Financial wealth and people’s lives during the pandemic are inversely related to each other. According to a new report by
Boston Consulting Group (
BCG), financial
wealth in
India grew by 11% p.a. to USD 3.4 trillion from 2015 to 2020. In line with the emerging economic recovery, the report reveals growth in prosperity and wealth significantly through the crisis and is likely to expand in the next five years. India is expected to lead a percentage growth of fortunes worth $100 million in 2025.
Ashish Garg, a member of Boston Consulting Group’s Center for Digital Government, and a core member of the Financial Institutions and Public Sector practices said, “The next five years have the potential to usher in a wave of prosperity for individuals and wealth managers alike. They now have a chance to put that perspective into practice in their own work and pursue a client agenda. The report lays out what it takes to attract and retain clients and serve them in a competitively sustainable way.”
The report, titled ‘Global Wealth 2021: When Clients Take the Lead’ states that India represents 6.5% of the region’s financial wealth in 2020. 13.7% were the region’s real assets in 2020 which grew from 2015 to 2020 by 12.1% p.a. to USD 12.4 trillion. Liabilities grew by 13.3% p.a. to USD 0.9 trillion and Liabilities are expected to grow by 9.4% p.a. to USD 1.3 trillion by 2025. Bonds are expected to grow the fastest with 15.1% p.a. Life Insurance and Pensions will be the 3rd largest asset class in the future.
According to the report, North America, Asia (excluding Japan), and Western Europe will be the leading generators of financial wealth globally, accounting for 87% of new financial wealth growth worldwide between now and 2025.
Embracing fresh options
With the aim of earning higher returns than usual, many wealth management clients shifted away from low-yield debt securities in 2020. Hence, real assets, led primarily by real estate ownership, reached an all-time high of $235 trillion. Nevertheless, Asia, which has the largest concentration of wealth in real assets ($84 trillion, 64% of the regional total) will see financial asset growth exceed real asset growth (7.9% versus 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 (CAGR) of 11.6% through 2025, according to the report.
Attractive segments
The report talks about three market opportunities and segments for wealth managers. One consists of individuals 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 has the potential to 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. 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.” said Anna Zakrzewski, a BCG managing director and partner, global leader of the firm’s wealth management segment.
Retirees form the second lucrative market, according to the report. Individuals over 65 own $29.3 trillion in financial assets accessible to wealth managers. This figure is expected to grow at a CAGR of close to 7% over the next five years. By 2050, 1.5 billion people globally will fall into the 65+ category, representing an enormous source of wealth.
The third category is the “ultra” wealth category—individuals whose personal wealth exceeds $100 million—expanded in 2020, with 6000 people joining the 60,000-strong cohort, which has seen 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.
The BCG report reveals that China is on track to overtake the US as the country with the largest concentration of ultras by the end of the decade. If investable wealth continues to rise there at its current annual rate of 13%, China will host $10.4 trillion in ultra assets by 2029, more than any other market in the world. The US will be close behind, with a forecasted total of $9.9 trillion in such wealth by 2029.
“High-growth markets represent a massive opportunity, but wealth managers must build a genuine understanding of local differences and also key demographic changes.” said BCG’s Zakrzewski. “For example, women now account for 12% of ultras, most of whom are based in the US, 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.”
