BCG Global WealthThe rate of global wealth growth slowed significantly in 2011, forcing consultancy BCG to revise down its 2016 global wealth projections by 7%. Umberto Bacchi looks into the latest research which finds that banks need to do a better job at integrating their online and traditional channels

The seemingly relentless increase in global wealth of the past few years braked abruptly and almost stopped in 2011, Boston Consulting Group’s (BCG) latest research has found.

Dragged down by the old world economies – US, Western Europe and Japan – global private financial wealth grew less than 2% over the past 12 months.

This slowdown has been felt across the global wealth management industry, with asset bases remaining flat and global revenues virtually stagnant.

The 1.9% increase to $123trn was significantly lower than the rise recorded in 2010 and 2009, when global wealth increased 9.6% and 6.8% respectively.

The poor financial performance of the global economy in 2011 also pushed BCG to downgrade its future growth expectations substantially.

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millionaire householdsIn last year’s report, Shaping a New Tomorrow: How to Capitalise on the Momentum of Change, BCG predicted global wealth would reach $162trn by 2015, but this year the consulting group reduced the target to $151trn by 2016 – an $11trn reduction.

In the 2012 analysis, North America remained the world’s richest region but its total private wealth declined 1% to $38trn.

Western Europe followed with a 0.4% fall to $33.5trn, while Japan marked the sharpest decrease: 2% to $17.8trn.

The situation changes significantly in developing markets, where private wealth growth has not been as badly affected by the financial crisis.

Private wealth went up 10.7% in Asia-Pacific – reaching $23.7trn – 10.6% in Latin America ($3.5trn) and 14.4% in Eastern Europe ($1.9trn).

Despite the grave political instability caused by the Arab spring, private wealth also grew in Middle Eastern and African economies (+4.7%), driven by double digit GDP growth in oil-rich countries such as Saudi Arabia and Kuwait.

BCG’s 2012 study, The Battle to Regain Strength, also gives an overview of the private banking industry’s trends and latest business models.

Tailoring and cost-cutting are the most important watch words in the private banking business at the moment, but BCG says it may be soon replaced by another one: online.

Wealth managers in the post-financial crisis world are up against narrowing revenue margins and increasing client request for customised services and transparency.

Online seems to be able to effectively combine wealth managers’ needs and clients’ desires.

According to BCG’s 2012 research, online wealth management is a growing reality and, if wealth managers don’t want to miss good opportunities, industry players will have to increasingly their web exploitation, even through social media – a medium which private banks have traditionally shied away from.

Research firm MyPrivateBanking suggests that overall, global private banks have a reasonable presence on the world’s major social media sites.

The research highlighted, however, that banks are falling behind on their use of Facebook – despite it being the world’s most popular network.

Nonetheless, Private Banker International understands that several private banks have built or are in the process of building client-only social networks that give much the same functionality as public social networks but without the security issues.

All this suggests banks have started along the path of online integration, but they need to do far more.Growing competition

In the past, online wealth managers were basically online brokers, focused only on executing transactions.

Today they have begun to offer a wider portfolio of services, gaining a growing market share, says BCG.

They provide clients with online advice, research, portfolio management and investment products, covering every step of the advisory process.

Most of all, these players are more user-friendly and cost-effective than their traditional competitors.

BCG reported that high net worth individuals (HNWIs) are shifting to using online resources in increasing numbers to manage their assets.

The possibility of having 24/7 access and complete control over their investments and to complete simple transactions and research investment-related information seems to be particularly appreciated by HNWIs.

The absence of intermediaries, in fact, enhances the speed of the transaction and lowers the complexity of the service, BCG adds.

Nevertheless, according to the consultancy, HNWIs still prefer the advice of an experienced adviser when it comes to more sophisticated operations, such as portfolio reviews and product selection.

Transparency is another strong point of online wealth management. If supported by clear and simple software, internet access gives HNWIs the opportunity to oversee their investments, logging into their account at any time.

Last, but not least, the use of online processes saves wealth managers a consistent amount of costs, granting them a competitive edge in pricing.

So far the online revolution has been embraced mainly by millionaires in the lower-wealth segment, those who take a more self-directed approach to investment or technology-savvy investors, according to the consultancy.

Furthermore, online banking represents a point of access for wealth manager to better exploit the Asian ultra-HNW market.

Asian UHNW clients proved to be more technologically driven than their western counterparts and can be tempted to join a private bank that provides online investment access.

BCG noted that several mainstream wealth managers have already started to direct their business online.

Some banks have a separately-branded online platform that allows clients to invest in discretionary mandate-like investments while others have made virtually every element of their advisory process available online.

BCG said smaller, more traditional private banks have overlooked the importance of integrating their online channels into their overall offering, and are therefore at risk of missing opportunities.

Offshore stats

OFFSHORE WEALTH

Switzerland to lose crown?

Switzerland is on the path of losing its crown as the largest offshore booking centre, as Singapore and Hong Kong catch up.

The alpine country is still the largest holder of offshore wealth with $2.1trn but things could be different in the future, BCG reports.

Switzerland appears to be losing its lustre – and part of its capital – to the two Asian tigers.

Although the combined offshore wealth booked in Singapore and Hong Kong ($1trn) is still well below Swiss numbers, it went up of 10% in 2011, while Switzerland experienced stagnant growth.

According to BCG it is possible that the two Asian centres will overtake Switzerland in terms of booking size within 15 to 20 years.

 

Regulations favour Asia

Part of the reason sits in the higher level of pressure Switzerland is receiving from US and European tax authorities in comparison to its Asian counterparts.

The report says that the new transparency and withholding-tax agreements the Canton Confederation’s government have signed with the US and several EU countries, such as Germany, France, UK and Italy, "increased the attractiveness of other offshore centres", or scared some investors.

The wealth booked in Switzerland from the US and Western Europe, which represents 44% of the total, decreased significantly and BCG forecast it will continue to erode.

Singapore and Hong Kong’s success is also being helped by the growth in wealth across Asia-Pacific, which went up 10.7% in 2011 to $23.7trn.

Asia-Pacific investors seem to prefer its regional centres when it comes to booking wealth offshore.

Two-fifths of Asia-Pacific offshore wealth is held in Hong Kong and Singapore, while just 12% is booked in Switzerland.