Last year’s steep drop in markets — which picked up speed during the fourth quarter — was a substantial drag on global wealth, which grew at its slowest rate in five years, according to a new report.
The Boston Consulting Group’s annual global wealth report found that the world’s wealth rose by a slim 1.6% to $205.9 trillion in 2018, far below the 7.5% rate seen in 2017.
The “ripple effect” from the worst stock market in 20 years hit high-net worth individuals (HNWI), and undercut wealth managers’ ability to turn a profit, BCG noted.
Regions with the heaviest equity exposure were hit hard. For example, North America saw personal wealth drop 0.4% in 2018, while Japan suffered from negative year on year growth of -1.3%.
Meanwhile, Asia as a whole bore the brunt of the world’s financial woes, as asset growth there swooned from a 2017 high of 11.5% to 7.1% in 2018.
“The big question now, of course, is whether the pullback in wealth growth is a precursor to deeper changes,” the firm’s analysts wrote.
“Analysis of major segments, markets, and wealth manager performance suggests that a number of shifts are underway,” they said — which include big gains in wealth accumulation outside of North America.
Despite last year’s tumult, BCG found that the past five years had led to a “substantial increase” in worldwide wealth, which grew by a compounded annual growth rate of 5.5%.
Investable assets, which include stocks, funds, currencies and bonds, now account for 59% of all personal financial assets, according to the report — or $122 trillion.
Meanwhile, certain global demographic wealth shifts are favoring countries other than the U.S. and Canada.
“Although most of the world’s millionaires currently live in North America, the fastest growth in personal financial wealth is occurring elsewhere,” BCG’s report found.
“By 2023, revenue pools of the private banking channel in Asia could equal or exceed those of Western Europe,” it said.
And while high-net-worth individuals still maintain a grip on the largest share of the world’s wealth, “the middle band of affluent households will also grow significantly over the next five years,” analysts wrote.
“This often-overlooked segment—with its $18 trillion in assets under management (AuM)—is a golden opportunity for wealth managers willing to tailor their service and coverage models to clients’ needs,” BCG said.
Asia holds big promise
The regions of Latin America, Eastern & Central Asia, the Middle East and Africa are all also expected to increase in growth within the next 5 years. However, analysts stated that Asia’s size and rapid growth make it a strategic market.
If the country’s wealth continues to grow, the region’s private banking revenue can become as big as Europe by 2023, BCG stated.
“While competition for wallet share is not likely to be as fierce as in Asia, ongoing political and regulatory uncertainties could create volatility,” they wrote.
“Consequently, we recommend that wealth managers invest in a limited number of growth market plays, taking care not to overreach, in light of limited resources and the need to develop dedicated coverage models and offerings,” they added.
A challenge to wealth managers
Capitalizing on new opportunities will require wealth managers to step up their respective games, according to BGC.
“To navigate this changing environment and create a strong bottom line, wealth managers must reignite growth. The most successful will take their business models to the next level by focusing on high-growth opportunities,” and using data and analytics to sharpen their pitches, the firm’s analysts said..
“Surface-level changes will not suffice,” they added.
Donovan Russo is a writer for Yahoo Finance. Follow him @Donovanxrusso.