Wealth grew at a slower pace in North America, Europe, and Japan last year, but wealth markets in general proved resilient. Global wealth grew by 4.9 percent in 2007, to $109.5 trillion, according to a new report by The Boston Consulting Group (BCG). The report, titled “A Wealth of Opportunities in Turbulent Times,” is being released today and is BCG's eighth annual study of global wealth. The report covers data from the whole of 2007, when the effects of the financial crisis were evident but not as severe as they would become in 2008. Still, the crisis' impact on some markets became clear by the end of last year. In North America - the epicenter of the turmoil - wealth grew by 3.8 percent in 2007, down from 8.9 percent in 2006. “The financial crisis continues to cast a pall over established wealth markets,” said Victor Aerni, a Zurich-based partner and co-author of the report. “It has prompted many investors to move their assets to more conservative products, resulting in lower margins for some wealth managers. As clients have moved their assets elsewhere or have curtailed new investments, some wealth managers have even seen the volume of assets under management (AuM) decline.” “Ultimately, the implications of the crisis will be shaped by a wealth manager's ability to act on important lessons and opportunities,” said Bruce Holley, a New York-based senior partner and coauthor of the report. “Many wealth managers have yet to pursue these opportunities, but the crisis has prompted some players to broaden their horizons by expanding into less developed markets.” North America and Western Europe accounted for about two-thirds of the world's wealth in 2007. “The remaining third - what we call the other third of global wealth - was spread across emerging or less mature markets around the world, where wealth has been growing at much faster rates,” said Holley. Wealth markets in Asia-Pacific, Latin America, Eastern Europe, and the Middle East had about $33 trillion in AuM in 2007. Most of these markets share a common set of challenges such as high entry costs, a scarcity of relationship managers (RMs), and increasing competition. “To grow, wealth managers will need to overcome these challenges while developing products and services that suit specific markets,” Holley said. Wealth in Asia-Pacific totaled about $25.5 trillion in 2007. China's wealth market is characterized by high growth, scarce RMs, and a client base dominated by entrepreneurs. India's wealth market is small and underdeveloped, but many clients are investment savvy and have an appetite for risk. Japan's wealth market is massive but growing slowly and difficult to access. In Latin America, AuM reached $3.1 trillion in 2007. Brazil and Mexico accounted for 60 percent of this wealth. Brazil's banking sector has exceptionally strong local competition, relative to other emerging markets. Mexico's wealth market has two valuable attributes: growth and stability. The competitive environment is heating up, but it is not yet overcrowded. Russia is by far the largest wealth market in Eastern Europe. Its AuM totaled $950 billion in 2007. However, markets in Central and Eastern Europe (CEE) had the strongest growth in AuM. From 2002 through 2007, four of the ten fastest-growing wealth markets worldwide were in CEE: Poland, Slovakia, Hungary, and the Czech Republic. The growth opportunity in the Middle East is concentrated in the six markets of the Gulf Cooperation Council (GCC): Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. In 2007 this region had an estimated $1.5 trillion in AuM. All but one of the six GCC markets were among the top 15 markets ranked by percentage of millionaire households. In addition to accessing “the other third,” wealth managers will need to address organizational challenges to support increased growth. While the financial crisis has underscored the relative stability of the wealth management business, it has also created a new sense of urgency around how to position and structure the front office. “Success in wealth management always seems to boil down to a small set of client-focused capabilities that are critical to driving growth,” Aerni said. “The front office is the common denominator of these capabilities - it is where clients are acquired and served.” Globally, wealth grew faster among richer households. Wealthy households - those with at least $100,000 in AuM - represented about 18 percent of all households but owned 88 percent of global wealth in 2007. Millionaire households represented just 0.8 percent of all households but owned 35 percent of global wealth. In 2007 the number of millionaire households grew by 11.2 percent to reach 10.7 million. The United States again had the greatest number of millionaire households, followed by Japan, the United Kingdom, Germany, and China. (This year's study of wealth covers 62 markets representing more than 98 percent of global GDP.) “Small markets, however, had the greatest concentrations of millionaire households,” Aerni noted. “In Singapore, an astounding one in ten households had at least $1 million in AuM. Three of the five densest millionaire populations were in the Middle East - in Qatar, the United Arab Emirates, and Kuwait - while Switzerland had the highest concentration in Europe, at 7.3 percent.” In 2007 the amount of wealth held offshore grew to $7.3 trillion but declined as a proportion of total AuM. Traditional offshore centers such as Switzerland face a number of pressures, including more stringent tax regulations in other countries and the rise of new offshore centers in Singapore and Dubai. Although traditional offshore centers are not on the verge of surrendering their leadership positions, the report details steps they can take to maintain their competitiveness. These include focusing on the strengths of a private bank - in particular, the ability to deliver strategic advice and a wide range of products.
