Wealth Management in Germany 2009

This report focuses on the onshore liquid wealth of affluent individuals and the liquid assets they hold, sizing, segmenting and forecasting the affluent population across 10 liquid asset bands. It also presents detailed HNW demographic and decision trigger analysis, and strategies to drive revenue growth based on large scale survey of the main players.

Report Highlights
Deutsche Bank's Private Wealth Management has enjoyed the dominant position in German private banking, but the takeover of Dresdner Bank by Commerzbank is threatening that dominance. According to Wealth Bulletin, the merged group's combined private banking assets under management bring it within striking distance of its larger rival.

Germany's economy tipped into recession in 2008, led by its strong dependence on exports in an environment where some of its largest trading partners, the US and the UK, contracted sharply. This economic decline compounded, or was compounded by sharp stock market declines of 40% or more in the year.

More than 60% of German HNWs are in fact pulling out of other investments to park money in cash but are, at the same, concerned about the stability of their banks and the safety of these nest eggs.
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Table of Contents 5
Table of figures 6
Table of tables 7
Special feature: THe changing face of competition in German Wealth Management 8
The fight at the top is intensifying 8
Newly combined Commerzbank-Dresdner plans to leverage its international presence, SME position and structured products capabilities 8
Deutsche Bank Private Wealth Management has suffered in size in the downturn 9
HVB Wealth Management's profits were down significantly in 2008 10
While the traditional German private banks continue to do 'business as usual' 11
August Lenz continued to increase assets under administration in 2008 11
Berenberg Private Bank posted growth in 2008 11
BHF-Bank Private Banking saw strong net inflows from entrepreneurial families in 2007, and continued net inflows in the first half of 2008 11
HSBC Trinkaus & Burkhardt withstood 2008's market volatility fairly well despite a sharp decline in AUM 11
Germany's wealth management market structure is unlikely to change significantly because of this downturn 12
Germany's Wealth 16
Fiscal restraint and high savings rates were not enough to protect Germany's investors from the market turmoil in 2008 16
Germany's highly export-dependent economy is in recession 16
Germans have among the highest savings rates, and lowest debt per capita, in Europe 16
Negative equity investment returns in 2008 knocked the legs out from under German investors' portfolios 17
Deposit rates did add slowly to German investors' portfolios 18
Germany's retail investors rediscovered bonds in the first half of 2008, and continued to invest in mutual funds despite negative performance there 19
German investors continued to invest in mutual funds through Q2 2008 but scaled back sharply in Q3 as turmoil took hold 19
Germany's investors sought the safety of bonds in 2008 20
The Wealth Data in 2009 21
The German HNW investor 22
German HNWs have defensively positioned their portfolios, but are showing optimism in the recovery 22
German HNW investors are 'parking' in cash, and have shifted substantially into bonds 22
Wealth management service implication: Find returns on cash and cash-like products for clients 23
Innovative example from Brunei: CIMB Islamic's Liquidity fund is actively managed, liquid, and could provide returns above conventional USD deposit rates 24
German HNWs are showing optimism in the recovery, and will shift back into equities and alternative investments by 2011 24
Wealth management service implication: Counterparty financial stability and risk management/corporate governance procedures will become as important as performance in clients' investment decisions 26
German HNWs will significantly reduce their holdings of both corporate and government bonds in the next two years 26
German HNWs understand the implications of the current market turmoil for their portfolios, but are at risk of leaving their wealth manager 28
German HNWs have a better understanding of the current market conditions than their counterparts across Europe 28
German HNWs are at ""high"" risk of defection to other wealth managers 29
Wealth management service implication: Many wealth managers will need to develop investment training and future-focused communications programs for their Relationship Managers 30
HNWs are planning for the future, both in short-term investment opportunities and long-term succession 31
German HNWs want inheritance planning services 31
Mortgage financing demand is an opportunity that smart wealth managers will exploit 34
Wealth management service implication: inheritance planning and mortgage financing services are a must 34
Innovative example from the UK: Bank of Scotland Private Banking puts lending at its core 34
HNW Germans' strong understanding of the market ensures future demand for more independent services and opportunistic products 34
Data tables 37
The German wealth manager's view 39
German wealth managers are missing key opportunities 39
Germany's wealth managers don't plan to exploit their HNW clients' anticipated demand for execution-only services, and are misaligned with client demand in other ways too 39
HNW investors choose the proactive wealth manager who truly understands their needs; investment performance will not win clients 42
Investment performance is more of a weakness among German wealth managers than it is a strength 44
Demanding clients means more effort is needed from Relationship Managers 45
Leveraging their strength in CRM, the best way to increase share of wallet will be to target relationship managers on cross-selling products 45
There is a fair amount of work to be done to convince clients about their bank's financial stability 47
In a market where everything seems to be going wrong, HNWs will not tolerate errors from their wealth manager 47
Four fifths of German Relationship Managers speak to their clients at least once a week 48
Almost three quarters of German HNWs see their Relationship Managers at least monthly 50
Relationship managers have to be able to credibly discuss their clients' portfolio allocations and asset performance; more than half of HNW clients demand it 51
APPENDIX 53
The drivers of growth in the wealthy population 53
Income growth (combined with inflation, changes in GDP by sector, household savings rates and debt levels) 53
Investment returns (market capitalization, interest rates and bond yields) 53
