Global private wealth grew sluggishly in 2015, with some markets seeing significant slowdowns, leaving wealth managers searching for new ways to meet the shifting needs of diverse client segments, according to a new report by The Boston Consulting Group (BCG).
This sixteenth annual study by BCG – Global Wealth 2016: Navigating the New Client Landscape – outlines the evolution of private wealth from both a global and regional perspective, addresses key industry trends, and explores evolving client needs — particularly those of underserved, nontraditional segments such as female investors and millennials, whose investment goals are not necessarily well-addressed by the standard, net-worth-based service approach.
"Segmentation approaches based mainly on wealth level and cost-to-serve models, both of which continue to be used by the majority of wealth managers, neglect what clients are truly willing to pay for," says Brent Beardsley, a coauthor of the report and the global leader of BCG's asset and wealth management practice. "Such approaches no longer allow wealth managers to capitalise on the full potential of the market."
A Slowdown in Growth. Global private financial wealth grew by 5.2 per cent in 2015 to a total of USD168 trillion, according to the report. The rise was less than a year earlier, when global wealth rose by more than 7 per cent. All regions except Japan experienced slower growth than in 2014.
Unlike in recent years, the bulk of global wealth growth in 2015 was driven by the creation of new wealth (such as rising household income) rather than by the performance of existing assets, as many equity and bond markets stayed flat or even fell. Assuming that equity markets regain momentum, private wealth globally is expected to rise at a compound annual growth rate of 6 per cent over the next five years to reach USD224 trillion in 2020. The number of global millionaire households grew by 6 per cent in 2015, with several countries, particularly China and India, seeing large increases.
The report says that private wealth booked in offshore centres grew by a modest 3 per cent in 2015 to almost USD10 trillion. A key factor was the repatriation of offshore assets by investors in developed markets. Offshore wealth held by investors in North America, Western Europe, and Japan declined by more than 3 per cent in 2015. The annual growth of offshore wealth globally is expected to pick up through 2020, although at a lower rate than onshore wealth (5 per cent versus 6 per cent).
Among offshore centres, Hong Kong and Singapore saw the strongest growth (around 10 per cent) in 2015. Offshore wealth booked in these domiciles is projected to grow at roughly 10 per cent annually through 2020, increasing their combined share of the world's offshore assets from roughly 18 per cent in 2015 to 23 per cent in 2020. Switzerland remained the largest destination for offshore wealth in 2015, holding nearly one-quarter of all offshore assets globally.
"Although regulatory measures aimed at fighting tax evasion will continue to persuade some old-world investors to repatriate their wealth, regulation also stabilises the market and provides new opportunities to move fully-taxed wealth offshore in search of better service quality, product diversity, economic stability, and the like," says Anna Zakrzewski, a BCG partner and a coauthor of the report.
According to a global BCG benchmarking survey, an annual feature of the report, average revenue and profit margins declined for wealth managers from 2012 to 2015. This development underlines the need for wealth managers to seize the opportunities stemming from three major trends that have altered — and will continue to alter — the industry: tightening regulation, accelerating digital innovation, and shifting needs in traditional client segments.
The report says that two non-traditional client groups whose investment needs and size (population-wise) merit special attention are female investors – whose success as corporate executives and entrepreneurs (in addition to being the beneficiaries of inheritances and legal settlements) have raised their wealth levels significantly – and millennials (people born between 1980 and 2000), whose overall wealth accumulation is rising steadily. In 2015, women held an estimated 30 per cent of global private wealth, with the share slightly higher in developed markets than in emerging ones. Yet just 2 per cent of wealth managers surveyed by BCG said they considered women a specific client segment – fully investigating their investment needs and how they wish to be served – and had adjusted their service models accordingly. Similarly, 50 per cent of wealth managers surveyed said they did not possess a clear view on how to address millennials in terms of service model, products, and overall approach.
"Ultimately, in order to succeed, wealth managers will need to adopt a more client-centric perspective, decide how to sensibly segment their base of current and prospective clients, clearly identify customer needs, and define value propositions accordingly," says Daniel Kessler, a BCG partner and a coauthor of the report. "Some wealth managers have already embarked on this journey, partly by leveraging insights from big data, but for most the first step has yet to be taken."