Report: Digital asset managers threaten the dominance of traditional players

Emma Okonji

Online platforms offering wealth management services and offering faster customer growth, cheaper cost structures and superior innovation, command a significant market premium, threatening the market dominance of traditional players, revealed a Boston Consulting Group (BCG) report.

The 22nd edition of the annual report on the global wealth management industry, “Global Wealth 2022: Standing Still Is Not an Option,” said Digital Wealth Managers attracted $14.5 billion in funding in 2021, or 11% of total global investments.

These digital wealth managers have an advantage over traditional wealth managers as they democratize investment opportunities for a large group of investors, automate operations, provide customizable discretionary mandates at scale, use hybrid models for advisory in investing and building teams that use data for client acquisition and supply. exposure to cryptocurrencies.

The report says the Middle East and Africa (ME&A) could experience the biggest jump in wealth growth. Backed by the region’s enormous energy holdings, wealth is on track to grow by a compound annual growth rate (CAGR) of 5.4% over the next five years.

The report predicts that heritage assets will continue to increase in value across all regions. But Asia-Pacific will maintain the fastest wealth growth rates, with asset values ​​expected to grow at a CAGR of 8.4% through 2026. If this rate continues, the region could be home to nearly a 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% through 2026, down from the previous five-year average of 9.1%. Similarly, in Western Europe, wealth growth is expected to slow from about 4.5% over the past five years to less than 4% per year until 2026, according to the report.

The report further explains that global financial wealth reached an all-time high of $530 trillion in 2021, fueled by strong stock markets, solid corporate earnings and increased demand for real assets.

He said the findings showed that despite geopolitical and economic destabilizers such as inflation and Russia’s invasion of Ukraine, around $80 trillion in new wealth is expected to be created over the next five years. years.

In a notable industry shift, Hong Kong will likely overtake Switzerland in 2023 as the domicile handling the largest amount of cross-border private wealth, ending a streak of more than 200 years of Swiss dominance, the report adds.

Analyzing the report, BCG Lagos Director Phillipa Osakwe-Okoye said: “As a new generation of technology-focused investment firms offering dollar-denominated investments to a wider group of investors emerges in Nigeria, traditional wealth managers can better take advantage of changing trends. in private equity, digital wealth and crypto to adopt a digital service model and be more competitive.

“Sustainable wealth creation is possible and an attractive proposition, as shown by the growing number of Fintech companies in Nigeria and the increase in the 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.

Anna Zakrzewski, Global Leader, BCG’s Wealth Management Segment and co-author of the report, said, “Wealth development is extremely resilient, and even amid geopolitical turbulence, the growth rate will remain positive.

“Although this stability offers tremendous opportunities for wealth managers, they must make strategic choices to remain competitive. High net worth customers are looking for next-gen offerings 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 faster than traditional investments, and by 2026, this asset class could account for 8% to 17% percent of invested private wealth, up from 4 percent to 11 percent today.

Although people tend to see net zero as a goal for 2050, the report notes that wealth managers must act immediately to embed sustainable investing throughout the client lifecycle.

Dolores W. Simon