Wealth managers have good growth prospects despite cultural, HR challenges. Global wealth increased for the fifth year in a row last year, reaching $97.9 trillion as measured in local currencies. So says the Boston Consulting Group (BCG), which arrives at its "wealth" figure by tallying the local-currency value of securities (held directly or indirectly through managed investments), cash deposits, money-market funds, and onshore and offshore assets held by all households in 62 countries (which it says represent 96% of gross global product) and using a "benchmark survey" of 111 wealth managers around the world.

Gulf region

The report, Tapping Human Assets to Sustain Growth: Global Wealth 2007, is BCG's seventh annual survey of privately held financial holdings in the context of wealth management. In addition to a 7.5% increase in total private assets under management last year -- and with the proviso that there is still plenty of scope for growth -- BCG uncovers a number of challenges facing wealth managers, especially in high-growth markets.

For example, the Persian Gulf region -- comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates -- holds out the promise of an especially attractive market, but "intensified competition has led to a range" of difficulties for wealth managers, says BCG senior partner Christian de Juniac. In addition to universal stumbling blocks such as "margin pressure, eroding prices, product commoditization, and a tightening market for talent," foreign wealth-management firms have to "contend with increasingly competitive Islamic banks, whose products not only comply with shari'a, or Islamic law, but also -- in many cases -- mirror both the performance and variety of conventional offerings," says de Juniac.

Winning through

BCG's study also looks at geographic trends in profitability. It seems, for example, that the median pre-tax margin for North American brokers is considerably narrower than for their European counterparts. "Despite these patterns," says BCG partner Bruce Holley, "what mattered more [than a player's region and business model] were players' efforts to manage the most important drivers of performance, such as the growth of new assets, the productivity of relationship managers, and the cost base."

On the subject of productivity of relationship managers, the study found wide variations within the same markets -- suggesting, says BCG, "that most players have tremendous potential to grow by getting more from their people." With this in mind, the report suggests ways wealth-management firms can improve sales-force productivity and broaden the team leader's role.

In general, "human assets can have a particularly strong impact on organic growth, a chronically under-appreciated lever for performance," says de Juniac.

The two countries with the highest compounded annual growth in assets under management between 2001 and 2006 were China and Brazil. Next came Hungary, Poland, Slovakia, and the Czech Republic. BCG predicts that China's wealth market will grow at a rate of 17.4% per year, far outpacing the global average of 5.6%.

Despite rapid growth in other markets, however, North America (ex Mexico) and Europe remained the bastions of private wealth, with $36.2 trillion and $33 trillion respectively.

"Together, [North America and Europe] accounted for 27% percent of all households and 71% of global wealth," says de Juniac. These markets are followed by Japan ($11.9 trillion) and Asia-Pacific ($10.6 trillion). Latin America, the Middle East, and Africa make up far smaller markets.

Millionaires

The number of millionaire households in the world grew 14% to around 9.6 million last year. These high-net-worth households accounted for $33.2 trillion in assets under management, according to BCG. The U.S. and Canada led in this category as well. "North America was home to nearly half of all millionaire households, says Holley. "Europe had about a quarter, and Asia-Pacific accounted for about a fifth."

In their most recent World Wealth Report, Capgemini and Merrill Lynch says that individuals and families with at least $1 million in "financial assets" held $37.2 trillion in 2006. Scorpio Partnership, a London-based wealth-management consultancy, comes up with the lower figure of $24.4 trillion.

Here's an executive summary of the report.

Boston-based BCG, a market-research firm and business consultancy, has 64 offices around the world. -FWR

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