The global stock of financial wealth will grow in the next five years from $250tn to $315tn, powered by increases in North America and Asia with Europe lagging behind, said a report on the wealth management industry.
The world’s wealth holders will build on last year’s unexpectedly resilient performance, when asset values recovered from the initial pandemic market shock and finished 2020 rising 8.3 per cent to an all-time high, according to the report published on Thursday by the Boston Consulting Group.
Over five years to 2025, the world’s wealth will increase by 4.8 per cent a year — slower than the 6.7 per cent recorded in the five years to 2019 — but still fast, given that the global economy has yet to see the end of the pandemic, let alone complete a full recovery.
“We see signs of emerging economy recovery that could significantly expand prosperity and wealth between now and 2025,” the report said. “This growth will create extraordinary opportunities for wealth managers.”
BCG highlighted last year’s key wealth trends, saying that behind the boom in financial assets was a spike in savings — as people were forced to give up on leisure spending under lockdown — coupled with strong stock markets and supportive central banks. Cash and deposits soared 10.6 per cent, the largest annual increase in 20 years, the authors said.
“Flush with cash and encouraged by the prospect of robust returns,” investors put money into equities and investment funds, and “embraced alternative investments . . . in the quest for even higher yields”.
North America will be the main driver of the further expansion of financial wealth, in BCG’s view, contributing $25tn of the forecast $65tn increase in global wealth to 2025, followed by Asia on $22tn. A further $10tn is expected to come from western Europe. The rest of the world will have “only a marginal impact in new wealth generation,” the report said.
For wealth managers, the greatest gains will come in Asia, where assets under management are forecast to grow at 11.6 per cent a year. Hong Kong will overtake Switzerland as the world’s largest wealth management booking centre by 2023, BCG said, signalling “a change of leadership in cross-border wealth”.
Anna Zakrzewski, BCG’s global leader for wealth management, urged wealth management companies to focus more on their clients’ requirements to make the most of the opportunities. “Instead of sorting clients by their wallets, they must differentiate them by their needs and use behavioural insights to unlock new sources of value.”
Her remarks address the frequent complaints of clients who claim that they are given insufficient personal attention, especially if they are not ranked among a private bank or wealth manager’s top customers. Among those seeking more guidance are affluent retirees with questions about pension planning or legacy matters.
“Our analysis revealed whole segments that wealth managers are either underserving or not serving at all,” Zakrzewski wrote in the report entitled “When Clients Take the Lead”.
BCG predicted that advanced technologies will allow managers to deliver bespoke services at scale, using profile data and behavioural science to determine, for example, which clients are keen on tech topics.
But the report warned wealth managers to be transparent on fees to avoid annoying customers. “Although [wealth managers] might have benefited from complex pricing structures in the past, clients have chafed at what they consider hidden fees.”
It recommended building trust with clients and staying ahead of regulation by streamlining pricing, combining the traditional charge of a percentage of assets under management with a subscription fee. Clients with assets of $1m or less could be charged subscription fees, on a tiered basis, with prices reflecting service levels, the report said.