In June BCG released its 17th annual report on the state of global wealth, what challenges face firms in 2017, how managers need to evolve, and where clients’ digital behaviors are taking the industry. It is a data rich report, providing a benchmark analysis of more than 1,000 performance indicators from a survey of over 125 wealth managers and assessing market size according to region and standard wealth segmentation: Affluent: between $250,000 and $1 million; Lower High Net Worth (HNW): between $1 million and $20 million; Upper HNW: between $20 million and $100 million; and Ultra-High Net Worth (UHNW): Over $100 million.
State of Global Private Wealth
- Overall rise of 5.4 percent in 2016, which is higher than the previous year’s 4.4
- Asia-Pacific led with 9.5 percent
- Western Europe: 3.2 percent
- North America: 4.5 percent
- Global growth was driven equally by new wealth creation and existing assets
- Asia-Pacific had the highest new wealth proportion at 65 percent
- Western Europe’s was 54 percent
- North America had one of the lowest with 27 percent
- In terms of global growth by segment, Affluent controlled 55 percent of wealth, but is expected to grow by only 3.7 percent through 2021. In contrast, UHNW controlled just 8 percent, but should expand by 9.1 during the same period
- Fifty-seven percent of Asia-Pacific’s wealth was controlled by Affluent and just six percent of it by UHNW; however, the former is expected to expand the least, 7.7 percent, while the latter the most at 14.6 percent by 2021
- Outside of Affluent, Eastern Europe’s segments remained fairly equal with HNW at 19, Upper HNW at 14, and UHNW at 19 percent, and their respective CAGRs through 2021 vary by only a two percent differential
Challenges Facing Wealth Managers
- Pretax profits fell from 33 basis points in 2007 to 22.4 in 2016
- North American brokers’ margins fell from 20 to 11 basis points
- European onshore institutions’ margins fell from 37 to 23 basis points
- Asia-Pacific institutions’ margins actually expanded by one basis point, rising from 19 to 20
- Costs declined from 52 to 49 basis points
Relationship Manager Evolution
- Seventy-two percent of new hires come from competitors; 15 percent promotions from within; 11 percent other sectors or industries; and two percent universities
- Over the next decade those rates will change to 50, 20, 20, 10, respectively
- Future RMs will be technically proficient and fall into three archetypes:
- The Orchestrator: They will cater to clients who are demanding, performance focused, and have a net worth that is high to ultra-high, mainly in the advisory spectrum of the service offering.
- The Enabler: They serve sophisticated, self-directed clients at all wealth levels. These clients require access to advanced analytical tools to assess the market and their portfolios, fast and flawless execution of transactions, and technical support for their digital infrastructure.
- The Guardian: They will cover the segment of high-net-worth clients who typically express a level of discomfort with financial markets, are uninterested in the latest digital tools, and would rather concentrate on personal interests than investments—though they understand wealth preservation and enhancement.
Digital Client Journeys
- Establishing digital client journeys 2.0 can increase revenue up to 20 to 25 percent and efficiency up to 30 to 40 percent
- Develop a comprehensive understanding of client needs and behaviors across segments and channels in order to identify the moments that matter to each client.
- Set clear priorities to change existing IT systems, which are often inflexible and end-of-life-cycle, into something that dramatically improves agility and time to market.
- Forge an agile way of working with interdisciplinary teams across functions and divisions.
- Many institutions have started building this foundation by implementing artificial intelligence and machine learning capabilities (55 percent), using big data and smart analytics (75 percent), adopting intelligent workflows (54 percent), for example.
If BCG’s report can be crudely summarized in one statement, it’s that margins can’t improve by way of cost cutting alone; firms need to grow revenue, and the best way to do so is by attracting and retaining new clients, particularly HNW ones like Millennial HENRYs, with personalized, omnichannel experiences. Now is the time for action, according to BCG; Seismic concurs.