SOURCE: The Boston Consulting Group
September 04, 2008 18:00 ET
Most Wealth Managers Have Been Spared a Direct Hit by Financial Crisis but Have Still Felt the Effects, Says Study by The Boston Consulting Group
Concerned About Growth, Some Wealth Managers Are Exploring Opportunities Outside the Most Developed Markets, While Others Grapple With Organizational Issues
NEW YORK, NY--(Marketwire - September 4, 2008) - Wealth grew at a slower pace in North America,
Europe, and Japan last year, but wealth markets in general proved
resilient. Global wealth grew by 4.9 percent in 2007, to $109.5 trillion,
according to a new report by The Boston Consulting Group (BCG). The report,
titled "A Wealth of Opportunities in Turbulent Times," is being released
today and is BCG's eighth annual study of global wealth.
The report covers data from the whole of 2007, when the effects of the
financial crisis were evident but not as severe as they would become in
2008. Still, the crisis' impact on some markets became clear by the end of
last year. In North America -- the epicenter of the turmoil -- wealth grew
by 3.8 percent in 2007, down from 8.9 percent in 2006.
"The financial crisis continues to cast a pall over established wealth
markets," said Victor Aerni, a Zurich-based partner and co-author of the
report. "It has prompted many investors to move their assets to more
conservative products, resulting in lower margins for some wealth managers.
As clients have moved their assets elsewhere or have curtailed new
investments, some wealth managers have even seen the volume of assets under
management (AuM) decline."
"Ultimately, the implications of the crisis will be shaped by a wealth
manager's ability to act on important lessons and opportunities," said
Bruce Holley, a New York-based senior partner and coauthor of the report.
"Many wealth managers have yet to pursue these opportunities, but the
crisis has prompted some players to broaden their horizons by expanding
into less developed markets."
Accessing the Other Third of Global Wealth
North America and Western Europe accounted for about two-thirds of the
world's wealth in 2007. "The remaining third -- what we call the other
third of global wealth -- was spread across emerging or less mature markets
around the world, where wealth has been growing at much faster rates," said
Wealth markets in Asia-Pacific, Latin America, Eastern Europe, and the
Middle East had about $33 trillion in AuM in 2007. Most of these markets
share a common set of challenges such as high entry costs, a scarcity of
relationship managers (RMs), and increasing competition. "To grow, wealth
managers will need to overcome these challenges while developing products
and services that suit specific markets," Holley said. To this end, the
report explores several markets in detail.
-- Wealth in Asia-Pacific totaled about $25.5 trillion in 2007. China's
wealth market is characterized by high growth, scarce RMs, and a client
base dominated by entrepreneurs. India's wealth market is small and
underdeveloped, but many clients are investment savvy and have an appetite
for risk. Japan's wealth market is massive but growing slowly and difficult
-- In Latin America, AuM reached $3.1 trillion in 2007. Brazil and Mexico
accounted for 60 percent of this wealth. Brazil's banking sector has
exceptionally strong local competition, relative to other emerging markets.
Mexico's wealth market has two valuable attributes: growth and stability.
The competitive environment is heating up, but it is not yet overcrowded.
-- Russia is by far the largest wealth market in Eastern Europe. Its AuM
totaled $950 billion in 2007. However, markets in Central and Eastern
Europe (CEE) had the strongest growth in AuM. From 2002 through 2007, four
of the ten fastest-growing wealth markets worldwide were in CEE: Poland,
Slovakia, Hungary, and the Czech Republic.
-- The growth opportunity in the Middle East is concentrated in the six
markets of the Gulf Cooperation Council (GCC): Bahrain, Kuwait, Oman,
Qatar, Saudi Arabia, and the United Arab Emirates. In 2007 this region had
an estimated $1.5 trillion in AuM. All but one of the six GCC markets were
among the top 15 markets ranked by percentage of millionaire households.
In addition to accessing "the other third," wealth managers will need to
address organizational challenges to support increased growth. While the
financial crisis has underscored the relative stability of the wealth
management business, it has also created a new sense of urgency around how
to position and structure the front office. "Success in wealth management
always seems to boil down to a small set of client-focused capabilities
that are critical to driving growth," Aerni said. "The front office is the
common denominator of these capabilities -- it is where clients are acquired
and served." The report details a variety of issues that are critical to
the success of the front office.
Distribution of Wealth and Millionaire Households
Globally, wealth grew faster among richer households. Wealthy households
-- those with at least $100,000 in AuM -- represented about 18 percent of
all households but owned 88 percent of global wealth in 2007. Millionaire
households represented just 0.8 percent of all households but owned 35
percent of global wealth.
In 2007 the number of millionaire households grew by 11.2 percent to reach
10.7 million. The United States again had the greatest number of
millionaire households, followed by Japan, the United Kingdom, Germany, and
China. (This year's study of wealth covers 62 markets representing more
than 98 percent of global GDP.)
"Small markets, however, had the greatest concentrations of millionaire
households," Aerni noted. "In Singapore, an astounding one in ten
households had at least $1 million in AuM. Three of the five densest
millionaire populations were in the Middle East -- in Qatar, the United
Arab Emirates, and Kuwait -- while Switzerland had the highest
concentration in Europe, at 7.3 percent."
In 2007 the amount of wealth held offshore grew to $7.3 trillion but
declined as a proportion of total AuM. Traditional offshore centers such as
Switzerland face a number of pressures, including more stringent tax
regulations in other countries and the rise of new offshore centers in
Singapore and Dubai. Although traditional offshore centers are not on the
verge of surrendering their leadership positions, the report details steps
they can take to maintain their competitiveness. These include focusing on
the strengths of a private bank -- in particular, the ability to deliver
strategic advice and a wide range of products.
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