Global financial wealth reached a record high of $530 trillion in 2021, fuelled by strong equity markets and a surge in demand for real assets, according to the 22nd edition annual report on the global wealth management industry by Boston Consulting Group (BCG), released on June 9, 2022.
The report, Global Wealth 2022, finds that despite geopolitical and economic destabilisers, such as inflation and the Russia-Ukraine War, approximately $80 trillion in new wealth is likely to be created over the next five years. Also, in a notable industry shift, Hong Kong will probably overtake Switzerland in 2023 as the domicile managing the largest amount of private cross-border wealth, ending a run of more than 200 years of Swiss dominance, according to the report.
“Wealth development is resoundingly resilient, and even against the backdrop of geopolitical turmoil the growth rate will remain positive. Although this stability provides tremendous opportunity for wealth managers, they must make strategic choices to remain competitive. Wealth clients are looking for next-generation offers and next-level service—including net zero, crypto, personalisation, and digitisation. The most important question facing wealth managers today is not which initiatives to prioritise, but how best to implement them,” says Anna Zakrzewski, global leader of BCG’s wealth management segment, and co-author of the report.
Asia-Pacific Will Keep Fastest Wealth Growth
According to the report, while wealth assets will continue to rise in value in all regions, the Asia-Pacific region will maintain the fastest rates of wealth growth, with asset values poised to increase by a compounded annual growth rate (CAGR) of 8.4 per cent through 2026.
If that rate holds, the region could be home to nearly one-quarter of the world’s wealth by 2026.
Wealth in the Middle East and Africa is on track to rise by a CAGR of 5.4 per cent over the next five years, the biggest overall leap in regional wealth growth.
In North America, wealth growth will be slower than in years past, with an estimated CAGR of 4.7 per cent through 2026, down from a prior five-year average of 9.1 per cent. Likewise, in Western Europe, wealth growth is likely to slow from roughly 4.5 per cent over the past five years to less than four per cent annually until 2026.
“Asia Pacific is expected to see the fastest rates of wealth growth and its share in global wealth is expected to increase to 25 per cent by 2026. This presents enormous opportunities for wealth managers and those who adapt to this digital shift and move decisively, will be capable of seizing these opportunities and enjoying exponential growth,” says Varun Kejriwal, managing director and partner, BCG India.
Crypto: An Untapped Market For Wealth Managers
The report further highlighted that non-traditional wealth managers currently manage up to $1 trillion in crypto-related wealth, and the market capitalisation for crypto could increase four- to- five-fold by 2030. The opportunity for wealth managers is clear: nearly 80 per cent of clients surveyed said that they would consider increasing their crypto holdings if wealth managers offered advisory and education services. Two-thirds of clients who sourced their crypto investment with third parties said they did so because they didn’t think their wealth managers offered such services. To determine whether crypto is right for their businesses, wealth managers must consider if, when and how they want to participate.
Personalisation As A Driver Of Top-Line Growth
The report also said that wealth managers who excel at customising offers and interactions see higher rates of client satisfaction and lower rates of churn than others. While these metrics translate into increased returns on client assets and liabilities, along with annual growth of more than 10 per cent, wealth managers that outperform on personalisation are the exception rather than the rule.
Personalisation is a complex undertaking that requires introducing new data and analytics, connecting processes across the firm’s front, middle, and back offices, and changing ways of working, the report said.
Digital Wealth Management
The valuation multiples of digital wealth management firms are six or seven times as high as those of traditional wealth managers, the report said.
Furthermore, private funding in wealth tech has increased, with digital wealth management firms attracting $14.5 billion in funding in 2021 (11 per cent of total global investments).
Digital wealth management institutions are delivering faster customer growth, cheaper cost structures, and superior rates of innovation.
“Traditional wealth managers have known for years that they need to accelerate the pace of their own digitisation. Now they have an additional incentive to emulate the practices of these digital leaders as they look for ways to secure future growth and increase their value to clients,” adds Zakrzewski.