Global Financial Wealth Rose to $250 Trillion in 2020 Despite the Pandemic

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Last year was anything but typical, however. Instead of shrinking, global financial wealth soared, rising 8.3% over the course of 2020 to reach an all-time high of $250 trillion.

The Boston Consulting Group (BCG) disclosed this in its recently released report titled, Global Wealth 2021: When Clients Take the Lead.  Behind the boom was a spike in net new savings and strong stock market performance fueled by highly supportive central banks.

North America dominates, with wealth managers, WMs in the region has generated $150 billion in revenues in 2020, nearly two-thirds (64%) of the global total ($235 billion.) Western Europe remains firmly entrenched in second place ($43 billion in revenues, 18%), and Asia comes in a distant third, at $28 billion (12%).

Absolute HNWI Investable Assets and Revenue Growth, 2020–2025

Global Financial Wealth
Sources: Global Wealth Report 2021; BCG global wealth market sizing and benchmarking database.

The report noted that “over the next five years, North America and Asia (excluding Japan) will be the leading financial wealth generators in absolute terms, followed by Western Europe. Together, these three regions will account for 87% of new financial wealth growth worldwide between now and 2025.

Of the $65 trillion in global financial wealth that we expect to see generated over this period, $25 trillion will come from North America, $22 trillion from Asia, and $10 trillion from Western Europe. The remaining regions of the world will have only a marginal
impact on new wealth generation, especially when viewed individually.”

Nevertheless, Asia, which has the largest concentration of wealth in real assets ($84 trillion, 64% of the regional total) will see financial asset growth exceed real asset growth (7.9% versus 6.7%) in coming years. In particular, investment funds in the region will become the fastest-growing financial asset class, with a projected compound annual growth rate (CAGR) of 11.6% through 2025.

In the report, BCG identifies two attractive markets for wealth managers. One consists of individuals with simple investment needs and financial wealth between $100,000 and $3 million. This “simple-needs segment” comprises 331 million individuals worldwide, holds $59 trillion in investable wealth and has the potential to contribute $118 billion to the global wealth revenue pool.

Anna Zakrzewski, a BCG Managing Director and partner, global leader of the firm’s wealth management segment, and a co-author of the report said,

“Wealth managers often underserve those in the simple-needs segment with a standardized set of products, and the result is a poor client experience with no “wow” factor. This is essentially a missed opportunity. To better serve this key segment, wealth managers must embrace a new approach that lets them reach a larger audience in a cost-effective and scalable way, but with a highly personalized offering.”

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Retirees, one of the world’s fastest-growing demographics, are another appealing market. Many are underserved and adversely impacted by the “advisory gap ”that prevails during the retirement phase of life. Today, individuals over 65 own $29.3 trillion in financial assets accessible to wealth managers.

That figure will grow at a CAGR of close to 7% over the next five years, enabling wealth managers globally to target nearly $41.1 trillion in financial wealth by 2025. By 2050, 1.5 billion people globally will fall into the 65+ category, representing an enormous source of wealth.

In addition to the simple-needs and retirees segments, the “ultra” wealth category—individuals whose personal wealth exceeds $100 million—expanded in2020, with 6000 people joining the 60,000-strong cohort, which has seen year-on-year growth of 9% since 2015. The category currently holds a combined $22 trillion in investable wealth, 15% of the world’s total.

According to the report, China is on track to overtake the US as the country with the largest concentration of ultras by the end of the decade. If investable wealth continues to rise there at its current annual rate of 13%, China will host $10.4 trillion in ultra assets by 2029, more than any other market in the world. The US will be close behind, with a forecasted total of $9.9 trillion in such wealth by 2029.

The faces of the ultras are changing too, with the rise of the next-generation segment. These individuals, between 20 and 50 years of age, have longer investment horizons, a greater appetite for risk, and often a desire to use their wealth to create positive social impact as well as earn solid returns. Many wealth managers are not yet ready to serve these new ultras.

“High-growth markets represent a massive opportunity, but wealth managers must build a genuine understanding of local differences and also key demographic changes,” said BCG’s Zakrzewski. “For example, women now account for 12% of ultras, most of whom are based in the US, Germany, and China.

The next-gen segment is also going to be an influential driver of future growth in the next decade or so. Whether it’s a simple-needs or ultra-high-net-worth client, managers need to offer a personalized service in order to effectively capture the next wave of growth.”

Cash and deposits grew by 10.6% over the previous year’s numbers, marking the largest annual increase in 20 years. Markets shrugged off early jitters and sent many indices and equities to record highs by the year’s end.

Flush with cash and encouraged by the prospect of robust returns, individuals directed more wealth into equities and investment funds and away from lower-yielding debt securities, continuing precrisis trends.

Many also embraced alternative investments such as private equity, private debt, and real estate in the quest for even higher yields. The next five years may be stronger still. We see signs of an emerging economic recovery that could significantly expand prosperity and wealth between now and 2025.

This growth will create extraordinary opportunities for wealth managers (WMs), but it will require them to look at the market through a new set of lenses.