Last updated: 11:13 / Thursday, 12 June 2014
Boston Consulting

UHNW and HNW Clients will Continue to Value Propositions of Offshore Centers

UHNW and HNW Clients will Continue to Value Propositions of Offshore Centers

Private wealth booked across borders reached $8.9 trillion in 2013, an increase of 10.4 percent over 2012 but below the increase in total global private wealth of 14.6 percent. As a result, the share of offshore wealth declined slightly from 6.1 percent to 5.9 percent, according to Boston Consulting.

Offshore wealth is projected to grow at a solid CAGR of 6.8 percent to reach $12.4 trillion by the end of 2018. The offshore model will continue to thrive because wealth management clients—particularly in the high-net-worth (HNW) segment, with at least $1 million in wealth, and in the ultra-high-net-worth (UHNW) segment, with at least $100 million—will continue to leverage the differentiated value propositions that offshore centers provide. These include access to innovative products, highly professional investment and client-relationship teams, and security (most relevant for emerging markets). Indeed, the latest tensions between Russia and Ukraine, as well as the escalated conflict in Syria, have highlighted the need for domiciles that offer high levels of political and economic stability.

In 2013, Switzerland remained the leading offshore booking center with $2.3 trillion in assets, representing 26 percent of global offshore assets. (See the accompanying exhibit.) However, the country remains under heavy pressure because of its significant exposure to assets originating in developed economies—some of which are expected to be repatriated following government actions to minimize tax evasion.

In the long run, Switzerland’s position as the world’s largest offshore center is being challenged by the rise of Singapore and Hong Kong, which currently account for about 16 percent of global offshore assets and benefit strongly from the ongoing creation of new wealth in the region. Assets booked in Singapore and Hong Kong are projected to grow at CAGRs of 10.2 percent and 11.3 percent, respectively, through 2018, and are expected to account collectively for 20 percent of global offshore assets at that point in time.

Overall, repatriation flows back to Western Europe and North America, in line with the implementation of stricter tax regulations, will continue to put pressure on many offshore booking domiciles. Reacting to these developments, private banks have started to revisit their international wealth-management portfolios. Some have acquired businesses from competitors—through either asset or share deals—while others have decided to abandon selected markets or to serve only the top end of HNW and UHNW clients. The goal is to exit subscale activities in many of their booking centers and markets, and in so doing to reduce complexity in their business and operating models.

Nonetheless, players that have decided to leave selected markets have not always obtained the results they hoped for. An alternative and potentially more effective course of action—one already embraced by some leading players—would be to establish an “international” or “small markets” desk that addresses all non-core markets.

The key to success is to clearly differentiate products and service levels by market and client segment. For core growth markets, full-service offerings that include segment-tailored products (including optimal tax treatment) should be featured. All other markets (and client segments) should be limited to standard offerings.

Read the complete report in this link.