In a Rapidly Shifting Environment, Players Must Invest in Product Innovation, Advanced Analytics, and Digital Tools to Extend Reach, Personalize Service, and Differentiate Offerings, Says New Report by BCG
BOSTON—With the steady rise in global personal financial wealth having come to a sharp halt in 2018, wealth managers must reinvent their business models to succeed in an increasingly crowded marketplace where new and established players battle to serve a broader and more demanding client pool, according to a new report by Boston Consulting Group (BCG). The report, titled Global Wealth 2019: Reigniting Radical Growth, is being released today.
The report, BCG’s nineteenth annual study of the global wealth management industry, features a market sizing review that encompasses 97 markets—collectively accounting for 98% of the world’s gross domestic product—and draws on data from more than 150 wealth managers on performance pressures and critical strategic areas for improvement. The report also includes insights on enlarging the customer base by targeting the expanding affluent segment, increasing scale and revenue by transforming client engagement models, and girding cyber defenses to protect client data and preserve client trust.
“Wealth managers are at a crossroads,” says Anna Zakrzewski, a Zurich-based BCG partner, coauthor of the report, and global leader of the firm’s wealth management segment. “What worked for them in the past will not work for them in the future. Yet few are moving far enough or fast enough to address the array of challenges that face them. Unless they take action to quicken the pace, they will find the gap between themselves and the digitally enabled top players growing wider and wider.”
Market Sizing. With major market indexes plummeting by as much as 20%, 2018 was the worst year for stocks in a decade. The steep decline in equity market performance, most notably in the fourth quarter, had a significant impact on personal wealth and a corresponding impact on wealth managers’ profitability. In 2018, global personal financial wealth grew by just 1.6% to $205.9 trillion in US dollar terms, sharply lower than the 7.5% (to $202.7 trillion) recorded the year before, and well below the compound annual growth rate (CAGR) of 6.2% generated from 2013 to 2017.
Millionaires. Worldwide, the number of millionaires (in US dollar terms) grew by 2.1% year on year to 22.1 million in 2018. These individuals now hold a combined 50% of personal financial assets globally. The greatest concentration of millionaires is in North America, continuing a long-standing pattern. From 2018 to 2023, however, the region likely to experience the fastest growth in its millionaire population is Asia (excluding Japan) at 10.1%, followed by Africa at 9.8% and Latin America at 9.1%. The total number of millionaires globally should reach 27.6 million by 2023.
The Affluent Opportunity. Given the severe pressure on wealth managers to find new sources of growth, the report notes, one of the largest areas for potential expansion is also one of the most overlooked: the affluent segment. This tier, with wealth between $250,000 and $1 million, is huge, consisting of 76 million individuals globally, and its investable assets are projected to grow at an impressive CAGR of 6.2% over the next five years. This base of potential clients for wealth management services shows extraordinary promise.
“Winners will accelerate product innovation and develop offerings that address the specific needs and preferences of affluent subsegments,” says BCG’s Zakrzewski. “They will employ hybrid business models that combine digital and human engagement to personalize and deliver a more convenient and navigable one-stop-shopping experience, while improving their advisor efficiency and cost to serve.”
Overhauling Client Engagement. The report says that established players that continue to practice business as usual will be critically weakened competitively. Over the next several years, the most successful firms will be those that overhaul their client engagement models and commit to embedding data, analytics, and new ways of working end to end. Advisors need to move away from intuition-directed sales activities and instead embrace data-driven, omnichannel engagement models. In addition, wealth managers should encourage advisors to envision themselves not as lone actors but as leaders of a multidisciplinary expert team, running different investment plays, managing broader product portfolios, and toggling easily between online and offline interactions.
The Cybersecurity Imperative. Financial services firms are 300 times as likely as other companies to be targeted by a cyberattack—and dealing with those attacks and their aftermath carries a higher cost for banks and wealth managers than for any other sector. Yet despite the growing need to strengthen information security and cyber resilience, BCG has found that many financial institutions are ill equipped to respond effectively. The report advises wealth managers to take a four-step approach to shoring up cybersecurity: perform a rigorous cybermaturity assessment; develop a risk-based strategic plan; adapt the operating model to address strategy, governance, risk management, and culture; and boost operational capabilities.
“Ultimately,” says Tjun Tang, a Hong Kong–based BCG senior partner, coauthor of the report, and senior strategic advisor on wealth management, “wealth managers should better protect the confidentiality of client information, guard against the risk of data and credential theft, improve their regulatory posture, and better defend sensitive payments and other networks against outside attackers.”
A copy of the report can be downloaded here.
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or firstname.lastname@example.org.
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