Interest rates, inflation, poor equity performance, and geopolitical risk all impacted wealth — and asset manager profits — in 2022
Global wealth slipped to $255 trillion in 2022, marking a 4% drop from the previous year and the first decline in 15 years, since the financial crisis of 2008.
While multiple factors including inflation, interest rates and the war in Ukraine have continued into 2023, this year is expected to see a rebound to $267 trillion, according to Boston Consulting Group.
The firm says that 2022 was not all bad for the global wealth market, with a 6.2% increase in the value of personal cash and deposits, as a more risk-averse approach to investments prevailed.
Real assets were also resilient, with the range of assets from real estate to art recording a 5.5% rise last year to a total of $261 trillion, boosting absolute total global wealth to $516 trillion, up 1% year over year.
Michael Kahlich, a BCG managing director and partner, and co-author of the report, explains that 2021 had seen a sharp jump of 10% in global wealth, a difficult feat to follow. But he is optimistic for this year.
“We expect that the improving macroeconomic outlook and rebound in stock markets will drive a return to growth in financial wealth as early as 2023, and our 5-year compound annual growth rate forecast to 2027 remains a healthy 5.3%,” Kahlich said. “However, the recent headwinds in the market show how important it is for industry players to future proof now for consistent long-term growth.”
The report shows that North America and Europe saw overall declines in wealth in 2022, while there was growth in Asia Pacific, the Middle East, Africa and Latin America.
WEALTH MANAGER PROFITS
With less wealth in the world, the wealth management industry saw an 11% decline in the volume of client business.
The industry also suffered declining margins, something that had been happening for some time but was exacerbated by rising costs, including front-office expenses, wages and spending on technology.
Pretax profit margins for wealth managers decreased by an average of 2.3 basis points globally and by 3.1 bps in North America.
Another of the report’s co-authors, Ivana Zupa, says that wealth managers need to look at new ways to boost revenues and keep a lid on costs.
“Key actions on the revenue side include building a scalable growth engine in client acquisition, designing a distinctive private market offering, revising the product shelf in line with shifting interest rates, and leading a long-overdue change in how financial advice is offered, driven by generative AI technology,” Zupa said. “In parallel, a bold approach is needed to reducing costs, including conducting an end-to-end process review, getting shoring decisions right, exploring third-party tech and operations solutions, and simplifying products and services via advice-like discretionary portfolio management.”
