As the Digital Landscape Evolves, Institutions Must Leverage the Full Spectrum of Available Data to Create Personalized Client Experiences, Deepen Loyalty, and Create New Value, Says Report by The Boston Consulting Group
NEW YORK—Many wealth managers struggle to maintain their top-line margins despite strong growth in personal financial wealth and assets under management. But they can help reverse this trend—and strengthen their competitive position—by using advanced analytics to better address clients’ individual needs and by adopting smart revenue practices to generate new pools of opportunity, according to a new report by The Boston Consulting Group (BCG). The report, titled Global Wealth 2018: Seizing the Analytics Advantage, is being released today.
The report, BCG’s eighteenth annual study of the global wealth management industry, uses global and regional perspectives to examine such topics as the evolution of personal financial wealth, the widening revenue gap and how institutions can narrow it, and the state of offshore business. The report also takes a comprehensive look at a critical initiative for staying competitive in the marketplace: unleashing the power of advanced analytics.
“Delivering standardized experiences to clients will no longer suffice,” says Brent Beardsley, a BCG senior partner, wealth management expert, and coauthor of the report. “Wealth managers have begun to invest in personalization, but many still struggle to effectively combine an enhanced client experience with the underlying management of data, processes, organization, skills, governance, and behavioral change. Firms that do not take the necessary steps in these areas run a high risk of being left behind.”
The Evolution of Personal Financial Wealth
According to the report, global personal financial wealth grew by 12% in 2017 to $201.9 trillion in US dollar terms. This expansion more than doubled that of the previous year, when global wealth rose by 4%, and represented the strongest annual growth rate in the past five years in dollar terms. The main drivers were the bull market environment in all major economies—with wealth in equities and investment funds showing by far the strongest growth—and the significant strengthening of most major currencies against the dollar. In general, developed markets held a higher share of wealth in non-investable assets—particularly pension fund entitlements—than developing markets. The Middle East accounted for the highest share of wealth held in investable assets, while residents of Oceania had the lowest share. The share of global wealth held by millionaires increased to almost 50% in 2017, compared with just under 45% in 2012. If recent patterns of wealth expansion continue, under an optimistic scenario, personal financial wealth could rise at a compound annual growth rate of around 7% from 2017 to 2022 in US dollar terms.
The Offshore Perspective
The amount of global offshore wealth held in 2017 was around $8.2 trillion, 6% higher than in the previous year in US dollar terms. Switzerland remained the largest offshore center, domiciling $2.3 trillion in personal wealth in the country. The next-largest booking centers were Hong Kong ($1.1 trillion) and Singapore ($0.9 trillion), which have grown at yearly rates of 11% and 10%, respectively—more than three times the rate (3%) of Switzerland over the past five years. Net offshore inflows from 2012 through 2017 totaled over $800 billion, with Hong Kong and Singapore the key destinations. Some offshore centers, notably the Channel Islands and the Isle of Man, saw net outflows during the same period.
“As the regulatory climate has tightened over the past ten years, we have seen significant flows back onshore, generally from lower high-net-worth individuals,” says Anna Zakrzewski, a BCG partner, global leader of the firm’s wealth management segment, and coauthor of the report. “But new inflows into offshore centers have generally offset these outflows as financial institutions that provide offshore services have successfully redefined their value propositions to target clients also from mature markets.”
Bridging the Revenue Gap
According to BCG industry data gathered from more than 150 wealth managers, top performers—defined as the quartile of institutions with the highest pretax profit margins—achieved a significant lead over average performers in overall revenue growth and return on assets (RoA) over the past three years. They also enjoyed a cost edge, although this was much less pronounced than the RoA advantage, implying that the prime driver of higher profit margins resides on the revenue side.
BCG estimates that wealth managers can achieve a revenue uplift of 8% to 12% by adjusting price levels, correcting unnecessary discounts, and simplifying overall pricing structures. Product and service bundling can contribute to higher revenues if properly linked to the pricing architecture and to the value proposition for each client segment. Overall, smart revenue practices can accomplish the dual goal of increasing the top line and enhancing client satisfaction.
Unleashing the Value of Advanced Analytics
BCG research suggests that over 70% of wealth management clients see highly personalized service as a key factor in deciding whether to stay with their current provider or switch to another. Firms that deliver smart, individualized products, services, and prices—digitally and through a relationship manager or financial advisor—will significantly bolster their top-line growth and occupy a differentiated position in the market. But seizing this opportunity requires the deployment of cutting-edge capabilities in advanced analytics—encompassing such elements as new technology platforms, fresh development capacities, next-generation tech and data architectures, updated data and digital organizational structures and skills, and improved access to internal and external data. A full transformation along these lines can lead to top-line growth of 15% to 30% and drive efficiency gains of 10% to 15%.
“The stakes for wealth managers can be enormous,” says BCG’s Zakrzewski. “And many players have already undertaken efforts in these areas. But realizing the full opportunity will require fundamental changes across the entire organization. We expect leading firms to further separate themselves from the pack over the next few years, a gap that will be increasingly difficult for slow-moving players to close.”
A copy of the report can be downloaded here.
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Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with offices in more than 90 cities in 50 countries.