Faced with troublesome industry trends that will likely lead to lower growth and profitability over the next five years, wealth managers need to take action on numerous fronts if they hope to maintain the momentum they achieved in 2012, according to a report by The Boston Consulting Group (BCG).
In its 13th annual study of the global wealth-management industry, titled Maintaining Momentum in a Complex World: Global Wealth 2013, BCG addresses the current size of the market, the performance levels of leading institutions, and the state of offshore banking.
It also provides a thorough analysis of the key trends shaping the business landscape and offers clear action steps that players should take in their quests to overcome difficult industry dynamics and build on the 2012 rebound.
“The global wealth-management industry has become increasingly complex,” says Brent Beardsley, a co-author of the report and the global leader of BCG’s asset and wealth management segment. “With the mature economies of the ‘old world’ and the developing economies of the ‘new world’ moving at different speeds, wealth managers in different regions are grappling with tough sets of problems. Diverse strategies will be required to succeed on either side of the divide.”
According to the report, global private financial wealth grew by 7.8 per cent in 2012 to a total of USD135.5trn. The rise was stronger than in either 2011 or 2010, when global wealth grew by 3.6 per cent and 7.3 per cent, respectively.
Wealth increased measurably in the old-world regions of North America (7.8 per cent), Western Europe (5.2 per cent), and Japan (2.4 per cent), mainly owing to the sharp rebound in equity markets in most countries, particularly in the second half of the year. Meanwhile, new wealth creation fueled stronger, double-digit growth in the new-world regions of Asia-Pacific ex Japan (13.8 per cent), Eastern Europe (13.2 per cent), and Latin America (10.5 per cent). Wealth in the Middle East and Africa (MEA) saw near-double-digit growth (9.1 per cent). New-world regions will account for nearly 70 per cent of the growth in global private wealth over the next five years.
The total number of millionaire households reached 13.8 million globally in 2012, or 0.9 per cent of all households. The US had the largest number of millionaire households (5.9 million), followed by Japan (1.5 million) and China (1.3 million). China should surpass Japan in 2013.
The highest density of millionaires was in Qatar, where 143 out of every 1,000 households have private wealth of at least USD1m, followed by Switzerland (116), Kuwait (115), Hong Kong (94), and Singapore (82). The US had the largest number of billionaires in 2012, but the highest density of billionaire households was in Hong Kong (15.1 per million), followed by Switzerland (9.4 per million).
Offshore wealth, defined as assets booked in a country where the investor has no legal residence or tax domicile, rose by 6.1 per cent in 2012 to USD8.5trn. Despite this increase, stronger growth in onshore wealth led to a slight decline—to 6.3 per cent from 6.4 per cent, compared with 2011—in offshore wealth’s share of global private wealth. While offshore wealth is projected to rise modestly over the next five years, reaching USD11.2trn by the end of 2017, wealth is increasingly moving onshore due to the intense pressure that tax authorities are exerting on offshore centres.
BCG benchmarked the performance of more than 130 institutions—either pure private banks or wealth management units of large universal-banking groups—from Western Europe, Eastern Europe, Asia-Pacific, North America, Latin America, and the Middle East. Globally, in 2012, wealth managers achieved 13 per cent growth in assets under management (AuM) over the previous year. Wealth managers in the Asia-Pacific region accounted for the strongest growth (23 per cent), followed by those in Latin America (18 per cent). EU onshore and offshore institutions, as well as North American banks, achieved AuM growth of around 10 per cent. The growth was driven largely by the rebound in many equity markets during the second half of the year, but also by the generation of net new assets.
The report identifies numerous market-landscape trends, client trends, and business-economics trends that will shape the wealth management industry for the rest of the decade. These trends include the following:
• The shift in wealth creation and profit pools toward developing economies
• The decline of traditional value propositions
• The rise in costs and complexity brought on by regulation
The report also identifies critical steps that wealth managers must take if they hope to achieve or maintain a leadership position throughout the rest of the decade. These steps include the following:
• Building a presence in high‐growth markets and with high-net-worth client segments
• Offering segment‐specific value propositions and embracing client centricity
• Industrializing operations and striving for lean front-to-back business processes
“Regardless of their home market or principal region of activity, wealth managers globally still have much in common,” says Daniel Kessler, a co-author of the report and the global leader of the wealth management topic for BCG. “All must find ways to gather new assets, generate new revenues, manage costs, maximise IT capability, comply with regulators, and find winning investment solutions that lead to deep and long-standing client relationships. The battle to maintain the momentum they have achieved, amid a very complex industry landscape, will continue to intensify.”
