Report: Digital Wealth Managers Threaten Traditional Players’ Dominance
Emma Okonji
Online platforms offering wealth management services and delivering faster customer growth, cheaper cost structures, and superior innovation, command a significant market premium, threatening the market dominance of traditional players, a report by Boston Consulting Group (BCG) has revealed.
The 22nd edition of the annual report on the global wealth management industry titled, “Global Wealth 2022: Standing Still Is Not an Option,” stated that Digital Wealth Managers attracted $14.5 billion in funding in 2021, representing 11 per cent of total global investments.
These digital wealth managers have an edge over traditional ones as they are democratising investment opportunities for a large group of investors, automating operations, providing customizable discretionary mandates at scale, using hybrid models for investment advisory and creating teams that use data for client acquisition and offering exposure to cryptocurrencies.
The report stated that the Middle East and Africa (ME&A) could see the biggest leap in wealth growth. Buoyed by the region’s massive energy holdings, wealth is on track to rise by a Compound Annual Growth Rate (CAGR) of 5.4 per cent over the next five years.
The report predicts that wealth assets will continue to rise in value in all regions. But Asia-Pacific will maintain the fastest rates of wealth growth, with asset values poised to increase by CAGR of 8.4 per cent through 2026. If that rate holds, the region could be home to nearly one-quarter of the world’s wealth by 2026.
In North America, wealth growth will be slower than in years past, with an estimated CAGR of 4.7 per cent through 2026, down from a prior five-year average of 9.1 per cent. Likewise, in Western Europe, wealth growth is likely to slow from roughly 4.5 per cent over the past five years to less than 4 per cent annually until 2026, the report said.
The report further explained that global financial wealth reached a record high of $530 trillion in 2021, fuelled by strong equity markets, healthy corporate profits and a surge in demand for real assets.
It said findings showed that despite geopolitical and economic destabilisers such as inflation and Russia’s invasion of Ukraine, approximately $80 trillion in new wealth is likely to be created over the next five years.
In a notable industry shift, Hong Kong will probably overtake Switzerland in 2023 as the domicile managing the largest amount of private cross-border wealth, ending a run of more than 200 years of Swiss dominance, the report added.
Analysing the report, the Principal, BCG Lagos, Phillipa Osakwe-Okoye, said: “As a new crop of technology-driven investment firms offering dollar-denominated investments to a wider investor group emerge in Nigeria, traditional wealth managers can better leverage evolving trends in private equity, digital wealth and crypto to embrace a digital service model and compete more effectively.
“Sustainable wealth creation is possible and an attractive proposition as shown by the growing number of Fintech firms in Nigeria and the increase scale of investments they attract and manage. Nigerian Fintech firms raised $800 million in 2021, boosting the valuation of some of these fast-growing start-ups and turning them into unicorns amid local and global economic headwinds.”
Global Leader, BCG’s Wealth Management Segment and a co-Author of the report, Anna Zakrzewski, said: “Wealth development is resoundingly resilient, and even against the backdrop of geopolitical turmoil the growth rate will remain positive.
“Although this stability provides tremendous opportunity for wealth managers, they must make strategic choices to remain competitive. Wealth clients are looking for next-generation offers and next-level service—including net zero, crypto, personalization, and digitization.”
Citing net zero as an immediate imperative, the report explains that sustainable investing—of which net zero is a key component—is growing three to five times as fast as traditional investments, and by 2026 this asset class could account for 8 per cent to 17 per cent of privately invested wealth, up from 4 per cent to 11 per cent today.
Although people tend to think of net zero as a 2050 goal, the report notes that wealth managers must act immediately to embed sustainable investing across the entire client life cycle.
