A new report on the global wealth industry discusses emerging threats
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The global private wealth industry grew 5.3% to a record US$166.5 trillion last year, but profitability might nonetheless prove difficult as managers in the space encounter challenges.
A new report from the Boston Consulting Group (BCG) showed that the North America was the most profitable region, with wealth industry growth hitting 4% in the US and 9.1% in Canada, according to the Wall Street Journal.
The wealth tally included cash, financial instruments like mutual funds, equities, debt securities, life insurance, and pensions. Residential and luxury assets were not counted.
The number of millionaire households worldwide grew by 8% to reach 17.9 million. They accounted for 45% of global wealth last year, and are expected to hold 51% of the world’s wealth by 2021.
A BCG poll of 125 wealth-management institutions revealed an increase of 6.8% in assets under management last year. Nearly 70% was from market performance, and 30% from net new assets. The firm is forecasting that the global private wealth will reach US$223.1 trillion in 2021, with North American growth driven mainly by performance of existing assets.
However, managers in the space still face pressures to their profitability. Regional banks, online brokers, and fintech players are trying to get in on the action, upping the competition for assets. Such new players are trying to entice prospective clients with low-price investment options for the affluent, including passive instruments like ETFs.
Investors burned by the financial crisis are also seeking more protections, which is leading to tighter regulation. There’s also a greater push for transparency around the world, not to mention the current low-yield environment. The overall upshot has been a steep decline in assets over the past 10 years, with falling return on assets observed across regions and types of players.
The consulting firm reported that costs have gone down relative to assets managed, but there’s still “significant potential” for streamlining. Firms have divested unprofitable or high-risk business areas or client segments. They’ve also streamlined their product portfolios and tightened the link between employee pay and performance.
Some cost-cutting efforts have resulted in a lack of investment for future operations, which the firm said is “making the sector one of the least innovative areas of banking and the slowest to adapt to the changing environments.”
But there’s still innovation in terms of technology: many firms are focused on providing clients with basic portfolio functionalities and the ability to perform standard trading and payment transactions, according to Brent Beardsley, a senior partner at BCG and a co-author of the report.
Technology, coupled with pro-transparency regulation, is expected to help clients more easily choose the best financial options for their wealth level, investment preference, and personal circumstances, BCG said. Because of that, wealth firms might be able to stop trying to be everything to everyone — a course the consulting firm recommends.
“[Wealth firms] must identify the areas in which they want to operate and truly excel,” the report said. “In other words, they must ‘carve out or get out.’”
For more of Wealth Professional's latest industry news, click here.
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Active funds address investors’ concerns
Investors call for hedge-fund fee rethink
A new report from the Boston Consulting Group (BCG) showed that the North America was the most profitable region, with wealth industry growth hitting 4% in the US and 9.1% in Canada, according to the Wall Street Journal.
The wealth tally included cash, financial instruments like mutual funds, equities, debt securities, life insurance, and pensions. Residential and luxury assets were not counted.
The number of millionaire households worldwide grew by 8% to reach 17.9 million. They accounted for 45% of global wealth last year, and are expected to hold 51% of the world’s wealth by 2021.
A BCG poll of 125 wealth-management institutions revealed an increase of 6.8% in assets under management last year. Nearly 70% was from market performance, and 30% from net new assets. The firm is forecasting that the global private wealth will reach US$223.1 trillion in 2021, with North American growth driven mainly by performance of existing assets.
However, managers in the space still face pressures to their profitability. Regional banks, online brokers, and fintech players are trying to get in on the action, upping the competition for assets. Such new players are trying to entice prospective clients with low-price investment options for the affluent, including passive instruments like ETFs.
Investors burned by the financial crisis are also seeking more protections, which is leading to tighter regulation. There’s also a greater push for transparency around the world, not to mention the current low-yield environment. The overall upshot has been a steep decline in assets over the past 10 years, with falling return on assets observed across regions and types of players.
The consulting firm reported that costs have gone down relative to assets managed, but there’s still “significant potential” for streamlining. Firms have divested unprofitable or high-risk business areas or client segments. They’ve also streamlined their product portfolios and tightened the link between employee pay and performance.
Some cost-cutting efforts have resulted in a lack of investment for future operations, which the firm said is “making the sector one of the least innovative areas of banking and the slowest to adapt to the changing environments.”
But there’s still innovation in terms of technology: many firms are focused on providing clients with basic portfolio functionalities and the ability to perform standard trading and payment transactions, according to Brent Beardsley, a senior partner at BCG and a co-author of the report.
Technology, coupled with pro-transparency regulation, is expected to help clients more easily choose the best financial options for their wealth level, investment preference, and personal circumstances, BCG said. Because of that, wealth firms might be able to stop trying to be everything to everyone — a course the consulting firm recommends.
“[Wealth firms] must identify the areas in which they want to operate and truly excel,” the report said. “In other words, they must ‘carve out or get out.’”
For more of Wealth Professional's latest industry news, click here.
Related stories:
Active funds address investors’ concerns
Investors call for hedge-fund fee rethink
