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Scale Increasingly Matters In Global Wealth Management – Bain & Co

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The benefits of being a large-scale wealth manager are becoming increasingly hard to ignore, the report says. It also underlines why, in areas such as US RIAs, there has been a busy period of M&A activity, consolidation and change to win economies of scale and build market footprints.

Consultants Bain & Co predicts that scale is increasingly important for wealth firms, and the top players are pulling ahead of the rest. The figures it provides shed light on why there has been busy M&A activity and consolidation within certain wealth markets in recent years.

“In this industry, we estimate that returns to scale are about 35 per cent higher with a digitally intensive model relative to traditional models, because digital has a higher proportion of fixed technology and operating costs. Scale benefits will become even more apparent with the imperative to invest in technology, data, and analytics that underpin distinctive client experiences,” it said. 

For the top three firms, average annual growth in assets under management from 2016 to 2020 was $262 billion; for the top 10 firms – excluding the top three – the figure was $99 billion. Bain & Co said scale is increasingly important for wealth firms, and the top players are pulling ahead of the rest.

The firm said customer demand for wealth management continues to surge, and by 2030, sees industry revenues growing by $254 billion, doubling 2021 revenues.

Globally, the firm said it projected a $90 trillion increase in liquid assets from all investors, from 2021 to 2030, with $40 trillion coming from individuals who have assets between $100,000 and $1 million. The Americas and Asia-Pacific will lead the charge, it said.

The report picked up on a familiar theme on how demographic shifts and the expansion of wealth globally are creating new customer segments. An estimated 250 million Generation Y and Z customers – those born between 1981 and 2012 – will have an annual income of over $100,000 by 2030.

“New younger customers are more self-directed and self-educated,” Markus Habbel, a partner at Bain & Company and leader of the firm’s wealth and asset management work, said. “While overall these emerging customers want digital delivery, for their most difficult decisions they want human interaction, requiring a high-touch hybrid approach.”

The report also picked up on familiar themes such as the desire for more access to private markets in a hunt for yield when traditional assets have been squeezed, and appetite for environmental, social and governance (ESG) investing. Bain & Company projects that ESG-related assets will compose about 46 per cent of all assets under management by 2030, up from 33 per cent today.