Global wealth has returned to
its pre-crisis levels and is forecast to increase by more than 30
percent by 2014. But increasing regulatory pressures mean banks in
traditional offshore centres face major strategic challenges,
according to Boston Consulting Group’s annual wealth
survey.
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Global assets under
management (AuM) rebounded almost 12% to $112trn in 2009, with
Asia-Pacific the fastest rising region.
However, according to Boston Consulting Group’s
(BCG) latest Global Wealth report, Regaining Lost Ground:
Resurgent Markets and New Opportunities, client trust and
wealth manager performance remained lower than before the global
financial crisis.
The research confirmed there had been
significant client asset flows between private banks, but said
competition for net new money inflows was wide open as clients had
not established strong links to their new banks. BCG estimated 50%
of shifted assets are expected to move again between banks.
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The study also suggested private banks and
wealth managers had to improve their risk management, particularly
around operational and reputational risk.
BCG’s survey of 114 wealth management
institutions worldwide found that although AuM increased by an
average of 14% in 2009, revenues declined by more than 7% on
average and average return on assets fell by 12 basis points to 83
basis points.
These drops were driven by a drop in
transactions, tougher price negotiations and a migration of assets
to lower-margin products, the report said.
The BCG study found Asia-Pacific’s wealth
(excluding Japan) increased 22% to $17.1trn.
“We expect Asia-Pacific, excluding Japan, to
grow at nearly twice the global rate, raising its share of global
wealth from 15% in 2009 to almost 20% in 2014,” said BCG partner
Tjun Tang.
BCG projected global wealth to grow at an
average annual rate of nearly 6% from year-end 2009 through to
2014, meaning global wealth could top $150trn within five
years.
Singapore saw the highest growth in millionaire
households, up 35%, followed by 33% for Malaysia, 32% for Slovakia,
and 31% for China.
The markets with the highest densities of
millionaires were Singapore, Hong Kong, Switzerland, and the Middle
East.
Offshore
uncertainty
Switzerland remained the largest
offshore centre, accounting for $2trn, or about 27%, of all
offshore wealth.
Despite increased regulatory pressure, offshore
business is expected to grow – driven by emerging markets, growing
at above 6% – versus the traditional markets which are expected to
grow less than 2%.
But the report warns offshore banking
centres are on notice to adjust their operating models in response
to increasing transparency demands.
The wealth report predicted that the share of
global wealth held offshore would fall from close to 7% in 2009 to
just over 6% in 2014.
“The push for transparency will compel some
clients – particularly those in North America and Europe – to move
their assets. More important, it will force private banks to adjust
their strategies and operating models, and perhaps even to abandon
certain markets,” said Peter Damisch, a BCG partner and a co-author
of the report.
Consolidation intensifies
It also predicted that consolidation activity
may intensify, particularly among smaller offshore banks, in the
wake of the crisis as banks are called on to increase investments
to continue operating as offshore entities.
The BCG report suggested that wealth managers
should also explore opportunities to improve their service to
certain segments – including women. As a client group, it said
women were deciding on about 27% of global wealth but were
underserved.
The research, which uses a looser definition
of wealth than the upcoming Merrill Lynch/Capgemini survey, covered
62 markets representing about 99% of global GDP.
