Richer Prospects in Wealth Management

Transcription

1 Richer Prospects in Wealth Management GLOBAL WEALTH 2001 BCG A SENIOR MANAGEMENT PERSPECTIVE

2 The Boston Consulting Group is a general management consulting firm that is a global leader in business strategy. BCG has helped companies in every major industry and market achieve a competitive advantage by developing and implementing unique strategies. Founded in 1963, the firm now operates 50 offices in 33 countries. For further information, please visit our Web site at

3 Richer Prospects in Wealth Management GLOBAL WEALTH 2001: A SENIOR MANAGEMENT PERSPECTIVE JULY 2001 ANDREW DYER CHRISTIAN DE JUNIAC BRUCE M. HOLLEY

4 2001 The Boston Consulting Group, Inc. All rights reserved. For information or permission to reprint, please contact BCG at: Fax: , attention IMC/Permissions Mail: IMC/Permissions The Boston Consulting Group, Inc. Exchange Place Boston, MA USA 2

5 Table of Contents SUMMARY OF KEY FINDINGS 6 REALIZING THE POTENTIAL OF WEALTH MANAGEMENT 9 WHO IS REALLY MAKING MONEY? 11 THE ACCELERATING PACE OF CHANGE 15 Powerful Long-Term Trends Make a Challenging Market 15 The Wild Party Is Over 18 HOW FINANCIAL INSTITUTIONS ARE ADAPTING TO SHIFTING CUSTOMER NEEDS 20 Serving Different Client Needs 20 Leading Institutions Show the Way 23 THE NEW MANAGEMENT AGENDA 28 Think Wealth Management, Not Just Asset Management 28 Know and Choose Your Customers 29 Manage the Five Key Profit Levers 31 Make Skillful Use of Acquisitions and Alliances 35 METHODOLOGY 37 APPENDIX 39 3

6 Note to the Reader If you would like to discuss your wealth management business with The Boston Consulting Group, please contact one of the following leaders of our global Financial Services practice: The Americas Jorge Becerra BCG Buenos Aires Bruce M. Holley BCG New York Paul Orlander BCG Toronto Europe Christian de Juniac BCG London Ludger Kübel-Sorger BCG Frankfurt [email protected] Andy Maguire BCG London [email protected] Asia-Pacific Andrew Dyer BCG Sydney [email protected] Martin Reeves BCG Tokyo [email protected] Roman Scott BCG Singapore [email protected] 4

7 Acknowledgments We would like to thank the following people for their support in the preparation of this report: Craig Rice, Jeff Whitaker, Fiona Campbell, Michael Copeland, Stephan Deschamps, Michael Diamond, Sheila Mong, Petar Soldo, Charles Thompson, Katherine Andrews, Peter Truell, and Yvonne White. Several leaders of the Financial Services practice including Hans-Paul Buerkner, Chuck Callan, Andy Maguire, Paul Orlander, David Rhodes, Roman Scott, and Nick Viner provided helpful insights. Andrew Dyer Christian de Juniac Bruce M. Holley Vice President Senior Vice President Vice President 5

8 Summary of Key Findings Who wants to be a millionaire? Mere millionaires are often not well served by financial institutions. They need broad product offerings and tailored, concise advice. An attractive slice of the wealth market is still waiting to be served properly. Traditional providers have served clients with more than $5 million in wealth, but private banking services are attractive to many investors with far less in investment assets. Today some financial institutions are focusing profitably on investors with up to $5 million in financial assets. There is a popular belief that wealth management is a very attractive business with high returns. It is a large market comprising more than $40 trillion in wealth and more than $500 billion in annual revenues for financial institutions. With strong growth forecast for all the major regions, rich investors will have more than $65 trillion in wealth by 2005 and generate more than $700 billion in revenues for wealth managers. But our experience with clients and our research suggest that many competitors are not nearly as profitable as they should be. Many competitors let their costs grow rapidly during the ten-year bull market and don t have a clear picture of their own economics and particularly of their costs to serve customers. Many wealth managers miss their marketing sweet spot by targeting the wrong customers, focusing on those with either too much or too little wealth to match their business models. Wealth managers need a certain minimum size to be profitable. For most integrated institutions, $10 billion in assets under management defines minimum efficient scale. For some providers, that number is far higher. Most institutions can t break even in a new location without at least $7 billion in assets under management. Smart institutions are using the current uncertainty in investment markets to move boldly to build competitive advantage. They are controlling costs and especially rising IT costs and adapting to the changing investment markets. They are selecting the customers they wish to serve and deciding where and how they can create the most advantage. Large institutions are pursuing acquisitions and alliances to build strong global positions as powerful forces consolidate the highly fragmented wealth-management market. 6

9 It s about wealth management, not just asset management. Investment products account for just a part of financial services revenues from wealthy households. Wealth managers should provide tailored insurance and credit products to improve their revenues and to help their clients achieve higher after-tax returns. Investors often have much of their wealth tied up in private businesses. To offer a satisfactory service, wealth managers should address the needs of these businesses. Watch out! Here come the baby boomers. The wealthiest investors are graying rapidly: the fastest-growing age groups are people aged 50 to 59, which will increase by 47 percent over the next ten years, and those aged 75 and over, which will increase by 37 percent during the same period. As they age, investors shift from borrowing to saving and investing, then to a period of consuming wealth in the latter part of their lives. Driven by the aging boomer population and the privatization of pensions, offshore banking will decline in relative importance as onshore banking and investing increase in importance. But offshore banking will continue to be critical for many of the world s wealthy as they seek out high returns and try to manage currency and political risks in their home countries. Institutions are finding that it is cheaper to build an offshore banking business that serves customers from many parts of the world than to create individual national franchises. U.S. institutions manage wealth more cheaply than their competitors from other countries. There is an approximately 30 percent price differential between the cost of U.S. wealth management services and comparable ones offered by European providers. European competitors will find it difficult to break into the U.S. market with its lower prices for wealth management services, and the European market will be very attractive to U.S. players. Open architecture is becoming more and more important. Investors will increasingly focus on performance, seeking the best returns, selecting among the offerings of many providers. They want tailored offerings that fit their needs and will pick and choose to find such offerings. 7