates, and weak domestic investment opportunities.
Exposure to equities throughout Western Europe has stabilized to 32% of assts,though UK and Switzerland have higher shares.
A large proportion of Western European wealth is held in property, shipping and privately held businesses.
Asia Pacific: Strong economic development
Strong economic growth and development across Asia has led to wealthaccumulation, over the last 25 years.
The growth has been supported by higher savings rates, young and productive populations, and strong inflows of foreign direct investment.
Intense regional entrepreneurial activity, particularly in real estate, banking andtrading-related businesses is a key contributory factor to growth.
Most Asian assets are still held in cash, with equity exposure of around 28% of total assets.
Most recently, China’s huge export industry, long with many successful IPOs of Chinese companies in Hong Kong and New York, have been key wealth drivers
In recent years, Indian Wealth has been driven mainly by very economic growth.
Strong economic growth in Singapore, South Korea, Hong Kong and Taiwan alsocontributes to the wealth growth in the region.
The ethnic Chinese (Diaspora) population is particularly successful inaccumulating wealth in Thailand, Malaysia and Indonesia.
Latin America: Traditional offshore-banking stronghold
(Not shown by lecturer)
Middle East: Oil-driven growth
The wealth of the region, both public and private, has derived almost entirelyfrom oil, and other natural resources such as gas, as well as from property andland.
Wealth in the Middle East is highly concentrated and predominantly in the handsof relatively few families, who invest mainly in their own businesses
These family bus nesses act as agents, diversifying into other sectors of theeconomy and building a chain of dependencies.
The majority of these families has inherited their wealth over several generationsand continues to control large segments of domestic economy.
Five broad categories of wealth:
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Classical inherited wealth accumulated over several generations
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First-generation oil wealth
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Younger generation family businesses
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Female inheritors
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Funds held in Islamic institutions
Much of the region’s wealth has traditionally been held offshore (‘petrol dollars’).
Most recently, the region is experiencing wealth generation primarily driven bythe growth in oil revenues.
Mckinsey estimates that close to half of new wealth is currently staying onshore,with half of that wealth invested in local equity markets.
WEM (CFI3C02) 2009 Page 3
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