The following measures are not, in themselves, drivers of wealthy population growth 53
Market capitalization 53
GDP 53
The following measures are not drivers of wealthy population growth except under very restricted circumstances 54
Primary residence value growth 54
Inheritance 54
Methodology 54
Wealth Management Market Leaders Survey 2009 54
Global Wealth Model 54
The UK sub model 54
Global sub model (for all other countries) 55
Forecasting methodology 55
Continuous refinement to the understanding of liquid wealth distribution 55
Datamonitor's wealth numbers compared with other wealth numbers 55
Definitions 56
Western Europe 56
Further reading 56
Bibliography 56
Ask the analyst 56
Datamonitor consulting 57
Disclaimer 57
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Table 1: To what extent do you agree with the following statements about competition in your country? 13
Table 2: Regarding nationalized/part-nationalized banks, to what extent do you agree with the following? 15
Table 3: What proportion of your HNWs' portfolios is allocated to the following five asset classes? 23
Table 4: HNWs' portfolio allocation now versus in 2 years' time 25
Table 5: HNWs' portfolio allocation by product area now versus in 2 years' time 27
Table 6: Please rate your high net worth clients in Germany on a scale of 1 to 4 (openness to new investment ideas, understanding of current market ) 29
Table 7: Please rate your high net worth clients in Germany on a scale of 1 to 4 (relationship drivers ) 30
Table 8: Please rate your German high net worth clients' demand TODAY for the following on a scale of 1 to 4 33
Table 9: Please rate the following product areas in terms of expected demand from your HNW clients during the next two years 36
Table 10: To what extent do you agree with the following statements about the motivations of your HNWs clients in your country to make their investment decisions today? 37
Table 11: To what extent do you agree with the following statements about the motivations of your HNWs clients in your country to make their investment decisions today? Continued 37
Table 12: To what extent do you agree with the following statements about the motivations of your HNWs clients in your country to make their investment decisions today? Continued 37
Table 13: To what extent do you agree with the following statements about the motivations of your HNWs clients in your country to make their investment decisions today? Continued 38
Table 14: From the product areas just mentioned, which two will your wealth management service focus most resources on in the next two years? 42
Table 15: In your experience, what will most determine a German client's choice of wealth management service over the next two years? 43
Table 16: What are your company's biggest strengths and weaknesses? 45
Table 17: What is the most effective means of increasing share of wallet today? 46
Table 18: What is the best way to retain clients today? 48
Table 19: On average how often do your Relationship Managers speak by phone to each HNW client living in Germany? 49
Table 20: On average how often do your Relationship Managers speak by phone to each HNW client living in Germany? 51
Table 21: On average how often do your Relationship Managers speak in person to each HNW client living in Germany? 51
Table 22: When you speak with clients, what do they most want to talk about? 52
Figure 1: Despite weak markets in 2008, retail investors put faith in mutual funds in the first half 3
Figure 2: The greatest strength of Wealth Managers in Germany is their personal relationships with clients 4
Figure 3: Investment losses in 2008 wiped out €40 billion from Deutsche Bank PWM's client portfolios 10
Figure 4: Wealth managers in Germany think that nationalized/part nationalized banks will be more formidable competitors than they were 13
Figure 5: The view of wealth managers is that nationalized and part nationalized banks will attract good relationship managers because they are financially secure 14
Figure 6: German investors are retrenching for the recession, as debt per capita falls and savings rates rise 17
Figure 7: The Deutsche Börse market cap has felt the pinch of the recession as badly as the rest of the market 18
Figure 8: German deposit rates have fallen back from 2007 highs, but still offer a return 19
Figure 9: Despite weak markets in 2008, retail investors put faith in mutual funds in the first half 20
Figure 10: Federal bond yields provide small investment returns on short-dated maturities, rising with time 21
Figure 11: The majority of HNW wealth in Germany is invested in the 'cash or near cash' asset category, with this accounting for 26% of all investments 23
Figure 12: German HNWs will shift strongly away from fixed income by 2011 and into equities and alternative investments 25
Figure 13: In 2011, the majority of high net worth assets in Germany will be invested in the 'Equities' category, with this accounting for 27% of all investments 27
Figure 14: HNW investors in Germany have a lower level of market knowledge than the average European HNW investor 28
Figure 15: There is a lower risk of HNW clients in Germany leaving to find another wealth manager than the average European HNW investor 30
Figure 16: The recession has strongly impacted the amount of wealth transfer to the next generation 32
Figure 17: In Germany, HNW investors' greatest demand is for execution-only asset management services 33
Figure 18: In 2 years time, the greatest demand amongst HNW investors in Germany will be for deposits and savings products with 27% of HNW investors demanding this category of product 35
Figure 19: Wealth managers in Germany will be focusing most of their resources on direct equity investment in two years time 41
Figure 20: HNW investors in Germany are most influenced by ability to identify investment opportunities in the downturn in their choice of Wealth Manager 43
Figure 21: The greatest strength of Wealth Managers in Germany is their personal relationships with clients 44
Figure 22: The best way for Wealth Managers in Germany to increase share of wallet is to target relationship managers on cross-selling products 46
Figure 23: The best way for Wealth Mangers in Germany to retain HNW investors is to not make errors 47
Figure 24: In Germany the Wealth Management relationship managers speak to clients by phone approximately once a week 49
Figure 25: In the Wealth Management relationship managers speak to in person to clients approximately once a month 50
Figure 26: The majority of clients in Germany want to speak to their wealth manager about performance of specific asset classes within their portfolio 52
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