The Russian wealth market has been developing over several years. However, the recent political and economic instability in the country have affected HNW investors' portfolios and demand for wealth managers' services. Russian millionaires have to adapt to changing conditions, yet they continue to have high expectations when it comes to financial advice. Wealth managers who succeed in guiding clients through uncertain times will earn their trust, which in turn will lead to long-term fruitful relationships. The provision of well-diversified investment strategies and sophisticated wealth structuring services is a must. Key Findings
-The construction and real estate industries are the major sources of Russian HNW wealth. The oil and gas sector has been losing its significance. -Expats account for a fraction of Russian millionaires and will continue to decline. -Bonds account for 40% of the average HNW investor's portfolio. Russian investors show strong interest in corporate debt, which has offered a regular flow of high interest payments. -Strongly performing hedge funds have been attracting assets, driving the share of alternatives in HNW portfolios above the regional average. Further increases in hedge fund and private equity allocations are likely. -The depreciation of the Russian ruble hit the foreign property investments of wealthy Russians, affecting their attitudes towards real estate and driving demand for advice in this field. -The provision of financial planning and wealth structuring advice is essential to wealth managers' propositions. This includes tax and inheritance planning advice. Synopsis
Verdict Financial's "Wealth in Russia: HNW Investors" report analyzes the investing preferences and portfolio allocation of Russian HNW investors. The report is based on our proprietary Global Wealth Managers Survey. Specifically the report: Profiles the average Russian HNW investor in terms of the source of their wealth and age as well as analyzing the expat opportunity in Russia. -Analyzes which wealth management mandates are preferred among Russian HNW investors and how demand will develop looking forward. -Examines the allocation of Russian HNW investors' portfolios into different asset classes and how this is expected to develop in the future. -Analyzes product and service demand among Russian HNW investors. Reasons to Buy
-Develop and enhance your client targeting strategies using our data on HNW profiles and source of wealth. -Give your marketing strategies the edge required and capture new clients using insights from our data on HNW investors' drivers for seeking investment advice vs self-directing. -Tailor your investment product portfolio to match the current and future demand for different asset classes among HNW individuals. -Develop your service proposition to match the product and service demand expressed by Russian HNW investors and react proactively to the forecasted change in demand.
Table of Contents
EXECUTIVE SUMMARY Russian wealth managers can leverage their HNW clients' anxiety Key findings Critical success factors PROFILING THE RUSSIAN HNW INVESTOR Most Russian HNW individuals are business owners Construction and real estate are the main wealth-generating industries Expats represent just 5.4% of the Russian HNW population The expat opportunity is limited and it is difficult to obtain economies of scale for a dedicated service Skilled work visas allow job transfers for up to three years Investor and entrepreneur visas require relatively low capital Most HNW expats residing in Russia originate from Western Europe The current economic and political situation is encouraging expats to leave Russia HNW INVESTMENT STYLE PREFERENCES HNW investors in Russia rely on professional advice Wealthy Russians expect their wealth managers to deliver outstanding returns HNW investors opt for advisory asset management The appetite for advice is still on the rise The demand for advisory and discretionary mandates will increase A share of Russian HNW wealth will remain in execution-only platforms UNDERSTANDING ASSET ALLOCATION TRENDS AMONG RUSSIAN HNW INDIVIDUALS Bonds and deposits dominate Russian HNW portfolios Investors have been switching from cash to riskier asset classes Equities allocations are on the rise Bonds are the largest component of the Russian HNW portfolio For deposits, foreign currencies are preferred to the ruble Real estate has been important in HNW portfolios, but the economic crisis hit property investments Allocation in commodities is lower than in previous years Alternative investments have been attracting increasing attention Deutsche Bank Private Wealth Management offers deposits in a number of currencies as well as more sophisticated investments HNW PRODUCT AND SERVICE DEMAND Planning services are in demand in Russia Wealth structuring is significant in times of uncertainty Russian millionaires are preparing for intergenerational wealth transfer Internationally active millionaires require advice on tax and real estate Provision of tax advice is a must HNW individuals will require more advice on their real estate investments APPENDIX Abbreviations and acronyms Definitions Affluent Mass affluent HNW Liquid assets Methodology Verdict Financial's 2015 Global Wealth Managers Survey Exchange rates Bibliography Further reading About Verdict Financial Disclaimer
List of Tables
Table 1: Top industries by contribution to Russian GDP output (gross value added), 2015 Table 2: Russian ruble-US dollar exchange rate, December 31, 2014 and December 31, 2015
List of Figures
Figure 1: Business owners dominate the Russian HNW population Figure 2: The construction industry is the main source of Russian wealth Figure 3: Expats account for a small proportion of the Russian HNW population Figure 4: Switzerland, Germany, and the UK are the major expat feeder countries Figure 5: HNW investors in Russia believe their wealth managers can deliver better rates of return than self-directed strategies Figure 6: Advisory mandates are preferred to discretionary services in Russia Figure 7: Demand for discretionary and execution-only services is quite weak Figure 8: Demand for asset management services is on the rise in Russia Figure 9: Russian millionaires want to self-direct at least some of their portfolio Figure 10: 40% of the average Russian HNW portfolio is allocated in bonds Figure 11: Equities account for 19% of the Russian HNW portfolio Figure 12: The demand for equities will increase significantly Figure 13: HNW clients prefer direct holdings to funds when investing in bonds Figure 14: Opinion about future bond demand is mixed among wealth managers Figure 15: Foreign currency deposits are more popular than ruble-denominated accounts Figure 16: The demand for deposits is forecast to decrease Figure 17: Property investments account for 9% of HNW portfolios Figure 18: The demand for real estate investments in Russia will rebound Figure 19: Holdings in commodities are well diversified Figure 20: Allocations in commodities will remain stable in the foreseeable future Figure 21: Hedge funds constitute over half of HNW allocation in alternatives Figure 22: Russian wealth managers forecast increasing demand for alternatives Figure 23: Planning services are in demand in Russia Figure 24: Demand for inheritance planning will increase significantly Figure 25: Demand for tax planning is very strong among Russian millionaires Figure 26: Russian wealth managers should provide investment property advice
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