WM Market Reports

Global Wealth Expands; Offshore Centres Lose Ground Vs Onshore - Boston Consulting Group

Tom Burroughes, Group Editor, 14 June 2017


Boston Consulting Group has issued its annual overview of the world's wealth management sector and the forces affecting it.

The total stock of global private wealth advanced by 5.3 per cent to $166.5 trillion in 2016, up from a 4.4 per cent growth pace in 2015, as improving economic growth and markets drove AuM higher, according to the annual survey of the sector and its trends by Boston Consulting Group

The report, issued today, said that the growth in assets under management is expected to continue. “By the end of 2012, the growth rate for global private wealth is projected at 6.0 per cent, higher than it was in 2016, with markets following Asia-Pacific’s lead,” it said. 

Assets held by private banking players are seen rising to about $33 trillion globally by 2021, an annual rise of about 8 per cent. However, competitive threats from digital players will squeeze returns, BCG said.

Potential returns on assets will vary considerably by region. Taking changes in returns and other factors into account, BCG said revenues are expected to reach an estimated $21 billion by 2021.

The report said that in North America, Japan and Eastern Europe, the main cause of AuM growth will be the performance of existing assets while Asia will benefit from new savings as gross domestic product continues a solid gain. In Latin America, Middle East and Africa, and Western Europe, wealth expansion will be driven by existing assets and higher household savings, in roughly equal proportions.

In terms of wealth expansion by segment, the upper high net worth band logged the highest growth last year, at 8 per cent, both globally and in most regions of the world. An exception to this pattern was seen in Western Europe, where the lower HNW segment logged the strongest rise, up 7 per cent.

The number of millionaire households rose at a faster rise than was the case in 2016, buoyed by rising equities, the report, called Global Wealth 2017: Transforming The Client Experience, said. The share of wealth of such persons continues to rise. Such households are slated to hold more than half of total wealth around the world by 2021.

The largest share of private financial wealth is in equities, although there are significant regional variations, BCG said. North America has a 70 per cent exposure to stocks, while globally, the weighting is 43 per cent, and as low as 23 per cent in Asia, 37 per cent in Japan, and 39 per cent in Western Europe. Asia-Pacific has the highest exposure in proportionate terms to cash/deposits, at 65 per cent, contrasting with the US, at 39 per cent. 

Market penetration
North America is the region where “wealth is most accessible for private banking”, the report said. In terms of private banking penetration, defined as assets held by private banking players divided by assets of millionaires, Western Europe, at 85 per cent, is among the highest, the report said. 

Asia, Latin America, Eastern Europe and Middle East/North Africa “present an increasingly significant revenue pool for private banking: they had a combined total of $33 billion, with an average return on assets of around 75 basis points in 2016,” the report said. At present, the penetration by private banking in these regions is still “relatively low”, it said, suggesting considerable market opportunities ahead.

Offshore wealth rose more (3.7 per cent) slowly than among onshore jurisdictions (5.4 per cent) in 2016. Switzerland remained the largest offshore centre, with a 24 per cent of all offshore business; that share is expected to fall by 2021. Hong Kong and Singapore remain the fastest offshore booking centres. Chinese curbs on investment outflows may act as a brake on some of this growth, however, BCG said. Luxembourg had a 11 per cent share of offshore wealth; the UK had 13 per cent; Singapore 12 per cent; Hong Kong 8 per cent; the US 9 per cent, and Caribbean/Panama 13 per cent.

Various pressures, such as regulatory compliance and competition from technology platforms, have put the sector under pressure, but the report said that costs relative to assets have been managed, falling to 49 basis points in 2016 from 52 bps in 2015. Overall, pre-tax profit margins have fallen to 22.4 bps in 2016, from 33 bps in 2007 just before the global financial crisis.

“To be sure, just as clients have demanded lower fees and commissions, wealth managers have tried to reduce costs to ease the squeeze on profit margins. Front-office, central functions, as well as asset and product management functions, have been particularly hard-hit, it said. 


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