World’s Rich Are Hoarding $10 Trillion in Cash

By Robert Frank / WSJ

How afraid are the wealthy right now?

According to a report from Scorpio Partnership, the world’s high-net-worth investors (with $1 million or more) have an extra $10 trillion lying around that they refuse to turn over to their wealth managers.

Granted, these investors have $16.5 trillion invested with private banks and wealth-management firms–up from $14.5 trillion at the end of 2008, largely reflecting market gains.

But Scorpio, a London consulting firm, says wealthy investors actually have more than $26 trillion that they could be giving the banks and wealth-management firms to manage. “This implies there is approximately $10 trillion of high-net-worth assets that could be advised by banks,” the firm says. “Capturing these assets is the real answer for industry recovery.”

That could take a while. The wealthy were burned so badly in the past three years from bad advice and bad investment decisions that they are unlikely to hand over their extra cash anytime soon. And can you blame them?

The banks surveyed in the Scorpio report won on average about $900 million each in new-client assets–a 60% drop from 2008. And that is despite the flood of millionaires created last year.

“Our global HNW data show there are strong signs of wealth creation even in these complex markets and yet new clients are still holding back from opening accounts with the industry,” said Sebastian Dovey, managing partner of Scorpio.

Not all of the blame goes to wealth-management firms. The world’s governments and volatile financial markets are probably the main causes of fear in the rich right now. Still, the industry hasn’t done itself any favors with its performance and lack of transparency.

What do you think is making the wealthy keep their $10 trillion under the mattress?