Global Wealth 2016: Navigating The New Client Landscape by BCG Perspectives
Introduction
The growth of global private wealth hit a speed bump in 2015, especially in the developed markets, with all regions other than Japan experiencing a slowdown relative to the previous year. This development, combined with the ongoing decline of revenue and profit margins — all amid shifting client needs in both traditional and nontraditional segments — is forcing wealth managers to reevaluate their strategies.
This year’s Global Wealth report includes two traditional features — the global market-sizing review and the wealth-manager benchmarking study — as well as a special examination of shifting client needs. The market-sizing chapter outlines the evolution of private wealth from both a global and regional perspective, including viewpoints on different client segments and offshore private banking. The benchmarking analysis is from a survey of more than 130 wealth managers and involves more than 1,000 data points related to growth, financial performance, operating models, sales excellence, employee efficiency, client segments, products, and trends in different markets and client domiciles.
We focused our benchmarking study this year on three trends that are altering the face of wealth management worldwide: tightening regulation, accelerating digital innovation, and shifting needs in traditional client segments. These trends have already had an impact on wealth managers’ costs and profitability as banks scurry to implement new compliance measures, update their IT systems, and train their sales forces. Yet the inherent revenue potential is still largely untapped, signaling “areas for action” for agile wealth managers.
In our discussion of shifting client needs, we particularly look at how demographic and socioeconomic trends are setting the stage for the rise of nontraditional client segments — currently underserved or rising in importance — that do not necessarily fit the standard, net-worth-based service approach. Two such segments offering significant growth opportunities are female investors and so-called millennials (people born between 1980 and 2000). With investing profiles that often differ from those of others with similar levels of net worth, these two groups require a different mode of engagement that can address the mismatch between what they are seeking and what wealth managers are currently offering. A survey of more than 500 wealth-management clients led to some eye-opening findings.
In preparing this report, we used traditional segment nomenclature familiar to most wealth management institutions, dividing the client base into categories on the basis of private wealth holdings, as follows:
- Ultra-high net worth (UHNW): more than $100 million
- Upper high net worth (upper HNW): between $20 million and $100 million
- Lower high net worth (lower HNW): between $1 million and $20 million
- Affluent: between $250,000 and $1 million
Moreover, in order to clearly gauge the evolution of private wealth in nearly 100 markets worldwide (representing more than 99 percent of global GDP in 2015), we updated our market-sizing methodology this year to reflect both the availability of enhanced data sources and new research on the topic of private financial wealth. Refinements were made in such areas as how private wealth is defined, the comprehensiveness of data on wealth distribution among client segments and regions, and how future global wealth is estimated. All growth rates are nominal with fixed exchange rates.
As always, our goal in Navigating the New Client Landscape: Global Wealth 2016, which is The Boston Consulting Group’s sixteenth annual report on the global wealth-management industry, is to present a clear and complete portrait of the business, as well as to offer thought-provoking analysis of issues that will affect all types of players as they pursue their growth and profitability ambitions in the years to come. We provide a holistic view of the market, emphasizing how the entire wealth-management ecosystem interacts and where the best opportunities for wealth managers can be found.
Global Wealth Markets: A Slowdown in Growth
Global private financial wealth grew by 5.2% in 2015 to $168 trillion.1 (See Exhibit 1.) The rise was less than in the previous year, when global wealth rose by more than 7%. All regions except Japan, which was boosted by supportive monetary policies, experienced slower growth than in 2014, ultimately resulting from both lower market performance and declining global GDP growth.
Unlike in recent years, the bulk of global wealth growth in 2015 was driven more by the creation of new wealth (such as rising household income) than by the performance of existing assets, as many equity and bond markets stayed fairly flat or even fell.
Significant slowdowns were seen in North America (2% in 2015 versus 6% in 2014), Eastern Europe (6% versus 11%), and Western Europe (4% versus 6%), with North America posting the lowest growth rate of any region. In Western Europe, uncertainty about the future of the European Union and continued low commodity prices weighed on equity and bond markets despite a generally promising start to the year. Some developing regions experienced significant slowdowns because of political unrest, international sanctions, and general economic tension. As in recent years, the highest growth in private wealth was seen in the Asia-Pacific region (13% in 2015, versus 14% in 2014), while the lowest growth in the developing markets occurred in the Middle East and Africa, or MEA (3% in 2015, versus 4% in 2014), where low commodity prices and political instability led to lower equity and bond markets.
If financial markets recover over the next five years, the rise of private wealth globally will return to being driven in roughly equal shares by the performance of existing assets and the creation of new wealth. (See Exhibit 2.) From a regional perspective, however, the principal driver of wealth growth will vary, with returns to existing assets dominating in North America and Japan, and newly created wealth generally playing a larger role in developing markets. As in 2015, the highest growth rates will likely be seen in Asia-Pacific, which combined with Japan is projected to overtake North America in total private wealth soon after 2020. The Asia-Pacific region is also expected to surpass Western Europe as the second-wealthiest region in 2017. Overall, private wealth globally is projected to rise at a compound annual rate of 6% over the next five years to reach $224 trillion in 2020.
In terms of wealth distribution, the upper-HNW segment saw the strongest growth in wealth in 2015 (7%), particularly in Asia- Pacific (21%). The number of millionaire households grew by 6% globally in 2015, with their share of global wealth reaching 47% — a share projected to reach 52% in 2020. (See Exhibit 3.) Several countries, particularly China and India, saw large increases in the number of millionaire households in 2015, although there were no significant shifts in millionaire density compared with 2014, with Liechtenstein and Switzerland maintaining the highest concentrations.
The vast majority of private financial wealth in 2015 was split evenly between cash and deposits on one side and equities on the other, which combined made up more than 80% of wealth assets globally. (See Exhibit 4.) Allocations varied by region, with Western Europe generally aligned with the global average, North America tilted more toward equities, and Japan dominated by cash and deposits. The picture was more uniform in developing regions, with cash and deposits typically being the most popular asset class.
Owing to generally disappointing financial-market performance, wealth held in equities grew at lower rates in 2015 than in recent years. If financial markets recover, assets will be expected to increasingly tilt toward equities over the next five years rather than cash and deposits or bonds, which in a low-interest-rate environment will continue to be less-attractive asset classes.
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