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June 18, 2020, 7:39 p.m. EDT

The Wealth Management Industry May Need to Reevaluate Business Models

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Recovery from the Covid-19 crisis will present one of the most serious challenges to the global markets in the years ahead. Consequently, companies in the wealth management industry need to change their business models and offerings to better serve their wealthy clients, says Boston Consulting Group (BCG) in its annual report released Thursday.

The report, titled Global Wealth 2020: The Future of Wealth Management—A CEO Agenda , provides a detailed analysis of wealth growth over the past 20 years and evaluates the potential long-term impact of the Covid-19 crisis over the next two decades.

Since the turn of the century, global wealth growth has been resilient despite multiple crises, including the 9/11 terrorist attacks in 2001 and the 2008 financial crisis, according to the report. Globally, personal financial wealth has nearly tripled over the past two decades, rising from US$80 trillion in 1999 to US$226 trillion at the end of 2019. 

The year 2019 saw robust growth in personal financial wealth, increasing 9.6% from 2018’s figure, US$207 trillion. In 2018, the growth rate was flat at 0.8%.

But this year’s global pandemic will almost certainly cause wealth to contract in the near term, while its long-term impact will largely depend on the speed of the recovery, according to the report.

The consulting firm has laid out three scenarios of Covid-19 recovery based on macroeconomic indicators such as GDP growth, consumption, interest rate development, inflation and capital market performance. Under the best scenario, where growth rebounds quickly, personal financial wealth is expected to grow from US$226 trillion in 2019 to US$282 trillion in 2024, equating a compound annual growth rate (CAGR) of 4.5%.

If the recovery is slow as a result of persistent economic shocks from Covid-19, BCG predicts that wealth would fall to US$215 trillion in 2020 and then grow to US$265 trillion in 2024. Should the worst scenario occur, wealth would decrease to US$210 trillion in 2020 and then increase to US$243 trillion by 2024, a CAGR of just 1.4%, according to the report.

Regardless of which scenario emerges, however, the wealth management industry is likely to face more pressure, as client needs and expectations are changing at an accelerated rate. 

Over the next two decades, the demographics of wealthy clients will be very different from the past, as Gen Xers will be entering retirement, Gen Yers will be in their prime earning years and Gen Zers will be climbing the career ladder, according to the report. Also, women will grow their wealth faster than men.

Regionally, Asia (excluding Japan) and Latin America, which witnessed the fastest wealth creation in the last decade, will continue to outpace the developed world, the BCG report states.   

“Effectively serving the world's wealthy is going to get far more complex in the years ahead,” Anna Zakrzewski , a BCG managing director and partner, and co-author of the report, said in a statement. “And as digitization lowers barriers to entry to wealth management as a business, competition will intensify.”

The group recommends key imperatives to wealth management CEOs to better serve their clients, including developing more-personalized value propositions, enhancing ESG and impact-investment offerings; investing in digital and data; and designing a state-of-the-art technology platform.  

The report marks the 20th edition of BCG’s annual review of global wealth management, based on data from 97 global markets.

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