As published on international-adviser.com, Thursday 10 June, 2021.
Covid has undoubtedly put people’s finances under a lot of strain over the last 18 months or so but it has not stopped wealth from growing.
According to a report by Boston Consulting Group (BCG), global wealth has risen to an all-time high last year. It went up by 8.3% to $250trn (£177trn, €205trn).
The report forecasts that North America, Asia (excluding Japan) and western Europe will be the leaders in wealth generation, “accounting for 87% of new financial wealth growth worldwide between now and 2025”, BCG said.
This is mostly due to the fact that wealth management clients have increasingly been turning to alternative investments to find higher returns and leaving low-yield debt securities behind.
Among the most popular were real assets, especially real estate ownership, the consulting group found, which reached a record high of $235trn.
But geographically, Asia is set to see financial asset growth exceed real assets at 7.9% and 6.7%, respectively, in the next few years.
BCG said this is largely because investment funds will become “the fastest growing financial asset class, with a projected compound annual growth rate (CAGR) of 11.6% throughout 2025”.
The firm said there are two areas of opportunity for wealth managers: individuals with simple investment needs and retirees.
The ‘simple needs’ segment of individuals with wealth ranging between $100,000 and $3m is made up of 331 million people worldwide who hold $59trn in investable assets and has the potential to contribute around $118bn to the global wealth revenue pool, BCG said.
On the other hand, retirees are one of the fastest growing demographics and are adversely impacted by the ‘advice gap’ especially in their later years. Currently, the firm estimates, people aged 65+ own approximately more than $29trn in assets that can be accessible to wealth managers.
The sum is set to grow at a CAGR of nearly 7% over the next five years. By 2025, there are likely to be 1.5 billion people in the 65+ category “representing an enormous source of wealth”, the consulting firm added.
Anna Zakrzewski, a partner and managing director at BCG and co-author of the report, said: “Wealth managers often underserve those in the simple-needs segment with a standardised set of products, and the result is a poor client experience with no ‘wow’ factor.
“This is essentially a missed opportunity. To better serve this key segment, wealth managers must embrace a new approach that lets them reach a larger audience in a cost-effective and scalable way, but with a highly personalised offering.”
There is one additional category which is looking very attractive to wealth managers: the ultra-wealthy.
They are usually defined as individuals with a personal wealth of at least $100m, This group expanded in 2020 with an additional 6,000 joining the already existing 60,000, reporting a 9% year-on-year growth since 2015.
They currently hold a combined $22trn in investable assets, making up 15% of the world’s total.
According to the report, China will overtake the US as the country with the largest concentration of ultra-high net worth (UHNW) individuals by the end of the decade.
This means that, if investable wealth in China keeps rising at the current annual rate of 13%, the country will host around $10.4trn in “ultra-assets” by 2029, the highest in the world.
The US, however, won’t be far behind with a forecasted total of $9.9trn.
The report also found that the rise of the next generation segment – between 20- and 50-year-olds – will require wealth managers to adjust their methods to meet their longer investment horizons, greater appetite for risk, and desire to be more sustainable and ethical with their investments.
BCG believes that many wealth managers are not ready for such a shift and are underprepared to serve this rising segment of ultra-wealthy.
“High-growth markets represent a massive opportunity, but wealth managers must build a genuine understanding of local differences and also key demographic changes,” said Zakrzewski. “For example, women now account for 12% of ultras, most of whom are based in the US, Germany, and China.
“The next-gen segment is also going to be an influential driver of future growth in the next decade or so. Whether it’s a simple-needs or UHNW client, managers need to offer a personalised service in order to effectively capture the next wave of growth.”