PHOTO
Dubai — Private wealth continued to experience positive growth between 2016 and 2017 (8 percent), and this growth is projected to remain steady over the next five years according to a new report by The Boston Consulting Group (BCG), Global Wealth 2018: Seizing the Analytics Advantage.
According to the report, global personal financial wealth grew by 12 percent 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.
Personal wealth in the Middle East rose by 11 percent to $3.8 trillion in 2017, a significant increase compared with the CAGR for the previous five years. In comparison, UAE personal wealth has grown at 8 percent between 2016 and 2017. 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 8 percent and expected to reach $590 billion in investable assets by 2022.
The report, BCG’s eighteenth 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 standardized experiences to clients will no longer suffice,” says Brent Beardsley, a BCG senior partner, wealth management expert, and coauthor of the report. “Wealth managers have begun to invest in personalization, but many still struggle to effectively combine an enhanced client experience with the underlying management of data, processes, organization, skills, governance, and behavioral change. Firms that do not take the necessary steps in these areas run a high risk of being left behind.”
“BCG research suggests that over 70 percent of wealth management clients see hugely personalized services as a key factor in deciding whether to stay with their current provider or switch to another,” said Markus Massi, Senior Partner & Managing Director of BCG Middle East’s Financial Services practice. “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.”
SPOTLIGHT ON THE UAE
“Taking an in-depth look at wealth distribution, UAE non-investible assets are expected to increase at a CAGR of 11 percent in the next five years, while investible wealth growth is projected to remain constant at a CAGR of 7 percent,” explains Markus Massi.
“When it comes to asset allocation, currency and deposits, at 46 percent, were the highest proportion of assets in the UAE in 2017, followed by offshore assets at 30 percent, life insurance and pensions at 15 percent and equities and investment funds at 9 percent. 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 percent, 17 percent and 11 percent respectively,” Massi added.
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 6 percent between 2017 and 2022.
At 15 percent, 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 percent, life insurance and pensions at 10 percent, and offshore at 2 percent. What is interesting is that while bonds experienced a significant global decline of -10 percent, in the UAE bonds grew by 1 percent 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 percent, and currency and deposits at CAGR 9 percent 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 percent, offshore at CAGR 3 percent, and bonds at CAGR 2 percent.
While offshore share is expected to decline over the next five years from 30 percent in 2017 to 24.1 percent in 2022, it will continue to grow at a CAGR of 3 percent to reach $140 Billion in the UAE in the same period.
IN FOCUS: GLOBAL RESULTS
- The Evolution of Personal Financial Wealth. According to the report, global personal financial wealth grew by 12 percent 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. In general, developed markets held a higher share of wealth in non-investable assets—particularly pension fund entitlements—than developing markets. The share of global wealth held by millionaires increased to almost 50 percent in 2017, compared with just under 45 percent in 2012. If recent patterns of wealth expansion continue, under an optimistic scenario, personal financial wealth could rise at a compound annual growth rate of around 7 percent from 2017 to 2022 in US dollar terms.
- The Offshore Perspective. The amount of global offshore wealth held in 2017 was around $8.2 trillion, 6 percent higher than in the previous year in US dollar terms. Switzerland remained the largest offshore center, domiciling $2.3 trillion in personal wealth in the country. The next-largest booking centers were Hong Kong ($1.1 trillion) and Singapore ($0.9 trillion), which have grown at yearly rates of 11 percent and 10 percent, respectively—more than three times the rate (3 percent) of Switzerland over the past five years. Net offshore inflows from 2012 through 2017 totaled over $800 billion, with Hong Kong and Singapore the key destinations. Some offshore centers, notably the Channel Islands and the Isle of Man, saw net outflows during the same period.
- Bridging the Revenue Gap. According to BCG industry data gathered from more than 150 wealth managers, top performers—defined as the quartile of institutions with the highest pretax profit margins—achieved a significant lead over average performers in overall revenue growth and return on assets (RoA) over the past three years. BCG estimates that wealth managers can achieve a revenue uplift of 8 percent to 12 percent by adjusting price levels, correcting unnecessary discounts, and simplifying overall pricing structures. Product and service bundling can contribute to higher revenues if properly linked to the pricing architecture and to the value proposition for each client segment. Overall, smart revenue practices can accomplish the dual goal of increasing the top line and enhancing client satisfaction.
- Unleashing the Value of Advanced Analytics. Firms that deliver smart, individualized products, services, and prices—digitally and through a relationship manager or financial advisor—will significantly bolster their top-line growth and occupy a differentiated position in the market. But seizing this opportunity requires the deployment of cutting-edge capabilities in advanced analytics—encompassing such elements as new technology platforms, fresh development capacities, next-generation tech and data architectures, updated data and digital organizational structures and skills, and improved access to internal and external data. A full transformation along these lines can lead to top-line growth of 15 percent to 30 percent and drive efficiency gains of 10 percent to 15 percent.
-Ends-
About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with offices in more than 90 cities in 50 countries. For more information, please visit www.bcg.com
© Press Release 2018Disclaimer: The contents of this press release was provided from an external third party provider. This website is not responsible for, and does not control, such external content. This content is provided on an “as is” and “as available” basis and has not been edited in any way. Neither this website nor our affiliates guarantee the accuracy of or endorse the views or opinions expressed in this press release.
The press release is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Neither this website nor our affiliates shall be liable for any errors or inaccuracies in the content, or for any actions taken by you in reliance thereon. You expressly agree that your use of the information within this article is at your sole risk.
To the fullest extent permitted by applicable law, this website, its parent company, its subsidiaries, its affiliates and the respective shareholders, directors, officers, employees, agents, advertisers, content providers and licensors will not be liable (jointly or severally) to you for any direct, indirect, consequential, special, incidental, punitive or exemplary damages, including without limitation, lost profits, lost savings and lost revenues, whether in negligence, tort, contract or any other theory of liability, even if the parties have been advised of the possibility or could have foreseen any such damages.