The sector has seen and survived recessions, financial crashes, two world wars, nationalisation, privatisations, the entry of overseas competitors to the market and, in the last decade, increased regulatory scrutiny. Over recent years, the introduction of DIY investing and robo advice services (including from traditional wealth management firms) threatened to dilute the need for human-to-human wealth management services.
Until 2020, the international wealth management sector had grown at a remarkably steady rate, reaching a value of nearly $486.78 billion in 20191, having increased at a compound annual growth rate of 6.6% since 2015.
While it’s too early to say how this year will end, some estimates predict a decline of 8.22% to $446.73 billion. High Net Worth wealth (HNWs – defined as households with financial assets greater or equal to $1 million) is set to decline by $3.1 trillion in 20202, a major fall from the previous decade’s consistent growth.
Covid-19 has impacted a sector that has being trying to adjust to Brexit and the cross-border demands of its wealthy and often internationally mobile clients. Higher costs and onerous regulation will surely mean more consolidation, and this was before Covid-19 hit. Smaller wealth management firms will undoubtedly struggle, and the pandemic will predictably hasten decisions over M&A – with opportunistic buyers looking to acquire quality assets. This relatively conservative sector has also been forced to shift to remote working, including interacting with clients remotely, fending off greater client autonomy with the rise of robo advice services while critically having to address the loss of fee income from falling markets.
2020 appears to be pivotal for the industry and despite a significant dent to the overall sector and individual purses, there are still more than 2.6 million individuals with wealth between $5 million and $30 million globally, and another 291,470 with over $30 million in wealth3. This number will continue to grow particularly as we are seeing the greatest intergenerational wealth transfer of all time with millennials expected to inherit $22 trillion by 2042, according to Cerulli Associates.
The emergence of new client segments seeking wealth management services will be critical. Research by RBC Wealth Management in association with The Economist Intelligence Unit, found that women held 30% of all global wealth controlled by individuals or families in 2015, up from 28% in 2010. Furthermore, this year women are expected to control $72 trillion, 32% of all wealth and up from $51 trillion in 20154. Global wealth is witnessing a historic transformation and by 2030, the share of international wealth held by Baby Boomers will be surpassed by Gen X and Millennials5. Indeed, the Bank of America Merrill Lynch believes that millennial earning power will rise by nearly three-quarters in 2015-30 as more start work and others gain seniority. There are clearly significant opportunities for wealth management firms to grow their client bases.
The rise in demand for wealth management services in the future and the strength of the UK’s offering is already being carefully monitored by the big high street banks. Lloyds, Santander and RBS have all suggested they are looking to boost their investment advice offering in the near term. In the US, Q3 earnings once again revealed that wealth management remains a shining light for the big banks with investment advice helping to steady the ship during this time of uncertainty for some of Wall Street’s biggest players including Morgan Stanley, Bank of America Merrill Lynch, Wells Fargo and UBS Global Wealth Management.
If embraced and immersed into a wealth manager’s culture, enhanced use of digital technology can be hugely beneficial. The use of data science and AI can be used to develop new investment platforms and act as an aid for wealth managers to guide clients through investment decisions. It can also help to reduce time spent on reporting, administration and improve personal communication with clients while providing invaluable evaluation metrics including site visits, investment checks, specific searches, etc. Not utilising technology post 2020 could have serious consequences for a wealth manager’s competitive advantage but also for its appeal to new clients, particularly younger ones.
Herein lies the enormous opportunity for the sector – a greater supply of new clients and an ever-expanding demand for wealth management services to navigate these uncertain times. A more consolidated, resilient and technologically savvy sector that has had to adapt to a more mobile and diverse client base can only be a positive. The 2020s could be the most significant decade ever for wealth management.
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