An annual global study on wealth management shows overall AuM growth has been strong, with signs of the onshore side outpacing the offshore one.

Personal financial wealth grew at a stronger rate in general than for offshore centres in general, suggesting the balance of power is tilting towards the onshore world as regulatory and tax policies help encourage the shift, a study finds. Even so, booking hubs such as Hong Kong and Singapore logged strong growth, outpacing that of Switzerland.

A study by Boston Consulting Group, its 18th such report on the sector, said global personal financial wealth grew by 12 per cent in 2017 to $201.9 trillion in dollar terms. This expansion more than doubled that of the previous year, when global wealth rose by 4 per cent, and represented the strongest annual growth rate in the past five years in dollar terms. The main drivers were the bull market environment in all major economies - with wealth in equities and investment funds showing by far the strongest growth - and the significant strengthening of most major currencies against the dollar.

Global offshore wealth rose 6 per cent year-on-year to $8.2 trillion; Switzerland remained the largest offshore centre, domiciling $2.3 trillion in personal wealth in the country. The next-largest booking centres were Hong Kong ($1.1 trillion) and Singapore ($0.9 trillion), which have grown at yearly rates of 11 per cent and 10 per cent, respectively - more than three times the rate (3 per cent) of Switzerland over the past five years. Net offshore inflows from 2012 through 2017 reach a total of more than $800 billion, with Hong Kong and Singapore the principal destinations.  Some offshore centres, notably the Channel Islands and the Isle of Man, saw net outflows during the same period, the study said.

“As the regulatory climate has tightened over the past ten years, we have seen significant flows back onshore, generally from lower high-net-worth individuals,” Anna Zakrzewski, a BCG partner, global leader of the firm’s wealth management segment, and co-author of the report, said. “But new inflows into offshore centres have generally offset these outflows as financial institutions that provide offshore services have successfully redefined their value propositions to target clients also from mature markets,” she added.

Such figures suggest that although there has been some pivot towards onshore, those international financial centres able to compete in important ways continue to be highly relevant. Swiss banks have had to contend with headwinds of negative real interest rates and as a highly mature market, relative growth rates might naturally less than those of younger hubs in Asia. 

Performance edge
According to BCG industry data gathered from more than 150 wealth managers, top performers - defined as the quartile of institutions with the highest pre-tax profit margins - won a big edge over average performers in overall revenue growth and return on assets over the past three years. They also enjoyed a cost edge, although this was much less pronounced than the RoA advantage, implying that the prime driver of higher profit margins resides on the revenue side. 

BCG estimates that wealth managers can achieve a revenue uplift of 8 per cent to 12 per cent by adjusting price levels, correcting unnecessary discounts, and simplifying overall pricing structures. Product and service bundling can contribute to higher revenues if properly linked to the pricing architecture and to the value proposition for each client segment. 

The study also said that more than 70 per cent of wealth management clients see highly personalised service as a key factor in deciding whether to stay with their current provider or switch to another. This finding suggests that customisation is essential, possibly also implying certain limits to how completely the industry can take out the individual human touch.