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Despite Robust Year, Wealth Managers Face Daunting Challenges

Players in All Regions Must Improve Asset-Gathering Capabilities, Refine Business Models, and Raise Level of Digital Communication to Maintain Upward Trajectory, Says Report by The Boston Consulting Group

NEW YORK, NY -- (Marketwired) -- 06/09/14 -- The growth of global private wealth may have surpassed expectations in 2013, particularly in developed markets, but wealth managers nonetheless need to take action on multiple fronts if they hope to gain market share and increase profits over the next few years, according to a new report by The Boston Consulting Group (BCG). The report, Riding a Wave of Growth: Global Wealth 2014, is being released today.

The report, BCG's fourteenth annual study of the global wealth-management industry, addresses the current size of the market, the performance levels of leading institutions, and the state of offshore banking. It also provides a thorough analysis of key trends shaping the business landscape -- including the growing importance of digital technology and the pursuit of optimal business models. Finally, the report offers clear action steps that players should take in their quest to build on the industry's solid performance in 2013.

"The key challenge in developed economies is how to make the most of a large existing asset base amid volatile growth patterns," said Brent Beardsley, a BCG senior partner and a coauthor of the report. "The task in the developing economies is to attract a sizable share of the new wealth being created there. Overall, the battle for assets and market share will become increasingly intense in the run-up to 2020."

Market Sizing. According to the report, global private financial wealth grew by 14.6 percent in 2013 to reach a total of $152.0 trillion. The rise was stronger than in 2012, when global wealth grew by 8.7 percent. The key drivers, for the second consecutive year, were the performance of equity markets and the creation of new wealth in rapidly developing economies (RDEs).

On a regional basis, Asia-Pacific (excluding Japan) posted the strongest growth in private wealth (30.5 percent), followed by Eastern Europe (17.2 percent), North America (15.6 percent), the Middle East and Africa (11.6 percent), and Latin America (11.1 percent at constant exchange rates, not considering currency devaluations in many Latin American countries). Private wealth grew more modestly in Western Europe (5.2 percent) and in Japan (4.8 percent at constant exchange rates, not considering a weaker yen). Asia-Pacific (excluding Japan) is expected to overtake Western Europe as the second-wealthiest region in 2014, and North America as the wealthiest in 2018. Global private wealth is projected to post a compound annual growth rate (CAGR) of 5.4 percent over the next five years to reach an estimated $198.2 trillion by the end of 2018.

Millionaires. The report says that the total number of millionaire households (in U.S. dollar terms) reached 16.3 million in 2013, up strongly from 13.7 million in 2012 and representing 1.1 percent of all households globally. The U.S. had the highest number of millionaire households (7.1 million), as well as the highest number of new millionaires (1.1 million). Robust wealth creation in China was reflected by its rise in millionaire households from 1.5 million in 2012 to 2.4 million in 2013. The number of millionaire households in Japan fell from 1.5 million to 1.2 million, driven by the 15 percent fall in the yen against the dollar.

Offshore Wealth. Private wealth booked across borders reached $8.9 trillion in 2013, an increase of 10.4 percent over 2012 but below the increase in total global private wealth of 14.6 percent. As a result, the share of offshore wealth declined slightly from 6.1 percent to 5.9 percent. Offshore wealth is projected to grow at a solid CAGR of 6.8 percent to reach $12.4 trillion by the end of 2018, driven especially by investors in developing economies seeking higher levels of political and financial stability, greater depth in wealth management products and expertise, and geographic diversification. Switzerland remained the leading offshore booking center with $2.3 trillion in assets, representing 26 percent of global offshore assets. However, the country remains under heavy pressure because of its significant exposure to assets originating in developed economies. Some of these assets are expected to be repatriated following actions by various governments to address tax evasion. More broadly, in today's environment, wealth managers must ensure that they comply fully with all regulatory measures in the markets they serve.

Wealth Manager Benchmarking. BCG benchmarked the performance of more than 130 institutions -- either pure private banks or wealth management units of large universal-banking groups. Wealth managers globally had another year of excellent growth in 2013, with assets under management (AuM) rising by 11 percent. This performance, which followed AuM growth of 13 percent in 2012, was driven mainly by asset appreciation owing to rising equity markets. Yet despite sizable AuM growth, profit margins remained largely flat as wealth managers continued to grapple with rising costs, notably those related to regulatory compliance.

The Digital Dilemma. The continuing development and adoption of digital communication will reshape the way products, services, and advice are provided to wealth management clients. Technology can change the dynamics of what constitutes competitive advantage. Yet many players have been unable to leverage digital technologies in a way that truly enhances their overall offering. According to the report, as client expectations continue to rise, wealth managers must put a higher priority on developing sophisticated digital capabilities and integrating them seamlessly into their current channels and business models.

"The road ahead won't be an easy one," said Daniel Kessler, also a BCG partner and a coauthor of the report. "Winning wealth managers, in any region, will be those that find the optimal business model for their own resources, capabilities, and aspirations, and execute their chosen strategy successfully. If the markets keep rising, all the better."

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or [email protected].

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit bcg.com.

About bcgperspectives.com
Bcgperspectives.com features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed by PC, mobile, iPad, Facebook, Twitter and LinkedIn.

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