Last year’s steep decline in equity market performance, notably in the fourth quarter, halted the steady rise in global personal financial wealth, according to a report released Thursday by Boston Consulting Group.
Wealth managers’ profitability took a hit as well, forcing them to reinvent their business models in order to succeed in an increasingly crowded marketplace. One suggestion from the report: Target clients with less than $1 million.
“Wealth managers are at a crossroads,” Anna Zakrzewski, Zurich-based global leader of BCG’s wealth management segment and the report’s co-author, said in a statement. “What worked for them in the past will not work for them in the future.”
BCG reported that global personal financial wealth grew by a mere 1.6% in 2018, to $206 trillion, compared with 7.5% growth the previous year, and well below the 6.2% compound annual growth rate recorded from 2013 to 2017.
BCG’s market sizing review encompassed 97 markets that collectively account for 98% of the world’s GDP, and drew on data from some 150 wealth managers on performance pressures and critical strategic areas for improvement.
According to the report, the number of millionaires around the world grew by 2.1% year on year to 22.1 million in 2018. These individuals now hold a combined 50% of personal financial assets globally.
North America continued to have the biggest concentration of millionaires. However, from 2018 to 2023, the millionaire population of Asia ex-Japan is likely to experience the fastest growth at 10.1%. Africa and Latin America will follow at 9.8% and 9.1%.
The total number of millionaires globally should reach 27.6 million by 2023, the report said.
BCG noted that wealth managers seeking new sources of growth can look to the huge affluent segment whose wealth is in the $250,000 to $1 million range. This base of potential clients for wealth management services shows great promise.
The affluent tier comprises 76 million individuals globally, with investable assets that are projected to grow at a compound annual 6.2% over the next five years, according to the report.
“Winners will accelerate product innovation and develop offerings that address the specific needs and preferences of affluent subsegments,” Zakrzewski said.
“They will employ hybrid business models that combine digital and human engagement to personalize and deliver a more convenient and navigable one-stop-shopping experience, while improving their advisor efficiency and cost to serve.”
Challenges and Threats
Zakrzewski noted that few wealth managers are moving far or fast enough to address the array of challenges they face. Unless they pick up the pace, they will find the gap between themselves and the digitally enabled top players growing wider and wider.
According to the report, the most successful firms over the next few years will overhaul their client engagement models and commit to embedding data, analytics and new ways of working end to end.
It said advisors need to move away from intuition-directed sales activities and embrace data-driven, omnichannel engagement models. As well, wealth managers should encourage advisors to see themselves not as lone actors but as team leaders, running different investment plays, managing broader product portfolios and toggling easily between online and offline interactions.
Firms wanting to expand their foothold in the affluent segment and improve their front-office performance need data, the report said.
But that asset is increasingly at risk — from daily cyberattacks, insider attacks and fraud by disgruntled employees and bad actors, and external attacks trying to compromise payment systems, disrupt operations through ransomware and steal or damage digital assets.
Financial services firms are 300 times likelier than other companies to be targeted by a cyberattack, and dealing with those attacks and their aftermath carries a higher cost for banks and wealth managers than for any other sector, according to the report.
Yet, BCG found that many financial organizations were ill-equipped to respond effectively.
“Ultimately, wealth managers should better protect the confidentiality of client information, guard against the risk of data and credential theft, improve their regulatory posture, and better defend sensitive payments and other networks against outside attackers,” Tjun Tang, BCG’s Hong Kong–based senior strategic advisor on wealth management and co-author of the report, said in the statement.
In order to shore up cybersecurity, the report advised wealth managers to perform a rigorous cybermaturity assessment; develop a risk-based strategic plan; adapt the operating model to address strategy, governance, risk management and culture; and boost operational capabilities.