Although they are still lagging far behind the wealthy across the globe, rich people in Hungary are also thriving. Approximately 22,000 people have their assets managed by a private bank, where the minimum amount of investable assets is 35 million forints. The biggest fortune growth has been seen in accounts with over 100 million forints, but the number of people with at least 3 billion of assets is also expected to increase by 50 percent, István Karagich, founder and managing director of Blochamps Capital, a company providing private banking and business consulting services, told Növekedés.hu.
How has the coronavirus affected wealthy people in the world?
As far as wealth growth is concerned, 2020 was a particularly prosperous year for them.
In terms of investments, due to their diversified portfolios and the intense ‘asset price inflation’ worldwide, the rich have not been hit hard by the coronavirus situation at all, and the gap between the richest and the poorest became significantly wider in 2020. Let’s be honest, at the time of the many health restrictions people are facing today, it is sobering to see that in 2020 the Bloomberg Billionaires Index realized the highest annual growth in the history of the list,
as the total wealth of billionaires who made the list increased by 31 percent, and the world’s 500 richest individuals accumulated as much wealth in 2020 alone as, for example, the poorest 165 million U.S. citizens earned in their entire lives.
What is the situation in Hungary? Have there been any changes recently among the wealthiest?
It is interesting to observe the growth dynamics of the investable assets of the Hungarian financial elite in recent years. The assets managed by private banks grew dynamically even in 2020, which was the year hit hardest by Covid, and which already followed a more than 21 percent growth in 2019. This is a remarkable achievement.
If we look at the accounts between 30-100 million forints, the increase between the first quarter of 2017 and the first quarter of 2020 was 33 percent, while the accounts over 100 million managed to grow by 83 percent during the same period.
All this growth was achieved without an increase in the number of customer accounts.
The total volume of the private assets managed in Hungary increased from 5,720 billion forints in the spring to 6,200 billion.
How many wealthy people live in Hungary now? How many of them have their money managed by a private banker?
At the end of 2020, there were almost 45,000 customer accounts managed by 15 active private banking service providers. These, however, belong to roughly 20-22 thousand clients, as there are several customers who have accounts with several service providers at the same time. The number of private banking customers has been hardly rising for the last few years, the changes in private banking customer accounts were mostly driven by segment adjustments and acquisitions, without the appearance of many new wealthy individuals.
However, the gap between the wealthy opened further; there is a circle of one or two thousand people whose wealth grew significantly, although the TOP 50,000 HNWIs also continued to thrive economically.
What do you think is meant by being rich in Hungary today? How many million forints does a rich person have apart from their real estate portfolio?
Today, 9 private banking providers already have a minimum limit of over 70 million forints, while customers with less than 35-50 million of savings belong to the premium segment. However, the theoretical limit should be set above 100 million worth of assets for the elite club of the wealthy, i.e. those eligible for private banking services.
In Hungary, wealth in the upper deciles of society is typically based on real estate, and so the amount of liquid assets does not always accurately reflect the size of an individual’s fortune. In the sixth-ninth asset deciles, real estate accounts for 80-90 percent of the fortune, while in the tenth decile, the weight of the real estate portfolio is only10-30 percent.
Wealthy people in Hungary are not considered particularly rich by international standards, but in Hungary, those who own multiple properties cars and businesses are generally classified as wealthy.
By 2022, the population owning more than 3 billion forints worth of assets is expected to increase by at least 50 percent compared to 2017/2018, despite the epidemic. This constitutes a new group of a few thousand wealthy private banking investors with a fortune that is significant also by European standards.
How much competition is there between private banking service providers?
The competition has already started and it will become even stronger in 2021-2022. As the market is becoming more concentrated and the quality of services improves, only private banking providers that can offer something unique can remain attractive. Professional education, the continuous training of private bankers, digitalization and product development are all to be given priority.
The three most important strategic priorities for the coming months are to upgrade the product portfolio and technology investments, reduce extraordinary costs and develop new products and collaboration channels.
We have been following the operational processes and data of each business division for many years and we can clearly see that only those can survive who succeed in addressing these changes well.
What do you mean by this?
Everyone feels that a new era is starting in 2021; after the crisis, the ESG and SRI approach, the positive social impact of investments will become more important to customers. Although this process had already started long before the pandemic, the year 2020 made it specifically emphatic. Climate change, education and healthcare investments will play an important role in the portfolios, and although in this respect Hungary is still lagging behind international trends, the process is unstoppable. And I don’t think we will ever return to the old standards of portfolio building.
How will it affect the market that with the merger of Takarék, BB and MKB the private banking portfolios will merge as well?
At the end of the process, the second largest banking group in Hungary will be created from Budapest Bank, MKB Bank and Takarékbank, and there is no doubt the Hungarian Bankholding may also become the second largest asset management and private banking provider in the market.
More exciting is the professional process, which started and became more intensive this year in the private banking and asset management market, and in which Bankholding, OTP, Erste and also Raiffeisen engaged in reorganization, development and the expansion of services.
If the top 4 market players engage in such developments at the same time, customers will definitely be the winners of this process.
Are there enough private bankers?
Yes, but not enough.
Currently there are 400 private bankers in Hungary, but most of them belong to the generation over 40.
This may also be related to the typical age of those considered wealthy in Hungary, as the Hungarian customer base that is aged over 60, in a segment highly based on trust, either stick to the banker they already know well or if they switch, they prefer experience and wisdom that comes with age.
At the same time, the new generation of private bankers is crucial for the future and development of the sector, which is why in 2015 we started a new category in the Private Banking Hungary awards to encourage young people; the Junior Private Banker of the Year award is given to three young private bankers on the recommendation of the leaders of the private banking divisions of various providers.
Are Hungarian private bankers well qualified?
Absolutely, but there have been very fast changes in this profession in the last 20 years. The private banker of the future will be less of a broker, but much more of a personal advisor, whose expertise will be judged by how much they recognize what kind of support each client actually needs.
Today, private bankers manage much larger fortunes than before: the average asset value under management by one private banker has multiplied over the years.
It is a major challenge to meet the increasingly complex expectations while being under enormous cost pressure, so we are convinced that the optimization of the workload of private bankers cannot wait any more.
So it’s time for re-segmentation: the premium customer base that can be served digitally by a premium administrator must be separated from private banking customers who need experienced elite private bankers to be at their disposal for personal advice.
However, if the increasingly complex services go with higher responsibility, it is questionable whether private bankers in Hungary can be expected to perform such work, as long as the entry limit of domestic private banks is typically only one-third or one-fifth of the international benchmark.
When do you think it is worth contacting a private banker?
Customers are typically between 50 and 70 years of age; and 69 percent of the total account volume belongs to individuals over 50
(although it should be noted that people in the older age group are more likely to have several accounts, while younger people typically have fewer).
Our experience has shown that it is in the middle or last third of a person’s career and financial growth when they reach the financial level that makes it worthwhile to turn to a private banker, although it would be important for this to happen sooner.
It would also be important, for example, that heirs to family businesses and descendants of wealthy clients also take part in private banking advisory sessions as early as possible and get an insight into the processes.
We can see a recent trend abroad of merging the management of private and premium banking units, thus making the services offered to wealthy clients also available vertically. The aim of this new asset management model is for one single service management unit to cover the coordinated management of the full spectrum of wealthy and would-be wealthy clients, so that later the premium clients will consciously want to become private banking clients.