Wealth management is at the core of the financial services landscape. Yet many wealth managers struggle to maintain their top-line margins despite strong growth globally in personal financial wealth and in their own organizations' level of assets under management. They can help reverse this trend, and strengthen their competitive positions, both by using advanced analytics to better address clients’ individual needs and by adopting smart revenue practices.
Overall, 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 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.
Ultimately, wealth managers need to grasp that delivering standardized experiences to clients will no longer suffice. Although many institutions have begun to invest in personalization, many still find it difficult to effectively combine an enhanced client experience with the underlying management of data, processes, organization, skills, governance, and behavioral change. Wealth managers that do not take the necessary steps in these areas run a high risk of being left behind.
Asset managers enjoyed exceptional results in 2017. Fueled by bull markets, they broke global records for net inflows and for profitability. Assets under management (AuM) increased by 12%—the strongest rate in a decade—to a total of $79.2 trillion, led notably by growth in the Chinese and US markets.
Overall, global asset management is undergoing a metamorphosis, and so are its practitioners, as advanced digital technology and analytics finally go mainstream. Fresh evidence of flux and reinvention fill every corner of The Boston Consulting Group’s 16th annual study of the industry’s current performance and huge potential.
The time is ripe for radical transformation in China’s wealth management market. Indeed, the complex and ever-changing environment has created confusion and raised questions. What is the essence of wealth management? Which key changes has technology brought? How will technology reshape the market? To understand the current state of play in the Chinese market, it is necessary to take a value-creation perspective on digital wealth management. A new report coproduced by BCG and Lufax Holding examines the issues and provides guidance on winning strategies.
Even tiring runners accelerate when the road turns downhill, because gravity works in their favor. That was the story of asset management in 2017. Assets under management (AuM), net inflows, and revenues were all well up, but not because asset managers made equally impressive improvements in their business models. Market gravity was on their side. The bull market in equities increased the value of assets already under management and attracted much new money.
Asset managers should celebrate a banner year for the industry. But they should also use this moment of strength to position themselves for a business environment that may look very different in five years, transformed by new technologies and changing customer demands. If they do not, they face a future of persistently eroding margins.
Some bold moves will be required —radically overhauling technology, entering new markets, and making acquisitions, among others. These are daunting challenges, but the extraordinary market-led performance of 2017 puts many players in a robust position to take them on.