The pace of global economic growth may have slowed since the financial crisis, but the creation and concentration of private financial wealth has revved up.
ASIA—THE SIREN’S CALL
There’s no greater opportunity, or risk, than Asia. Total private wealth in the Asia-Pacific region (excluding Japan) jumped by 30.5% in 2013, to $37 trillion, despite generally weak equity markets. Asia was just behind Europe, at $37.9 trillion, and will most likely surpass it in 2014. (North America remained the largest regional wealth management market, with $50.3 trillion in total private wealth at the end of 2013.)
Asia’s boom in private wealth management, driven by strong economic growth and high savings rates in China, India and other Asian markets, accounts for the bulk of new wealth creation globally. The number of millionaire households in China alone jumped to 2.4 million in 2014 from 1.5 million the year before. BCG projects total private wealth in China will increase 84%, from $22 trillion in 2013 to $40 trillion by the end of 2018, which would make it the second-wealthiest nation (after the US).
“The growth opportunity is massive in Asia, but the pool of advisory talent is small there,” notes Aite’s Pirker.
Singapore-based DBS Bank, a fast-growing Asian bank that recently bought Societe Generale’s private banking business in Hong Kong and Singapore, took a novel approach last year when it began implementing IBM’s Watson cognitive technology to put better research and recommendations in the hands of its relationship managers.
Asia has also proved to be a tough place to turn a profit, analysts say. Market returns tend to be smaller than in other regions, and Asian clients, typically entrepreneurial and first-generation wealth, are not as comfortable using professional wealth managers. “People here still don’t trust others with their money as much as in other regions,” says Sean Choo, principal in the Singapore office of global consultant A.T. Kearney. He belives it will take a generation for such attitudes to change.
Choo estimates that about 10% to 15% of high-net-worth investors’ wealth is under professional management in Asia, compared to roughly 40% in mature markets in Europe and North America. And in a report last year, A.T. Kearney found cost/income ratios in the wealth management industry in the region were close to 80% on average, with smaller banks faring worse. (It compared them to “boiling frogs,” which don’t sense danger even as they’re being cooked.)
That’s a tough operating environment. Choo figures private banks need $20 billion to $50 billion in assets under management to break even. “A bank with $5 billion in assets has to get to scale organically or through partnerships in three to five years,” he says.