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Boston Consulting Group Annual Global Wealth Report Launched

Stephen Harris

19 September 2006

These are good times for private banks, but the better news is that this shows no sign of slowing up any time soon, according to the Boston Consulting Group’s annual Global Wealth Report which has been released today. Global wealth grew by 8 per cent in 2005, measured in local currencies, up from 6.2 per cent in 2004. Wealth increased across all regions, albeit at widely varying rates, to reach a total of $88.3 trillion, say BCG. Assets under management were driven both by strong stock market performance and by more assets being allocated to equities in client portfolios. Growth in AUMs was lowest in North America, at 4.1 per cent (total $33.2 trillion) and highest in Europe, which saw growth of 13.2 per cent (total $29.2 trillion). According to the report, the world’s rich are getting considerably richer. Between 2005 and 2010 the number of individuals around the world with over $5 million in assets will increase from 11.2 million to 15.5 million. And the assets they control will rise from $3.9 trillion to $5.5 trillion. Currently, there are 7.2 million US dollar millionaire households, globally. Together, they own 28.6 per cent of global wealth. As part of the report, BCG conducted interviews with 150 high net worth clients. The research reveals that the vast majority of private banking clients are multi-banked, whether they are onshore or offshore, each with typically three private banking relationships. And clients are continuously comparing their banks in terms of performance, access to ideas and the services they offer. According to the report, HNWs very rarely close down a banking relationship. Of those interviewed, 63 per cent said their desire to switch private bank was low or very low. And satisfaction was recorded as high or very high in 83 per cent of cases. More likely they will stop growing it or switch funds to a preferred bank if they are dissatisfied, according to BCG. In this cut-throat environment, knowing your customer thoroughly is an imperative. But given the strong loyalty of HNWs, wealth managers should focus on a long-term approach to developing relationships with prospective clients before their competitors target them. Pursuing children or grandchildren of current clients is recommended by the report. “Private banks should concentrate on their richest clients as this group will produce the most revenue in the future,” Christian de Juniac senior vice president and director, BCG, told WealthBriefing. “Even though richer clients have more clout in terms of fee levels, it is the absolute revenue levels that these clients generate that private bankers should be concerned with. Margins are far less important, because most costs are fixed when you’re comparing a client with $5 million against one with $10 million,” he said. The report identifies three client groups. Delegators give their wealth managers wide discretion over their accounts, within defined guidelines. The portfolio’s performance is especially important for these investors. Self-directors play an active role in managing their assets. They make all key decisions and use their banking relationship mainly for execution. They are likely to be extremely price sensitive and to have investment experience. And thirdly, participators seek investment advice from and interact frequently with their relationship manager before deciding how to allocate their assets. Each of these client groups should be provided a different platform by their wealth manager, according to Mr Juniac. “The self-directors need a trading system rather than a relationship manager, the delegators don’t want contact at all, whereas the participators want to be called up with solutions and not problems,” he said. “A smart private bank will also recognise that clients fall into two categories – those who want to preserve wealth and those who want to accumulate, and will adjust the client relationship accordingly.” Private banks should also recognise that wealth is increasingly concentrated in urban areas. For instance, 50 per cent of the UK’s high net worth population is to be found within the M25, the motorway the encompasses London, which also happens to be the European city with the most millionaires. The US holds the most cities with large populations of millionaires – nearly half a million – followed by Tokyo and Los Angeles. And this is echoed around the globe. So when looking at international expansion it is the major cities that should be the points of comparison rather than countries, according to Mr de Juniac.