Complex Made Simple

Are global UHNWIs immune to economic volatility?

Global market fluctuations resulted in UHNWIs dropping trust in their financial advisors.

A number of major factors, including the drop in global equity markets and fears of a persistent collapse in oil prices, may have impacted business across different sectors and hit economies altogether. However, some of the world’s richest are well protected against such world-economy fluctuations, according to industry experts.


“For many ultra-wealthy individuals, most of their wealth is privately held, so it’s not exposed to the volatility in pricing the equity markets are,” David Friedman, president of Wealth-X, said in the firm’s first quarterly briefing.


The Wealth-X Quarterly Briefing, the first edition of which was released earlier this week, explores the different global trends and their impact on the finances and lifestyles of high-net-worth-individuals, and the overall luxury sector.


According to Wealth-X observations, market fluctuations have resulted in UHNWIs’ (ultra-high-net-worth-individuals) trust in their financial advisors dropping. The company also stressed on the need to earn that trust back.


Out of 400 global private bankers and wealth advisors, managing the assets of roughly 45,000 UHNWIs with a combined wealth of more than $500 billion, 92 per cent agreed that wealth managers did have to work even harder to earn the trust of their UHNWI clients, according to a survey conducted by Wealth-X in collaboration with international research firm Knight Frank.


Recalling the global financial crisis of 2008, Mykolas Rambus, CEO at Wealth-X, said, “There was a breaking of trust; these individuals lost trust in their advisors, in the system. A lot of investors learned their lesson in China; it reinforces how volatile things are and how proactive individuals need to be.”



Psychological impact


While the wealth of the world’s richest may not be impacted by negative global economic sentiment, there is a psychological factor that impacts these individuals’ behaviours.


“For the second generation the two per cent loss feels like a ten per cent loss,” Rambus said, noting that the elder generation of HNWIs thinks they can earn the losses back, but the younger generation gets “tremendously concerned.”


Focus on Middle East

According to Wealth-X’s briefing, wealth creation in the Middle East remains “highly tentative”.


“It remains to be seen if the government in Saudi Arabia can create a work culture and business environment that are conductive to the entrepreneurship required to create new wealth,” Rambus explained.


“It is going to be a very challeng time in the Middle East, given what continues to happen geopolitically,” he added.