Consultancy urges rigorous approach to service through market segmentation. Many wealth managers have benefited in recent years from a growing market for their services as well as performance-enhancement initiatives such as cost-cutting and business restructuring. But to ensure continued success in a highly competitive space, they're going to have to start taking a more sophisticated view of their clients' needs and penchants.

Worldwide, the number of U.S.-dollar millionaire households reached 7.2 million in 2005 -- up from around 7 million in 2004, according to the Boston Consulting Group (BCG), an international business consultancy. Almost 3 million of these households -- 41% of the total -- were in the U.S. With 825,000 such households, Japan came in second, followed by the United Kingdom with 440,000.

In common with Capgemini and Merrill Lynch in the latest edition of their annual World Wealth Report as well as recently published wealth-market research by Goldman Sachs, BCG notes above-average rates of personal-wealth growth in the emerging markets of Brazil, Russia, India and China -- the so-called BRIC economies.

Client's perspective

Total managed assets for the millionaire-plus segment increased 4% from about $85 trillion in 2004 to $88.3 trillion in 2005, adds BCG, which publishes an annual Global Wealth report based, this past year at least, on interviews with 150 individuals with at least $1 million in assets under management. This accounts for about 29% of all global wealth.

In this year's report, Taking the Client's Perspective, BCG identifies three approaches to wealth management by high-net-worth clients. Self-directors make all key decisions about their investments. Participators consult their wealth managers before deciding how to allocate their assets. Delegators give their wealth managers wide discretion over their accounts.

Fortunately the report -- aimed principally at private banks -- goes beyond this simplistic breakdown of overall approaches to highlight other ways to understand clients. With a few exceptions, BCG finds that amount of assets under management and age -- two data points traditionally used by wealth managers to classify clients -- yield relatively weak correlations with investment behavior."Trading style and disposition toward risk, on the other hand, emerged as telling indicators of the services that investors need and expect from a wealth manager," says Victor Aerni, a BCG consultant and co-author of the latest Global Wealth report.

The report also identifies characteristics common to many wealthy clients around the world. Most, for example, are very loyal to their private banks or relationship managers. When they change banks, it is often because of a personal referral or because their relationship manager has upped stakes. "In addition to these "global similarities," Aerni says he and his colleagues uncovered "clear differences in client behavior across regions and countries" that are "driven by the sophistication of the private-banking market, cultural factors, and the political, fiscal, and regulatory environments."

Another fairly clear-cut point of differentiation is the level of wealth. BCG says that clients with $50 million or more in investable assets "differ substantially from other investors, mainly because of the exceptional complexity of their wealth-management needs and the sophistication of their approach."

Taking the Client's Perspective also suggest ways wealth managers can apply findings from the report to their platforms and business-development strategies. "Only a few global players can cover the whole spectrum of client needs, [so] private banks must understand what types of clients they have—self-directors, participators, or delegators—and decide what types they want to focus on, as well as how to provide a level of service appropriate to their needs," says Aerni.

Here's a summary of the report, and here's the order form. It's free, but available only in hard copy. -FWR

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