What do wealth managers need to know to seize the opportunities that greater global wealth offers?
The strength of equity markets and demand for real assets has helped propel global wealth to a new record high, creating new opportunities for wealth managers.
The biggest growth in wealth in more than a decade (10.6%) pushed 2021 to a record total of US$530 trillion, with $26 trillion of new private wealth created in the year.
But a new report highlights the importance of wealth management firms and financial advisors having strong knowledge of growth areas such as sustainable investing and crypto-related assets.
‘Global Wealth 2022: Standing Still Is Not an Option’ from Boston Consulting Group (BCG) also predicts that $80 trillion in new wealth will be created over the next five years, including almost $2 trillion in Canada to a total $9.4 trillion.
How the wealth management industry responds to this, through strategic choices, compelling products and service for clients – and the ability to attract and retain clients – will be key to remaining competitive.
“Wealth clients are looking for next-generation offers and next-level service—including net zero, crypto, personalization, and digitization. The most important question facing wealth managers today is not which initiatives to prioritize, but how best to implement them.” said Anna Zakrzewski, global leader of BCG’s wealth management segment and a co-author of the report.
While wealth is expected to rise across all regions, it will continue be led by Asia-Pacific.
With asset values poised to increase by a compound annual growth rate (CAGR) of 8.4% over the next five years, the region could hold almost one quarter of global wealth by 2026.
Wealth asset growth in North America is expected to be at a slower pace than recent years: 4.7% CAGR through 2026 compared to 9.1% average over the past five years. Europe will 4% (down from 4.5% five-year average).
Sustainable investing is growing between three and five times faster than traditional investments. BCG’s report estimates that this asset class could account for 8-17% of privately invested wealth by 2026, up from 4-11% currently.
With the intensified drive to net zero a key factor, wealth managers need to act now to embed sustainable investing across the entire client life cycle rather than seeing net zero as a distant goal for 2050.
The digital world we now live in offers several growth opportunities for wealth professionals.
Firstly, crypto-related assets of which non-traditional asset managers currently manage up to $1 trillion worth.
The report says that market value for these assets could surge four-to-fivefold by 2026.
But wealth professionals may be leaving potential money on the table as 80% of survey respondents said they would consider increasing their crypto holdings if their wealth manager offered focused advisory or education services.
As well as having the knowledge, marketing it is vital with two thirds of those who use a third-party for their crypto investment doing so because they didn’t think their wealth manager offered the service.
The other potential digital win for wealth managers is the use of technology in their business.
Not only are valuation multiples of digital wealth management firms six or seven times as high as those of traditional wealth managers, but these firms are also delivering faster customer growth, cheaper cost structures, and superior rates of innovation – and attracting private investment.
That means that traditional wealth managers must get on board with digitalization to protect their future profitability.
“Traditional wealth managers have known for years that they need to accelerate the pace of their own digitization,” said Zakrzewski. “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.”