Many Firms Failing to Engage the Emerging Wealthy: Capgemini

Capgemini’s latest World Wealth Report, published Tuesday, finds that many wealth management firms are failing to capture emerging high-potential market segments that require engaged inclusion and customized service.

The report comes at a time when stocks are falling and worries about inflation, fallout from the war in Ukraine and coronavirus variants weigh on high-net-worth investors whose numbers and wealth grew substantially last year.

A Look Back

In 2021, the world’s population of high-net-worth people grew by 7.8% and their wealth by 8%, according to the World Wealth Report.

Capgemini defines high net worth as $1 million or more in investable assets, excluding primary residence.

North America boasted the biggest increase in high-net-worth population and wealth, 13.2% and 13.8%. In the U.S., a robust tech sector sparked a 14% increase in HNW wealth.

The eurozone had the next-highest growth rates in 2021: 6.7% in high-net-worth population and 7.5% in wealth. The Asia-Pacific region, which had dominated growth over the past decade, dropped to third place, with HNW population growth of 4.2% and wealth 5.4%.

In 2021, the U.S., followed by Japan, Germany and China, retained its top position in population of HNW individuals. Together, these four countries account for 63.6% of the global population, up 0.7% from 2020.

Here are the rates of HNW global population and wealth growth by levels of investable assets:

• $30 million-plus: 9.6% wealth; 8.1% population.
• $5 million to $30 million: 8.4% wealth; 8.5% population.
• $1 million to $5 million: 7.8% wealth; 7.7% population.

The report noted that the growth gap across wealth bands is shrinking, indicating a more level playing field, a development it credited to improved information access for investors and democratization of asset classes. 

Capgemini’s 2022 report covers 71 markets, accounting for more than 98% of global gross national income and 99% of world stock market capitalization. The firm’s Insights Survey queried 2,973 high-net-worth individuals across 24 major wealth markets in North America, Latin America, Europe and the Asia-Pacific region. 

Interviews and surveys queried more than 70 wealth management executives across 10 markets on the new tech-wealth segment, market trends, the role of the CMO and future strategies. And Capgemini’s 2022 Wealth Manager Survey received some 350 responses across seven markets.

Emerging Client Segments

According to the report, the demographic of HNW individuals has continued to evolve, with increasingly more women, LGBTQ+ individuals, millennials and members of Generation Z now seeking wealth management services. To capture these emerging client segments, firms must rethink their engagement strategies, Capgemini said. 

Each emerging client segment has its own values, preferences and requirements, which many wealth management firms are currently unequipped to provide for. As a result, many of these wealthy people look to more adaptive competitors or smaller family offices. 

Consider these examples:

Capgemini noted that women across all wealth brackets are set to inherit 70% of global wealth over the next two generations. They are seeking firms that provide not only fee transparency and data security, but also education in how to increase this wealth. 

Similarly, 39% of wealthy millennials switched providers in the past year because of a lack of transparency. Often, they are seeking new wealth managers as they demand greater digital interaction, education and convenience.

And a unique group of tech-wealth individuals created by the tech boom and surge in venture capital-backed unicorns offers a huge opportunity for wealth management firms. Yet only 27% of firms say they actively pursue these prospects. 

To unlock this largely untapped client segment, the report says wealth management firms must focus on providing greater convenience and personalized experiences and building trust through approaches such as ecosystem collaboration, comprehensive digital solutions and greater diversity when hiring new talent. 

ESG and Digital Assets

The wealth management sector is undergoing a diversification of investment options, such as sustainable investing and the growing prevalence of digital assets. The Capgemini report said that as the environmental, social and governance imperative continues to grow, wealth management firms must strive to make educational support and expansive product selection for wealthy people key pillars of their strategies. 

The report found that globally, 55% of HNW individuals said investing in causes with a positive ESG impact is critical, with 64% asking for ESG scores to learn about a fund’s societal impact. 

But 40% of wealth managers surveyed said they find it challenging to showcase an ESG impact. 

“The influx of new investment avenues such as sustainable investing and digital assets is having a crucial impact on the wealth management industry,” Nilesh Vaidya, global industry head for retail banking and wealth management in Capgemini’s Financial Services Strategic Business Unit, said in a statement. 

“Wealth management firms must prioritize providing timely education around this trend to retain their customers. Additionally, as we usher in the new era of digital assets, wealth management firms should leverage ecosystem partnerships to prioritize a diversified digital portfolio of offerings for clients.”

Chief Customer Officers

The 2022 wealth report found that an increasing number of wealth management firms are establishing a new chief customer officer role, whose aim is to nurture client intimacy and put them at the heart of the wealth management process. 

The role focuses on orchestrating both data and digital benefits across the organization to meet evolving and complex client demands and drive loyalty. By prioritizing automation and data-driven insights, the report said, wealth managers can provide hyper-personalized customer experiences to meet the expectations of emerging client segments. 

It says that CCOs will play an integral role in building an inclusive client ecosystem while also enhancing their advisor capabilities through actionable data analysis. In doing so, firms can adopt a one-stop-shop approach to meet all customer needs conveniently. This will accommodate their clients’ lifestyle and preferences, and ultimately drive business growth.