This $59 Trillion Market Is Underserved by Advisors: Study

Global financial wealth rose by 8.3% to a record $250 trillion throughout crisis year 2020 as household savings increased and markets showed remarkable resilience, Boston Consulting Group reported Thursday.

Global prosperity and wealth are likely to continue to expand significantly over the next five years as economic recovery proceeds, and will present wealth managers with some highly attractive opportunities, the report said.

North America, Asia (ex–Japan) and Western Europe will be the main generators of financial wealth, accounting for 87% of new financial wealth growth worldwide between now and 2025.

The report said many wealth management clients last year moved into alternative investments in their search for higher returns, shifting away from low-yield debt securities. As part of this trend, real assets, led primarily by real estate ownership, hit an all-time high of $235 trillion.

Nevertheless, in Asia, which has the largest concentration of wealth in real assets ($84 trillion, 64% of the regional total), financial assets will grow by 7.9%, while real assets will grow by 6.7% in coming years.

In particular, investment funds in the region will become the fastest-growing financial asset class, with a projected compound annual growth rate of 11.6% through 2025.

Underserved Wealth Holders

The next five years could usher in a wave of prosperity for wealth managers, but they will have to adopt a client's eye view and reorient their business model in order to capture the opportunity, BCG said.

Consider well-off people with simple investment needs and financial wealth between $100,000 and $3 million. This "simple-needs segment" comprises 331 million individuals worldwide, holds $59 trillion in investable wealth and potentially could contribute $118 billion to the global wealth revenue pool.

"Wealth managers often underserve those in the simple-needs segment with a standardized set of products, and the result is a poor client experience with no "wow" factor," Anna Zakrzewski, global leader of BCG's wealth management segment and a coauthor of the report, said in a statement.

"This is essentially a missed opportunity. To better serve this key segment, wealth managers must embrace a new approach that lets them reach a larger audience in a cost-effective and scalable way, but with a highly personalized offering."

Retirees, a fast-growing global demographic, are another appealing market. Many are underserved and adversely affected by what BCG calls an "advisory gap" that prevails during the retirement phase of life.

Today, individuals in the 65-and-older cohort own $29.3 trillion in financial assets accessible to wealth managers. BCG said that figure will grow at a compound annual growth rate of nearly 7% over the next five years, enabling wealth managers globally to target some $41 trillion in financial wealth by 2025.

Surging Ultra-Wealthy Segment

In addition to the simple-needs and retirees segments, ultra-wealthy individuals whose personal wealth exceeds $100 million expanded in 2020, with 6,000 people joining the 60,000-strong cohort, which has experienced year-on-year growth of 9% since 2015.

The category currently holds a combined $22 trillion in investable wealth, 15% of the world's total.

China is on track to overtake the U.S. as the country with the largest concentration of ultra-wealthy individuals by the end of this decade, according to the report.

If investable wealth continues to rise in China at its current annual rate of 13%, the country will host $10.4 trillion in ultra assets by 2029, more than any other market and slightly ahead of the U.S., which will have a forecasted total of $9.9 trillion in such wealth by 2029.

The faces of the ultra-wealthy are changing too, with the rise of the next-generation segment, according to the report. These individuals, between 20 and 50 years old, have longer investment horizons, a greater appetite for risk and often a desire to use their wealth to create positive societal impact as well as earn solid returns.

However, many wealth managers are not yet ready to serve them, the report said.

"High-growth markets represent a massive opportunity, but wealth managers must build a genuine understanding of local differences and also key demographic changes," Zakrzewski said. "For example, women now account for 12% of ultras, most of whom are based in the U.S., Germany and China.

"The next-gen segment is also going to be an influential driver of future growth in the next decade or so. Whether it's a simple-needs or ultra-high-net-worth client, managers need to offer a personalized service in order to effectively capture the next wave of growth."