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How digital, social, and economic trends
will transform Wealth Management
Boston Consulting Group
Unlocking the Art of Private Equity in Wealth Management
The wealth management market is rapidly growing, with increased interest in alternatives, especially private equity.
Global financial wealth continues to soar, rising more than 8.3% over the course of 2020 to reach an all-time high of $250 trillion. The next five years may be stronger still. We see signs of an emerging economic recovery that could significantly expand prosperity and wealth between now and 2025—and, in turn, create extraordinary opportunities for wealth managers. Despite the high single-digit growth rate, we expect global financial wealth to fall short in comparison with the projected growth rate of alternative investments, especially with regard to private equity.
In 2020, total AuM for alternatives stood at $13.5 trillion. Private markets, the main asset class, were at $8.0 trillion followed by hedge funds at $3.6 trillion and cryptocurrencies at $1.9 trillion. Within private markets, private equity accounts for $5.3 trillion followed by real estate at $1.0 trillion, private debt at $0.8 trillion, infrastructure at $0.6 trillion, and natural resources at $0.2 trillion. In terms of geographical allocation, North America accounts for the majority of global alternatives with 62% of total AuM, with Europe at 18%, Asia-Pacific (APAC) at 16%, and the rest of the world at 3%.
Within alternatives, private equity funds will experience strong momentum, having already grown from $2.4 trillion AuM in 2015 to $5.3 trillion in 2020, a CAGR of 17.5% for the period. The market outlook remains favorable, and private equity funds are expected to benefit strongly from an economic recovery, high liquidity levels, still relatively low interest rates, and solid performance of the asset class. By 2025, the global private equity market is expected to more than double in size.
Despite this positive momentum, the alternative investments market, particularly private equity, is currently largely held by institutional investors who account for 90.8% of raised capital and with limited contribution from individual investors.
Driven by high valuations of the global equity market, low interest rates on deposits, and low yields for bonds, we anticipate the global individual investors alternatives AuM to thrive in the future.
KPMG – Future of wealth management
Wealth management remains a sector with enduring growth potential, driven by growing household and entrepreneurial wealth, underfunded retirement savings, over-reliance on non-financial assets, individual responsibility for retirement, and intergenerational wealth transfer. COVID-19 has only served to emphasize the importance of financial resilience as many suffered dramatic falls in income.
Today’s wealth management providers play a pivotal role in the financial well-being of an increasingly wide range of customers, across age and income groups, stretching far beyond the global elite.
Rather than focusing entirely on products, the main players now have an opportunity to ‘own’ financial advice and become a central part of customers’ lives. This wider calling should not only open up new business and channels, but also offer a greater sense of purpose to prospective new employees with changing values. At the same time the sector has huge growth potential across markets such as China and India where it is expected that wealth will grow exponentially over the coming years.
Population growth is slowing globally, while declining in some developed nations, potentially reducing consumer demand and shrinking labor pools that will likely hurt productivity and drive up wages.
Revolutionary technology and exciting new business models do not preclude innovation and advancement among advisors and workforces who must meet the expectations of today’s informed and discriminating customers.
Workforce issues are also coming to the fore in the Americas. Advisors are leaving the industry faster than firms can replace them, with the added challenge of providing workplaces that meet the values of incoming younger generations.
And there’s a growing need for specialists with relationship management skills, ESG-related insights and guidance, and highly personalized service. Female clients also expect providers to offer professional advisors who are women.
Efficiency and personalization are key advisor attributes; more than 70 percent of investors want an advisor that takes the time to understand their needs, goals and risk tolerance, while overseeing their portfolio to anticipate both problems and opportunities.
McKinsey & Company
Wealth management is a growth industry, but it is experiencing a set of accelerating disruptions. While the pandemic challenged the performance of the US wealth management industry for much of 2020, the last 12 months have given rise to optimism that the conditions for a significant wave of innovation and experimentation across the wealth management ecosystem are in place. The conditions include rapid technological advancements, fast-evolving consumer needs and behaviors (accelerated by the pandemic), and an environment of economic stimulus.
To thrive in this dynamic environment, firms must prioritize growth, adopt an innovation mindset, and be prepared to reallocate resources rapidly in response to the changing context. Finally, to free resources for strategic investment and prepare for any potential market downturn, firms can rethink their cost structures and improve the industry’s spotty record on cost management.
To guide these efforts, a brief overview of the US wealth management industry’s present conditions and then presents four themes that define the new growth narrative we foresee. We recommend agenda items for wealth managers to address as they plan how to flourish in the changing ecosystem. Finally, we offer questions for organizational self-assessment.
$3O trillion in investable assets will be possessed by baby boomers by 2030, much of it controlled by women.
Investors are increasingly looking for institutions that can provide them with omnichannel access, integration of banking and wealth management services, and personalized offerings. As similar kinds of benefits become available from providers of other services, investors see them more as needs than as luxuries. In fact, fully 50 percent of high-net-worth (HNW) and affluent clients say their primary wealth manager should improve digital capabilities across the board.
My conclusions and considerations
Wealth management deal trends is growing every years and it captured my attention to make an article on it.
Always more people are using the last technologies to approach to wealth products and services, and this is modeling the industry. Even the digital platforms are managing always more money than the last few years.
- The wealth management market is rapidly growing, with increased interest in alternatives, especially private equity.
- By 2025, the global private equity market is expected to more than double in size.
- Wealth management remains a sector with enduring growth potential, driven by growing household and entrepreneurial wealth, underfunded retirement savings, over-reliance on non-financial assets, individual responsibility for retirement, and intergenerational wealth transfer.
- Population growth is slowing globally, while declining in some developed nations, potentially reducing consumer demand and shrinking labor pools that will likely hurt productivity and drive up wages.
- $3O trillion in investable assets will be possessed by baby boomers by 2030, much of it controlled by women.
Join the conversation with your own take on these topics in the comments below.
About the Author
Alessandro is a Financial Markets enthusiastic and he loves learning from articles/papers on many financial topics and in doing so he shares with you the most interesting charts and comments.
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.