Geopolitical turmoil like the Russia-Ukraine War hasn't dented global wealth creation, Boston Consulting Group (BCG) in a report said.
The report said financial wealth across the world crossed a record $530 trillion, rising in double digits in the past year.
The report -- Global Wealth 2022 -- is 22nd edition annual report on the global wealth management industry by BCG.
Shift in wealth
The report underscored that new wealth to the tune of $80 trillion would be created over the next five years despite geopolitical and economic destabilizers including inflation and the recent skirmish between Russia and Ukraine.
Apart, an industry shift is expected with Hong Kong estimated to take over Switzerland in 2023 as the country managing the largest amount of private cross-border wealth. This change of hands in wealth would put an end to more than 200 years of Swiss dominance.
Anna Zakrzewski, global leader of BCG’s wealth management segment and a co-author of the report said, “Wealth development is resoundingly resilient, and even against the backdrop of geopolitical turmoil the growth rate will remain positive. Although this stability provides a tremendous opportunity for wealth managers, they must make strategic choices to remain 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.”
The content in the report underlines the dominance of the web over traditional decision making. Varun Kejriwal, Managing Director & Partner, BCG India explained, “Digital wealth managers have delivered 5-6 times higher shareholder value vis-à-vis traditional managers over the past decade, by virtue of superior customer experience and seamless execution. Further, Asia Pacific is expected to see the fastest rates of wealth growth and its share in global wealth is expected to increase to 25 per cent by 2026. This presents enormous opportunities for wealth managers and those who adapt to this digital shift and move decisively, will be capable of seizing these opportunities and enjoying exponential growth.”
Though all regions are expected to experience wealth creation and growth, the Asia-Pacific region will continue to be the frontrunner in wealth growth, with asset values poised to increase by a compound annual growth rate of 8.4 per cent through 2026. Experts maintain that if the region continues to grow wealth at this rate, it would soon be home to roughly one-quarter of the world’s wealth by 2026.
Wealth in the Middle East and Africa is on track to rise by 5.4 per cent over the next five years, the biggest overall leap in regional wealth growth. In North America, wealth growth will be slower than in years past, with an estimated rate of 4.7 per cent through 2026, down from a prior five-year average of 9.1 per cent. Likewise, in Western Europe, wealth growth is likely to slow from roughly 4.5 per cent over the past five years to less than four per cent every year until 2026.
Tailored offers are more in demand
Losing new customers and gaining new ones in their place is common for companies providing wealth management services. Statistics highlight how wealth managers adept at customizing offers and interactions attuned to financial goals are more likely to retain clients and less likely to lose them to their competitors. Wealth managers providing tailored services are more likely to outperform their peers providing generic services. This is evident from increased returns on client assets and liabilities, along with annual growth of more than 10 per cent growth.
Personalization is a complex undertaking that requires introducing new data and analytics, connecting processes across the firm’s front, middle, and back offices, and changing ways of working. In the report, BCG identifies three actions that wealth managers vying to deliver individualized service at scale can take to improve personalization: Prioritize capabilities that recur across journeys, design for value and scale, and back good ideas with the right enablers.
Digital wealth management firms grow
Traditional wealth managers lag behind digital wealth management firms in terms of both client numbers and growth in wealth. Besides, there is an increased imprint of private funding companies in the wealth technology sector. Digital wealth management firms raised $14.5 billion in funds in 2021 alone. Besides, the online wealth management companies are delivering faster customer growth, cheaper cost structures and superior rates of innovation. Discussing what traditional wealth managers must do to achieve a similar growth rate, Zakrzewski added, “Traditional wealth managers have known for years that they need to accelerate the pace of their own digitization. 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.”