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Global private wealth growth: 4 key trends

Private wealth in Middle East and Africa region witnessed a stunning growth of 8.5 per cent to reach $8.1 trillion in 2016.

Globally, the wealth grew by 5.3 per cent in 2016, to $166.5 trillion, on the back of accelerating economic growth and the strong performance of equity markets in many parts of the world.

The figures from a recent study by The Boston Consulting Group (BCG) also showed that private wealth will be on a steady growth path over the next five years.

Here are the four trends observed across the world:

Wealth growth advances

The rise in wealth was greater than in the previous year, when global wealth rose by 4.4 per cent. All regions experienced an increase in overall wealth, and Asia-Pacific once again was the fastest-developing region, with nearly double-digit growth of 9.5 per cent.

Western Europe posted modest growth (3.2 per cent) as uncertainty over Brexit played a role. By the end of 2017, the level of private wealth in Asia-Pacific is projected to surpass that in Western Europe, and by 2019, the combined level of private wealth in Asia-Pacific and Japan is projected to surpass that in North America.

The MEA region’s super powers UAE, Saudi Arabia, Qatar and Oman will account for 21.1 per cent of the total wealth in the region.

“In the Middle East and Africa (MEA), wealth expansion should stem, in relatively equal portions, from existing assets and higher household savings,” says Markus Massi, Senior Partner & Managing Director of BCG Middle East’s Financial Services practice.

“Looking ahead, the share of wealth allocated to each asset class is expected to remain stable, with regional wealth projected to rise at an annual rate of roughly 8 percent through 2021. In the coming years, more local players will enter the wealth management market as traditional revenue pools become more competitive.”

The offshore perspective

The report says that offshore wealth grew at a slower pace (3.7 per cent) than onshore wealth did (5.4 per cent) in 2016.

Switzerland remained the largest offshore center, with a 24 per cent share, but that share is projected to decline through 2021.

Hong Kong and Singapore remain the fastest-growing offshore centers globally because of both their status as the preferred booking centers for regional clients and the anticipation of strong growth in Asia-Pacific.

Expansion is expected to continue in the long term, but China’s ongoing restrictions on investment outflows may slow it down to some degree in the short term.

 The need for strategic investments

Wealth managers have seen a steep decline in top-line margins over the past ten years, with return on assets declining across diverse regions and types of players.

Although a number of institutions have been cutting costs to help mitigate negative trends, many have not commensurately increased investments to help adapt to the new digital environment.

In the past year, however, BCG has observed an inflection point, with more wealth managers using cost savings and other resources to increase their strategic investments.

They are shifting from a short-term focus on maintaining profitability to a longer-term, transformative outlook that involves defining the business model of the future—one that will be digitized and vertically disintegrated, with noncore functions highly commoditized.

“To build successful business models and optimize cost reduction, wealth managers need to increase their investments. Although companies in a number of other industries have taken this approach to the evolving digital environment, many wealth managers have not, as such segmentation of clients on the basis of their behavior has often been neglected. Old ways of doing work are ceasing to be efficient in the new private banking environment,” says Massi.

Creating client journeys 2.0

In order to make a true step change and leapfrog the competition, wealth managers need to shift their approach to digital technology and design advanced, high-impact client journeys front to back—creating a next-generation, 2.0 version of the client experience, according to the report.

Client journeys 2.0 that seamlessly navigate their way through the front, middle, and back office; that cut across all digital, relationship manager, and expert contact points to focus on the moments that matter most to clients; and that align all capabilities and processes for the delivery of the right services at the right time go beyond most current approaches.