After a drop in 2022, the financial wealth held by high net-worth individuals worldwide increased in 2023 to reach new highs, representatives of the IT and consulting firm Capgemini said during a presentation of Capgemini’s  in Luxembourg on 6 June 2024.

Globally, HNWIs’ financial wealth rose from $83trn in 2022 to $86.8trn in 2023, an increase of 4.7%. That’s quite a “remarkable journey,” said Martine Klutz, senior business executive at Capgemini Invent. North America saw the highest growth (7.2%), followed by the Asia-Pacific region (4.2%), Europe (3.9%), the Middle East (2.9%) and Latin America (2.3%). Africa was the only region that saw a decline (-1.0%) last year.

The number of high net-worth individuals worldwide also increased, from 21.7m in 2022 to 22.8m in 2023. Here, North America and Asia Pacific also led global growth. In Europe, the number of HNWIs increased by 4% (from 5.6m in 2022 to 5.8m in 2023). France and Italy saw the highest growth in the HNWI population, with 6.4% and 8.4% respectively.

One-fifth (20%) of the total population of ultra high-net worth individuals was estimated to be “self-made” and under the age of 40, said Capgemini.

Luxembourg’s HNWI population (and wealth) rebound as well

Capgemini’s world wealth report surveyed 3,100 high net-worth individuals worldwide (including 1,300 ultra high-net worth individuals, who have investable assets of $30m or more), as well as more than 75 wealth management executives and family offices and 700 wealth managers. In Luxembourg, 44 UHNWIs, six high-net worth individuals and 10 wealth managers were surveyed.

“The trend [of recovery] is there also in Luxembourg,” said Klutz, who provided figures specific to the grand duchy. HNWIs’ financial wealth stood at $138bn in 2021, dropped to $135bn in 2022, then rebounded to reach $139.4bn in 2023. Annual growth between 2022 to 2023 came to 2.9%.

The population of HNWIs in Luxembourg also increased. There were 47,110 people in the grand duchy with more than $1m of investable assets in 2023.

Most (91.2%) of these individuals fell into the “millionaire next door” category, with $1m to $5m in investable assets. Around 3,870 (or 8.2%) were in the “mid-tier millionaire” category, while 280 people were in the ultra high net-worth individual category, with $30m or more in investable assets. This last category held 18% of the total HNWI financial wealth in Luxembourg.

More interest in alternative investments

Asset allocation seems to be shifting away from cash and cash equivalents to more fixed-income products, real estate and alternative investments like private equity, private debt or cryptocurrencies, said Klutz. Assets allocated to cash and cash equivalents dropped 9 percentage points, from 34% to 25%. Alternatives increased by 2 percentage points to reach 15% of asset allocation.

In Europe specifically, asset allocation to real estate has increased from 15% of portfolios in January 2023 to 20% in January 2024. Allocation to cash--as seen globally--has dropped.

The report found that worldwide, 1 in 2 relationship managers said their clients were showing more interest in allocating towards growth assets, explained Klutz, which are potentially more risky. In Luxembourg, more than 2 in 3 said this was the case.

Two out of 3 HNWIs on the global level said they were planning to increase their allocation to private equity in 2024 because of higher return and diversification benefits. But only 1 out of 3 HNWIs in Luxembourg said they were planning to do so, noted Klutz.

On the other hand, she added, 2 out of 3 relationship managers in Luxembourg said that cryptocurrencies have seen increased interest amongst HNWIs. Only 1 in 2 relationship managers globally said this was the case.

When it comes to ultra high net-worth individuals, 71% of relationship managers--globally and in Luxembourg--said that UHNWIs are more interested than other wealth categories in alternative investments.

“Interesting also to mention is that we see more and more transparency on the rating of ESG assets, and so there is more and more confidence in investing in ESG assets. Therefore, now, based on our interviews, we see an increased interest in ESG,” said Klutz. Around 50% of relationship managers both globally and in Luxembourg said their clients are showing renewed interest in ESG-linked assets and their impact on society. Roughly two-thirds (64%) of wealth management executives globally and 60% in Europe said their firm currently holds ESG-linked assets.

Leverage data to improve client experience

But “the profitability of the industry is under pressure,” said Klutz, and there’s competition from family offices. So how can wealth management firms distinguish themselves and provide what clients want?

Behavioural finance is an important way to win engagement from a client, she argued. “That’s why you need to understand more deeply what the client wants, who they are, what they want and offer them a personalised value.” UHNWIs are more involved in their investment strategy than other wealth bands (say 62% of relationship managers globally and 70% in Luxembourg), and they want more information to be able to manage biases in their decision-making.

Wealth management firms collect data like financial statements, transaction history, account activity or customer lifestyle data. But Capgemini’s research found that only 8% of relationship managers globally update customer profiles weekly (that figure sits at 0% in Luxembourg); 52% globally update on a monthly/quarterly basis (only 40% do so in Luxembourg); and 40% of relationship managers globally update profiles on a yearly basis or even less frequently (that figure goes up to 60% for Luxembourg).

When it comes to sending personalised communication, most relationship managers send communications on a monthly/quarterly basis (73% globally and 80% in Luxembourg).

Artificial intelligence to support decision-making

“AI is coming, big time, everywhere,” said Laurent Barbazanges, financial services market segment lead at Capgemini. Just over half (54%) of European wealth management firms use artificial intelligence and 74% plant to increase adoption within the next 1-2 years, “That’s a revolution that we see coming.”

It can, for instance, reduce low-value added tasks for wealth management firms by automating them, provide wealth managers with better insights about clients with portfolio optimisation and client profiling, then bring all this information to the client with personalised communication.

Wealth management firms have a lot of data, but they use it in a limited way, Barbazanges argued. “They need to move from being data rich to being data centric and eventually customer centric.” Though the amount of data to be processed is “huge,” the “power of AI is there” and will transform the industry.

Technology is there to support wealth managers by capturing and understanding behaviour, said Iben Lambrechts, senior consultant at Capgemini. “It goes far beyond what humans can see as patterns.” It’s important to “proactively use this data to help with decisions.”

The advantage will go to firms that invest and are able to benefit from this data, while those that don’t will lag behind, added Barbazanges. AI projects at firms like Morgan Stanley, HSBC and Vanguard are already up and running. He did, however, note that’s not just “plug and play,” but that issues like ethics and governance are important to consider when deploying AI.