'Nouveau riche' present key opportunity for wealth managers

11 July 2019 Consultancy.uk 4 min. read
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As competition heats up, new opportunities are on the horizon for wealth management experts, as the number of affluent individuals grows globally. Creating products and services that meet that group’s specific needs could add additional revenue streams in a period of slower growth.

Wealth managers face a host of difficulties as they seek new markets and customers. Current conditions have seen their fees eroded by more critical customers, new passive product lines, competition and higher costs. Market turbulence in equities also saw this extending into 2019 – created further adverse conditions for the segment.

At the same time, new opportunities are presenting themselves. Total global wealth is set for solid growth over the coming years, particularly China and India. New analysis from Boston Consulting Group has explored various options for wealth managers to increase their customer base.

Growth of affluent globally

With the economies of the world currently enjoying mixed results when it comes to stagnant productivity and slowing growth, one small club of super-wealthy individuals is still enjoying a bull run. The billionaires of the world now command close to $9 trillion in combined wealth. The number of such individuals has increased to approximately 2,100 people, or around 0.00003% of the population, holding $8.9 trillion in wealth (just under 3% of the global total). North America and Greater China saw the greatest rise in the number of billionaires.

In line with this, beyond the billionaires to a narrowly broader population of high net worth individuals, new money is continuing to accrue, as emerging economies pick up steam. The net effect is increased total wealth in emerging markets – with opportunity for those that manage wealth. However, the analysis also shows a growing segment of the affluent, whose wealth stands between $250,000 and $1 million.

This group has traditionally held less interest to wealth managers – with poor service from products that don’t meet the segments needs to high-prices for low quality service. However, given the size of the group, of about 76 million globally, accessing these people as clients may create an additional revenue stream for the wealth management industry.

Strong metrics underpin the affluent opportunity

Growth of the number of affluent is set to increase steadily over the coming five years, up by 6.2% annually. Africa will see the most significant growth up 10.9% annually, followed by Latin America on 10%. China meanwhile is noted for 9.3% growth. The US will see the highest absolute growth at 3.1 million people over the period.

BCG’s report also noted that there are strong metrics that support the affluent opportunity. As it stands, a large amount of total wealth is held as currency and deposit, totalling 53% of a total pool of $18.1 trillion in wealth. A further third is held in equities and investment funds. Overall return on assets for the segment is relatively low – reflecting an incentive for holders to invest.

North America has the highest level of equities and investment fund investment, at 44% of respondents. Europe has just under the global average. Oceania, however, has the highest level of cash and deposit holding at 78% of $3.6 trillion in total. Asia meanwhile holds 58% of the current $3.2 trillion in currency and deposits.

Wealth mangers missing out on affluent segment support

The researchers added that if wealth managers don’t get the affluent segment right, they risk alienating a large portion of their clients and revenues in a period in which new opportunities may see the segment move to greener pastures. As it stands, while total wealth under management for the segment remains relatively low, at 13%, the segment represents 16% of revenues.

Current practices see the segment relatively neglected, with often no dedicated business unit or desk service for affluent clients. A number of strategies could support the industry to on-board members of the nouveau riche, including building a deeper understanding of key affluent sub-segments and their needs, and creating incentive structures for products and services that don’t result in unethical or even illegal behaviour for sales workers.