Wealth boom hits a new record but who are the growth clients?

A combination of strong market performance, reduced spending, and government support has boosted global wealth during the pandemic.

A new report from Boston Consulting Group (BCG) reveals a new record high for global financial wealth, which rose 8.3% in 2020 to $250 trillion.

The upward trend is set to expand “significantly” for the next five years with North America, Asia (excluding Japan), and Western Europe driving this expansion and accounting for 87% of global wealth growth between now and 2025.

Greater wealth means greater opportunity for wealth managers to extend their client base and assets under management and the report highlights some key areas that are set for growth.

Alternative investments have been boosted as investors seek higher returns amid lower-yield securities. Real assets, primarily real estate, saw a significant gain to reach a new high of $235 trillion.

However, Asia is expected to see financial assets grow faster than real assets in the next few years, led by investment funds.

Don’t ignore the ‘simple needs’ clients

For wealth managers, there are two attractive opportunities identified by the report.

Firstly, individuals with simple investment needs and financial wealth between US$100,000 and $3 million. There are 331 million people in this category worldwide, holding $59 trillion in investable wealth, and with the potential to contribute $118 billion to the global wealth revenue pool.

“Wealth managers often underserve those in the simple-needs segment with a standardized set of products, and the result is a poor client experience with no “wow” factor,” said Anna Zakrzewski, a BCG managing director and partner, global leader of the firm’s wealth management segment, and a co-author of the report. “This is essentially a missed opportunity. To better serve this key segment, wealth managers must embrace a new approach that lets them reach a larger audience in a cost-effective and scalable way, but with a highly personalized offering.”

Retirees remain an attractive market for wealth managers and with an aging population, this is a fast-growing segment: there will be more than 1.5 billion over 65s by 2025.

BCG says that the $29.3 trillion in wealth held by this cohort is set to grow 7% over the next five years, with more than $40 trillion of financial wealth for firms to target.

There are more ultra-wealthy individuals

While the simple needs segment is a significant group with a lot of wealth, the potential for big-money clients is also growing.

BCG says that the global population of ultra-high-net-worth individuals ($100m or more in personal wealth) grew in 2020 with 6,000 people joining the 60,000-strong cohort.

This group has grown 9% on average since 2015 and held $22 trillion in investible wealth in 2020, 15% of the world’s total.

China is forecast to lead by 2029 in terms of the number of ‘ultras’ and the wealth their hold. Assuming a 13% gain in investible wealth each year, China’s ultras will hold $10.4 trillion in assets while their US peers will hold $9.9 trillion.

The report - Global Wealth 2021: When Clients Take the Lead – also highlights how demographics are changing and Anna Zakrzewski says wealth managers need to be aware of this and understand local differences.

 “For example, women now account for 12% of ultras, most of whom are based in the US, Germany, and China,” she said. “The next-gen segment is also going to be an influential driver of future growth in the next decade or so. Whether it’s a simple-needs or ultra-high-net-worth client, managers need to offer a personalized service in order to effectively capture the next wave of growth.”