The wealth-management industry must adapt and target underserved populations, such as women and millennials, as a result of the slowing growth in global financial wealth, suggests a new report from the Boston Consulting Group (BCG).
Global private financial wealth grew by 5.2% in 2015, down from 7% growth in 2014, according to the report. And the source of growth shifted from market gains to sources of new wealth creation, such as rising household income, it notes.
As a result of this, average revenue and profit margins declined for wealth managers from 2012 to 2015 as well. Amid this recent slowdown in top-line growth, the wealth-management industry must seek new ways of building its own business, the BCG report says.
“Segmentation approaches based mainly on wealth level and cost-to-serve models, both of which continue to be used by the majority of wealth managers, neglect what clients are truly willing to pay for,” says Brent Beardsley, global leader of BCG’s asset- and wealth-management practice, in a statement. “Such approaches no longer allow wealth managers to capitalize on the full potential of the market.”
Instead, BCG suggests that wealth managers must capitalize on opportunities arising from three major trends that are impacting the industry: tougher regulation; increasing digital innovation; and shifting client needs. In particular, the report suggests that female investors and millennials represent attractive opportunities for the industry based on their strong wealth accumulation.
“Ultimately, in order to succeed, wealth managers will need to adopt a more client-centric perspective, decide how to sensibly segment their base of current and prospective clients, clearly identify customer needs, and define value propositions accordingly,” says Daniel Kessler, a partner with BCG, in a statement. “Some wealth managers have already embarked on this journey, partly by leveraging insights from big data, but for most the first step has yet to be taken.”
Looking ahead, the BCG report forecasts that growth will pick up a bit in the next couple of years: “Assuming that equity markets regain momentum, private wealth globally is expected to rise at a compound annual growth rate of 6% over the next five years to reach US$224 trillion in 2020.”
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