The global high net-worth (HNW) market continues to grow at a modest pace, but there is significant untapped wealth that wealth managers could attract to their business, according to the 20th Capgemini World Wealth Report released today.
In 2015, total HNW assets grew by 4% to US$58.7 trillion globally. Although positive, that was less than the 7.7% average annual growth rate for the period between 2010 and 2014, the report said.
The size of Asia-Pacific wealth surpassed North America for the first time, and it has become the region with the most HNW assets, boasting US$17.4 trillion compared with North America’s US$16.6 trillion. Assets expanded by 9.9% in Asia last year, compared with Europe’s 4.8% and North America’s 2.3%.
While global growth is still relatively healthy, Capgemini’s survey of 5,200 investors in 23 countries found, only 32% of global HNW wealth is managed by individual wealth managers. This low level represents an opportunity for the industry to garner more assets. (A HNW individual is defined by CapGemini as one having more than US$1 million in investible assets.)
A portion of the wealth that remains out of reach is locked up in various illiquid assets, such as real estate and businesses. But more than one-third remains essentially liquid and potentially available to wealth managers, the report said. About 18% is sitting in retail bank accounts, while about 15% is in physical cash.
Younger HNW individuals are more inclined to favor bank accounts and cash over the services of wealth managers, the report said. The under-40 HNW individuals place only 27% of their assets with wealth managers, compared with 42% of those over 60 years of age. That is “a trend capable of imperiling the wealth-management industry if it continues,” the report said.
Wealth managers need to overcome numerous challenges if they are to retain and win business, the report said. They are under pressure to deliver visible value to their clients, especially with the advent of robo-advisors.
“Financial planning expertise that wealth managers provide needs to evolve beyond asset management to encompass holistic financial advice,” said David Wilson, head of the strategic analysis group at Cap Gemini Financial Services International Inc. in the U.S. “Client regard for individual wealth managers did not improve much, and managers are under pressure to provide value to clients.”
The report found clients want better digital tools, and more than half of wealth managers said they were dissatisfied with their firms’ digital tools. A significant 39% of wealth managers said they would consider looking for employment elsewhere as a result, putting firms at risk of not only client attrition, but employee attrition as well. About 73% of HNW individuals said digital capabilities are “very or somewhat significant” in their decision to increase assets with a firm.
Wilson said investment management firms need to pursue collaborative relationships with fintech firms to ensure success in the fast-evolving digital world, and view them as partners rather than competitors.
“Wealth management firms must test, improve and launch new digital initiatives,” he said.
Digital capability will only increase in importance as HNW individuals embrace new automated advice platforms and online peer-to-peer investment advice forums, the report said. HNW individuals’ demand for digital capabilities continues to increase in areas in which fintechs are strong. For example, clients wanting automated advisory services shot up to 67% of survey respondents from 49% a year ago.
“Looking forward, the industry is ripe for disruption,” said Bill Sullivan, head of global financial services market intelligence at Capgemini. “There are a lot of innovations by new fintech firms. It will be an exciting journey.”
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