CHALLENGES AND PROPECTS OF WEALTH MANAGEMENT ADVISORY IN AFRICA
I. The wealth management advisory business
In some major international banks with a universal vocation, private banking is organized within a Wealth Management business line, which manages relations with high-net-worth individuals (HNWI), segmented according to the level of financial assets under management.
Private banking activities backed by a banking network are generally handled at customer relations level by a Wealth Advisor, whose mission is to take charge of all aspects of the customer’s overall wealth management (financial, movable and real estate assets, investments, financing, etc.).
To be effective in this profession, however, you need to be able to rely on two pillars: a specific approach and specific skills.
1. Mastering an approach based on a global customer focus
The first step is to target those customers who are most likely to enter into a wealth management process, and then to explain the proposed exchange process to the selected customers during an initial meeting, in order to obtain their support for the way we work.
This is done by signing an asset management agreement, which sets out the approach, associated services and fees, as well as the rights and obligations of each party, particularly in terms of transparency and confidentiality of information.
In the second stage, an in-depth meeting is held to carry out a 360° assessment of the customer’s professional and family background, to understand his wealth and budget situation, his overall risk profile, and his wealth-related objectives and/or concerns.
On the basis of the information gathered, the next step is to draw up a diagnostic analysis of the client’s asset (stock) and budget (flow) situations, as well as his objectives and/or concerns.
This preliminary work will enable the Wealth Advisor to formulate a number of recommendations in response to the issues raised by the client, such as :
- Building financial assets : “How can I build capital through regular investments that are liquid, profitable, secure and tax-efficient ?
- Developing a property portfolio : “How can I finance an investment in rental property and benefit from attractive financial leverage ?”
- Restructuring an estate: “How can I take stock of all the assets I’ve built up over the years, and see if their structure still matches my wealth objectives?”
- Preparing to pass on my assets : “How can I pass on my assets while I’m still alive in the best possible conditions, while preserving family harmony and optimizing my tax situation ?
- Ensuring the family’s financial security: “How can I anticipate potential budgetary tensions resulting from foreseeable or unforeseeable events that could have an impact on my family’s financial security?
- Managing Old Age Assets : “Will I still have the physical and intellectual faculties at a certain age to manage my rental property and financial assets ? What are the possible solutions ? “
The Wealth Advisor’s recommendations in response to this type of concern should be the subject of simulations based on different scenarios, specifying the legal, tax and financial consequences of the proposals made, depending on the context.
Once the wealth strategy has been validated with the customer, the final step is to support the customer in implementing the strategy.
2. Mobilizing specific skills
In order to be able to deal with a variety of wealth-related issues, wealth management requires skills in areas such as law (personal and family law, corporate law, etc.), taxation (income tax, capital tax, transfer tax, property division, etc.), risk management (wealth loans, guarantees, etc.), financial markets (discretionary management, etc.), real estate wealth engineering and financial planning (investment choices, optimization, etc.).
As a generalist, the Wealth Advisor will need to call on specialists such as, for example, a real estate agent for the purchase/sale/management of real estate assets, a portfolio manager for the purchase/sale of financial assets, a notary for the registration of transfers and the settlement of inheritances, a chartered accountant for the accounting and tax treatment of assets, a banker for any financing requirements, an insurer for investment and insurance needs, and even an art consultant or philanthropy advisor for investments in works of art and patronage initiatives.
Once the wealth management strategy has been implemented, it needs to be monitored periodically, in line not only with changes in the legal, tax and economic environment, but also with changes in the customer’s situation and objectives (life cycle).
In Tunisia, for example, the legislator has significantly increased and harmonized the tax exemption possibilities for sums invested in share savings accounts (doubling of the deductible ceiling) and life insurance policies (tenfold increase in the deductible ceiling).
More recently, the Tunisian Finance Act for the 2023 financial year introduced for the first time a tax on real estate wealth (art.23) which amounts to 0.5% on real estate, built or unbuilt, owned by any individual whose overall value is greater than or equal to TND 3 million, including real estate owned by dependent minor children.
The value of TND 3 million is set on the basis of the real value of the properties concerned by the ISF, including shareholdings in SCIs, after deduction of debts encumbering the said properties.
II. The challenges of wealth management
The development of wealth management advisory services is attracting growing interest from a number of financial institutions wishing to diversify their activities and generate new sources of income by positioning themselves favorably in the high-end segment of private individuals and professionals.
In some markets, high-net-worth private clients are not always well served by banks, and are often obliged to deal with different people (lawyers, chartered accountants, bankers, etc.) to resolve issues relating to the development, restructuring or transfer of their assets.
The development of a wealth management advisory service requires banks to take a holistic approach to their customers, and to provide them with solutions that meet all their short- and medium-term wealth objectives and/or concerns, and that go beyond the management of financial assets.
In addition to the imperatives of winning and retaining customers, experience has shown that, on average, when a customer enters the wealth management business, the profitability generated is 20% higher than when the same customer is managed in a branch.
Developing this activity within the bank also requires appropriate organization and the ability to mobilize internal resources or through partnerships with specialized firms.
In addition, the introduction of a legal and tax framework favorable to property stripping operations (bare ownership and usufruct), the diversification of tax-free investment products, the promotion of new forms of real estate investment through vehicles such as non-trading property companies (SCI) or non-trading real estate investment companies (SCPI), and the easing of foreign exchange regulations, the range of financial and non-financial services on offer, cultural and religious specificities with regard to money and inheritance, for example, and the greater or lesser importance of the informal economy within society, are all factors that can impact in one way or another on the development of the wealth management profession.
III. Prospects for wealth management in Africa
Wealth managers are paying close attention to the rapid growth of private wealth in Africa, and with it the expansion of the multi-millionaire club. As a general rule, they target individuals with more than $500,000 in assets (wealth excluding principal residence).
The services most in demand by these wealthy individuals are asset management, financial planning and estate planning.
According to a study by the Credit Suisse Group, wealthy Africans hold at least 10% of the $2,000 billion in the portfolios of the world’s ultra-rich.
This makes the African continent a formidable growth driver for the wealth management and private banking markets in general.
The average growth in the median wealth of millionaires has been the fastest in Africa over the last 20 years, at 8.9%. Only China, with an average of 10.8%, has done better.
In its 2022 report on wealth in Africa, British research firm Henley & Partners reported that the continent has a total of 138,000 millionaires, 328 centi-millionaires and 23 dollar billionaires.
According to the same report, the wealth management market in Africa is set to grow by 60% over the next decade, reaching $240 billion in 2032, compared with $150 billion in 2022.
South Africa is the main hub of the continent’s wealth management industry, with assets under management of just over $85 billions at the end of December 2022.
South Africa, Egypt, Nigeria, Kenya and Morocco together account for 56% of millionaires and more than 90% of billionaires on the African continent : with 37,800 people with a fortune estimated at at least one million dollars, South Africa is the country with the most millionaires, ahead of Egypt (16,100), Nigeria (9,800), Kenya (7,700) and Morocco (5,800).
The firm also expects the continent’s wealthy population to grow by 42% over the next ten years, reaching around 195,000 by 2032.
Mauritius is expected to be the best-performing market over the next decade, with 75% growth in the number of HNWIs. Growth of over 60% in the number of HNWIs is also expected in Namibia, Rwanda, Zambia, Seychelles, the Democratic Republic of Congo and Morocco.