Global personal financial wealth grew by 12 per cent in 2017 to $201.9 trillion in US dollar terms. The main drivers were the bull market environment in all major economies—with wealth in equities and investment funds showing by far the strongest growth—and the significant strengthening of most major currencies against the dollar, according to a report by the Boston Consulting Group (BCG) entitled, Global Wealth 2018: Seizing the Analytics Advantage.
In 2016 to 2017, private wealth was driven primarily by the positive development of equities and investment funds. Going forward personal wealth in the UAE is projected to continue to grow at a compound annual growth rate (CAGR) of eight per cent and expected to reach $590 billion in investable assets by 2022.
The report, BCG’s 18th annual study of the global wealth management industry, uses global and regional perspectives to examine such topics as the evolution of personal financial wealth, the widening revenue gap and how institutions can narrow it, and the state of offshore business. The report also takes a comprehensive look at a critical initiative for staying competitive in the marketplace: unleashing the power of advanced analytics.
“Delivering standardised experiences to clients will no longer suffice,” said Brent Beardsley, a BCG Senior Partner, wealth management expert, and coauthor of the report. “Wealth managers have begun to invest in personalisation, but many still struggle to effectively combine an enhanced client experience with the underlying management of data, processes, organisation, skills, governance, and behavioral change. Firms that do not take the necessary steps in these areas run a high risk of being left behind.”
Markus Massi, Senior Partner & Managing Director of BCG Middle East’s Financial Services practice added that BCG research suggests that over 70 per cent of wealth management clients see hugely personalised services as a key factor in deciding whether to stay with their current provider or switch to another. “Value creation opportunities touch all parts of the wealth management business and success depends on having or developing a foundation of key management capabilities. We expect leading firms to further separate themselves from the pack over the next few years, a gap that will be increasingly difficult for slow-moving players to close.”
Massi added that in the UAE non-investible assets are expected to increase at a CAGR of 11 per cent in the next five years, while investible wealth growth is projected to remain constant at a CAGR of seven per cent. When it comes to asset allocation, Massi said that currency and deposits, at 46 per cent, were the highest proportion of assets in the UAE in 2017, followed by offshore assets at 30 per cent, life insurance and pensions at 15 per cent and equities and investment funds at nine per cent. For the most part, this asset allocation is expected to experience slight growth by 2022, with currency and deposits, life insurance and pensions, and equities and investment funds projected to reach 48 per cent, 17 per cent and 11 per cent respectively.
As the regulatory climate has tightened over the last decade, there have been significant flows back onshore. In the UAE, this is signified by the expected decrease in offshore assets of six per cent between 2017 and 2022.
At 15 per cent, equities and investment funds drove growth by asset class between 2016 and 2017 in the UAE. Other drivers of asset class growth included currency and deposits at 11 per cent, life insurance and pensions at 10 per cent, and offshore at two per cent. What is interesting is that while bonds experienced a significant global decline of -10 per cent, in the UAE bonds grew by one per cent in the 2016 to 2017 period.
Looking to the future, growth by asset class will experience a slightly slower, but steady growth in equities and investment funds at CAGR of 12 per cent, and currency and deposits at CAGR of nine per cent over the next five years. In the same period, other asset classes will experience a slight increase including life insurance and pensions at CAGR 11 per cent, offshore at CAGR 3 per cent, and bonds at CAGR of two per cent.
While offshore share is expected to decline over the next five years from 30 per cent in 2017 to 24.1 per cent in 2022, it will continue to grow at a CAGR of three per cent to reach $140 Billion in the UAE in the same period.
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