Last month, BCG released its 17th annual report on the state of global wealth, what challenges face firms in 2017 and how managers need to evolve. It is a data rich report, providing a benchmark analysis of more than 1,000 performance indicators from a survey of over 125 wealth managers and assessing market size according to region and standard wealth segmentation: Affluent: between $250,000 and $1 million; Lower High Net Worth (HNW): between $1 million and $20 million; Upper HNW: between $20 million and $100 million; and Ultra-High Net Worth (UHNW): Over $100 million.
State of Global Private Wealth
- Overall rise of 5.4 percent in 2016, which is higher than the previous year’s 4.4
- Asia-Pacific led with 9.5 percent
- Western Europe: 3.2 percent
- North America: 4.5 percent
- Global growth was driven equally by new wealth creation and existing assets
- Asia-Pacific had the highest new wealth proportion at 65 percent
- Western Europe’s was 54 percent
- North America had one of the lowest with 27 percent
- In terms of global growth by segment, Affluent controlled 55 percent of wealth, but is expected to grow by only 3.7 percent through 2021. In contrast, UHNW controlled just 8 percent, but should expand by 9.1 during the same period
- Fifty-seven percent of Asia-Pacific’s wealth was controlled by Affluent and just six percent of it by UHNW; however, the former is expected to expand the least, 7.7 percent, while the latter the most at 14.6 percent by 2021
- Outside of Affluent, Eastern Europe’s segments remained fairly equal with HNW at 19, Upper HNW at 14, and UHNW at 19 percent, and their respective CAGRs through 2021 vary by only a two percent differential
Challenges Facing Wealth Managers
- Pretax profits fell from 33 basis points in 2007 to 22.4 in 2016
- North American brokers’ margins fell from 20 to 11 basis points
- European onshore institutions’ margins fell from 37 to 23 basis points
- Asia-Pacific institutions’ margins actually expanded by one basis point, rising from 19 to 20
- Costs declined from 52 to 49 basis points
Relationship Manager Evolution
- Seventy-two percent of new hires come from competitors; 15 percent promotions from within; 11 percent other sectors or industries; and two percent universities
- Over the next decade those rates will change to 50, 20, 20, 10, respectively
- Future RMs will be technically proficient and fall into three archetypes:
- The Orchestrator: They will cater to clients who are demanding, performance focused, and have a net worth that is high to ultra-high, mainly in the advisory spectrum of the service offering.
- The Enabler: They serve sophisticated, self-directed clients at all wealth levels. These clients require access to advanced analytical tools to assess the market and their portfolios, fast and flawless execution of transactions, and technical support for their digital infrastructure.
- The Guardian: They will cover the segment of high-net-worth clients who typically express a level of discomfort with financial markets, are uninterested in the latest digital tools, and would rather concentrate on personal interests than investments—though they understand wealth preservation and enhancement.
Under a Talent Management perspective it’s to be highlighted that 72% of new hires comes from competition; too often the process of identification, attraction and selection is in the hands of non professionals, leading to excessive turnover and performance levels below expectations.
In light of the evolution of the Relationship Manager pointed out above, only the best Human Capital firms, the ones that have a high level of specialization will be able to support this transition.
Chaberton Partners will be among them.