Given the increasing complexity of financial markets, private banking clients in Luxembourg, especially younger groups, are more willing to seek out financial advice than clients elsewhere in Europe, according to the Luxembourg edition of EY’s Global Wealth Report released on Thursday.
The domestic presence of sophisticated investment products such as alternative investments, emerging investment types such as crypto and the growing presence of FinTech providers means access to products and market specialists is “significantly more important” to Luxembourg clients than European and global clients, the study said.
The combination of these changes in the market with the political and economic shocks that marked 2022 meant that Luxembourg clients were acutely aware of the need to navigate complexity, with 54 percent of them citing “increased complexity” surrounding investing needs, compared to 48 percent for Europe and 45 percent worldwide.
“In most cases (83%), they are rather satisfied with the service that they receive,” said EY consulting partner Vanessa Müller, referring to Luxembourg. The complexity and volatility of the market has made clients eager to have more support and more detailed explanations on products and services, she said. “They felt a need to be reassured.”
Global survey
EY’s annual wealth management survey was conducted among some 2,600 respondents worldwide. In Luxembourg, EY polled about 54 clients of private banks. The survey drew input from over 500 millennials, nearly 1,200 baby boomers and nearly 1,000 generation X’ers. Respondents come from different wealth categories, from “Affluent” ($250,000 to $1 million) to “Ultimate High Net Worth” ($30 million plus).
In Luxembourg, especially younger generations, notably millennials, perceived the investment landscape as more complex, compared to only a quarter of boomers. “This could be explained by millennials having multi-faceted investment needs, such as a higher risk appetite and stronger desire for diversification,” said the EY report.
Overall, though, Luxembourg clients feel more prepared to meet their financial goals than the rest of Europe, despite perceived complexities. Three quarters - 74 percent - said they feel they are well prepared for meeting their financial goals, compared to 62 percent in the rest of Europe and 63 percent globally.
Luxembourg more active
Luxembourg-based clients are between 10 and 20 percent more likely to adopt a more active approach to asset allocation, the study found. “It certainly showcases their higher sensitivity to the markets, and could be why they feel more prepared to reach their financial goals; it enables them to feel more ‘in control’,” EY said.
Competitive fees and investment performance are the two top drivers of wealth manager selection in Luxembourg. Thanks to the introduction of various EU regulations on costs, disclosures and transparency, Luxembourg clients now have a better understanding of the fees that they are charged, although a third of them are still concerned about hidden fees, the study made clear.
On a global level, concerns over cost transparency have increased to 54 percent from 42 percent in the 2021 survey.
Different payment models preferred
Worldwide, wealth management clients prefer different payment models than the standard assets under management-based pricing. Performance-based fees are preferred by 21 percent, compared to 15 percent in the 2021 survey. Fixed fees are preferred by 18 percent compared to 7 percent, and a combination of fee structures by 15 percent, compared to 3 percent. The widely used AUM-based fee model is preferred by 13 percent, compared to 6 percent a year earlier. Overall, 70 percent of those surveyed felt they got value for the fees that were charged.
A large majority of wealthy millennials plan to move some of their assets to another wealth manager in the next three years. Much more than other generations, millennials are considering switching because of technology or digital opportunities. Some 71 percent of European millennials plan to move at least part of their wealth between now and 2026, the survey found.
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