Asia is now undisputed as the world's richest region, according to the annual Capgemini report. Meanwhile, the global wealth pie expanded in 2015 but the wealth industry could do better in increasing its share, it says.

The Asia-Pacific region has leapfrogged North America as home to the most wealth held by high net worth individuals, with $17.4 trillion, ahead of North America’s $16.6 trillion, according to the Capgemini World Wealth Report issued today.

With many regions of the world, such as North and Latin America, posting modest growth in the number of wealthy individuals and their assets, Asia was a beacon of light, boasting 5.1 million high net worth individuals, ahead of 4.8 million for North America.

The global total wealth of HNW individuals is expected to exceed the $100 trillion mark by 2025 if current growth rates continue, the report, now in its 20th year, said, with Asia being an important driver of such an increase.

The strong performance in Asia helps explain why, with some exceptions, international wealth management firms have been trying to expand their regional presence and enter local markets. Not all banks have succeeded, however, and some, such as Societe Generale and Barclays, have sold local private banking businesses to local players.

While such figures will cheer those who see the wealth management “pie” as expanding, offsetting worries about margin-hitting low interest rates and compliance burdens, the report fired a number of warning shots at the sector. It said the wealth management industry has to change in a strategic way to benefit from this rise in wealth. The report said that high net worth individuals hold less than a third of their wealth with a wealth manager, suggesting the potential “share of wallet” has considerable upside potential.

One stumbling block towards wealth industry progress, the report said, is a “subdued level of engagement with wealth managers”. HNW individuals do not see eye to eye on fees, with clients preferring to pay for performance while firms want to charge a fee based on a percentage of assets under management.

Commenting on potential growth for firms able to expand their "share of wallet", David Wilson, head of the strategic analysis group at Capgemini Financial Services, told this news service that this is "a huge opportunity".

One reason why wealth managers do not have a higher share of potential client assets is because some HNW individuals' assets are tied up in operating businesses or forms of real estate, he said. There are also perceived shortcomings in how wealth managers operate that might be deterrents. 

Digital technology and a move towards a "multi-channel" way of doing things among the younger generation open up possibilities for wealth firms to increase their share of potential business, he added. "That is where the opportunity from a digital point of view comes in." 

The report also warned that businesses are falling short in using digital technology, leaving themselves at a “startlingly high risk of possible net income loss” – in other words, losing out to upstart fintech firms. The report’s “DigiWealth Maturity Assessment Model", introduced for the first time, shows that companies are underachieving on the digital front.

The survey of attitudes was based on more than 5,200 responses from HNW individuals in 23 countries.

Asia rising, LatAm falling

Although some of the data findings may not have fully reflected some of the headwinds that have buffeted Chinese and other Asian markets recently, the figures clearly show that the centre of economic gravity is moving East. The largest bursts of growth in HNW populations in the report came from China and Japan. The HNW population rose 16.2 per cent in China during 2015 from a year earlier; in Japan, the rise was 10.9 per cent.

As far as ultra-high net worth population growth rates are concerned, the global rate of growth was 4.2 per cent last year, below the 2010 to 2014 annualised rate of 7.9 per cent; the wealth of such persons rose by 2.5 per cent last year, far below the 6.1 per cent annualised rate over the 2010-2014 period. However, some of this decline came from Latin America, which has been hit by weaker growth, particularly connected to commodity-related woes in Brazil, as well as the adverse impact of a stronger dollar exchange rate.

The only region to log double-digit growth in UHNW wealth was Asia, with a rate of 10.8 per cent, boosted by China and Japan, and more than double the 4.8 per cent rise in European UHNW individuals’ wealth. In population terms, Asia added to the ranks of HNW individuals at a pace of 9.4 per cent, while total wealth of HNW individuals in Asia expanded by 9.9 per cent.

Globally, growth in the high net worth population and their wealth last year decelerated to 4.9 per cent and 4 per cent respectively, off the 2010-2014 annualised pace of 7.7 per cent and 7.2 per cent respectively.

Americas

Growth in the number of US high net worth individuals slowed “dramatically” last year, the report said, with the population of HNW individuals rising only 2 per cent. Their wealth rose by 2.3 per cent.

Europe

Wealth, and the number of HNW individuals, rose by 4.8 per cent in Europe. The strongest individual country was Spain, at 8.4 per cent for HNW population and 8.9 per cent for wealth. Germany was more subdued, at 5.1 per cent and 5.6 per cent, respectively.

Forecasts

Looking ahead, Capgemini said that based on historical growth rate assumptions, Asia’s population of HNW individuals could more than double in number to 11.7 million, far ahead of 7.6 million in North America, and Asia-Pacific wealth could reach $42.1 trillion, far ahead of $25.7 trillion in North America.

“Ultimately, if projected growth rates hold, Asia-Pacific’s share of HNWI wealth and population may become larger than that of Europe, Latin America and the Middle East and Africa combined, representing two-fifths of the world’s HNWI wealth and cementing the region’s status as a wealth leader,” it said.

“Such growth, of course, is not guaranteed. Political and economic headwinds could plunge the regin into the so-called middle-income trap, in which a country’s growth allows it to reach middle-income levels but then slows, making the transition to high-income levels seemingly unattainable.”

However, even on a more cautious growth outlook, such as a HNWI growth rate of 7 per cent, rather than the previous 9.2 per cent, it predicts that HNWI wealth in the region will rise to over $34 trillion by 2025, and that global wealth will surpass $98 trillion at that date.

Sectors

Examining the sectors expected to push growth of HNW individual wealth through 2025, the financial services area comes top, at 35.7 per cent, ahead of high tech (including fintech), at 30.9 per cent, followed by healthcare, at 30.1 per cent. In terms of countries, China is seen as the strongest growth contributor, at 27.2 per cent, followed by the US, at 21.8 per cent, India at 13.4 per cent, and the UK, at 10.5 per cent. Canada falls some way behind into fifth spot, at 4.1 per cent, and Germany is expected to contribute just 3.2 per cent.