“Wealth Management Outlook – 2017” from EY
Growth potential and far-reaching changes
- Net investable assets of high net worth individuals (HNWI+) set to grow by around 25% worldwide by 2021
- Technology-based, digital business model will displace others in wealth management
- Traditional business model will largely disappear from the market as a result
- Favorable conditions continue to permit traditional offshore wealth management from the US
ZURICH, 14 August 2017 – The global wealth management market serving high net worth individuals is already worth more than USD 55,000 billion. According to the EY Wealth Management Outlook – 2017 published today, the market is set to grow to USD 69,500 billion by 2021. That equates to an increase of around one quarter of the current volume, or annual growth of 4.7%. More than half of the rise in net investable assets comes from the top five countries: the US and China account for more than 45%, while Russia, Brazil and India combine for around 10% of the increase. The study conducted by consulting firm EY focuses on wealth management for individuals with assets of over one million US dollars.
“Wealth managers need to be prepared for this growth and must adapt their business models to meet the needs of the new generation of clients. These clients expect digitized, holistic, personal management of their assets based on all the available data and knowledge of their risk profiles and investment preferences. A wealth manager’s infrastructure and technological capabilities will in future be crucial to its success,” says Serkan Mirza, Executive Director Strategy Consulting Wealth & Asset Management at EY Switzerland.
In regional terms, EY expects North America to show the biggest regional advance, with growth of more than USD 5,000 billion. In Western Europe, growth will be driven primarily by the UK and Germany, although Brexit is currently putting a damper on some activities. Russia, with its disproportionately high number of wealthy individuals, is the main source of the increase in Eastern Europe. Europe, home to 8 of the top 20 nations in terms of growth, will account for more than 20% of the global increase in net investable assets.
Drivers of structural change
We are witnessing an unprecedented shift in the expectations of affluent customers. The new generation, who can use their smart devices to follow developments around the clock, expects holistic management of their entire assets which at the same time takes account of the stricter regulation in place in all countries.
Traditional investment classes such as equities, bonds and money market investments are gradually being superseded by alternative forms of investment. In addition, investments in hedge funds or private equity funds are increasingly being supplemented by direct real investments in real estate, infrastructure, credit, agriculture, co-investments with alternative funds or special-interest investments (cars, wines, art).
New regulatory requirements such as CRS (Common Reporting Standard) and FATCA (Foreign Account Tax Compliance Act) are increasing the operational complexity of offshore banking in traditional locations such as Switzerland, the UK, the Channel Islands and the Caribbean.
“Digitized investment consultants” will claim a third of the market
The study by EY Switzerland suggests that a new digitized, holistic business model, “the holistic wealth manager,” will drive traditional wealth managers out of the market by 2025. EY expects to see the global market share of these new-style operators grow from practically zero today to between 20% and 30%. “These holistic wealth managers tend to take a digitized approach driven by life events, which generates genuine added value for wealthy clients,” says Peppi Schnieper, Partner and Head of Strategic Consulting at EY Switzerland.
“Software-based tools enable large amounts of data to be gathered from a wide array of information sources and from different providers, such as social media platforms or credit card companies. Sophisticated programs assess and analyze the client’s risk appetite and investment profile,” adds Peppi Schnieper.
The portfolio structure is optimized using algorithms and the latest market data, and constantly automatically adjusted in response to real-time information. A positive, user-friendly experience for the client is a key factor throughout the entire investment process. Clients and consultants can interact, if need be, by means of digital communication functions like video chat. The role of the client advisor will in all likelihood evolve into that of a “requirement engineer” and “client supporter,” who uses digital tools and serves as the point of contact.
For the remaining traditional wealth managers, relocating the activities of offshore business to the US, which currently has favorable conditions, will enable them to continue operating on the basis of their current business models. Here too, however, alignment of service capabilities with onshore wealth managers will increasingly be necessary.
Methodology of the EY Global Wealth Model
To measure global wealth, EY has developed its proprietary EY Global Wealth Model, which was also applied in this report. It includes 149 countries and covers over 97% of estimated global wealth. The calculations are based on official macroeconomic data such as GDP, GDP growth, GDP multipliers, Gini coefficients, OECD household data and publicly accessible rich lists for the individual countries.
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