Boston Consulting Group says the wealth management industry is in the early but crucial stages of a ‘big transformation’ against a backdrop of rising global wealth, writes Arun Kakar for Spear’s.
Personal wealth grew by 12 per cent last year to reach $201.9 trillion worldwide - with nearly half of the share held by millionaires, according to Boston Consulting Group.
This expansion is more than double the total from 2016, when global wealth rose by 4 per cent, and is set to continue until 2022 at a compound annual growth rate (CAGR) of about 7 per cent. The UK is expected to grow private wealth by a CAGR of 5 per cent during the same period. Nearly half of the total wealth reported last year is held by millionaires, with HNWs (holding assets of over $20 million) accounting for just over $26 trillion in wealth.
The rise in the figures, from Boston Consulting Group’s Global Wealth Report, is attributed to the continued bull market experienced by all major economies, as well as a ‘significant’ strengthening of most major currencies against the dollar. Personal wealth was composed of 60 per cent in investable and 40 per cent in non-investable assets – a distribution which varied remarkably by region. Developed markets broadly held a higher share in non-investable assets – most notably pension fund entitlements – while the Middle East was the region with the highest share of investable assets.
Developed markets unsurprisingly held the largest portion of investable assets by some distance: the top ten developing markets in the world held less than $30 trillion, compared with the $44 trillion held in the US alone.
The last five years have seen a gradual shift towards investment funds and directly traded equities, which have grown their share of total wealth by 6 per cent since 2012. Wealth held in investment funds experienced the strongest growth at 23 per cent, followed by quoted equities which rose by 18 per cent. Conversely, wealth held in bonds declined by 7 per cent- making it the only core asset class to fall into the red. A continued climate of low interest rates and falling yields were cited as contributing towards a move away from the class in favour of equities and investment funds.
The report also highlighted a 6.2 per cent rise in offshore wealth, with around $8.2 trillion held in centres worldwide. While this is much lower than wealth held onshore, the two largest offshore centres, Switzerland and Hong Kong grew at yearly rates of 11 and 10 per cent annually.
Despite the rosy picture for wealth, the report notes that a large number of wealth managers are ‘struggling’ to maintain margins on the top line. Tighter regulations, overly demanding clients and digital disruption are listed as the most common gripes held by firms, as the industry increasingly grapples with a fast-changing investment landscape on the cusp of monumental change.
‘The wealth management business is still in the very early stages of what we believe will ultimately be a complete transformation,’ the report warns. ‘This reality, coupled with the potential cooling of a nearly decade-long bull market means that institutions that are not prepared to fight back against further deterioration of margins will face an uncertain future.’
The solution, according to the report, is for firms to tailor services to the individual clients in what it calls ‘advanced analytics’ - which it claims can result in top line growth of between 15 and 30 per cent, and efficiency gains of between 10 and 15 per cent. Some 70 per cent of clients surveyed by Boston Consulting Group said a ‘highly personalised service’ was a key factor in determining their loyalty, and many firms have begun to update their use of technology and data to meet this demand.
However, many are struggling to combine this into an adequate client experience. If they are to stay competitive, firms need to deploy technology, development data and organisational structures to become bespoke and tailored to the specific demands of each client. As a disproportionate amount of wealth gravitates to a smaller pool of advisors, wealth managers must adapt fast to make the most of this continued rise in wealth.
Arun Kakar writes for Spear’s