The following is an excerpt from the white paper, Wealth and Asset Management 2021: Preparing for Transformative Change, written by Roubini ThoughtLab based on a global survey that BMO Global Asset Management sponsored. To download the full content of this section, scroll to the bottom of this page.
By 2021, the convergence of technological, economic, and demographic trends will transform the wealth industry, unlocking immense global wealth across a diverse universe of investors. But these investors will also have rising expectations, and the willingness to switch providers if their demands are unmet. In such a fast-changing marketplace, investment providers need to fully understand their customers’ priorities and behaviors, and leverage technology to meet their changing needs.
The future trajectory of wealth
Demographic shifts and continued wealth creation, particularly in emerging markets, will work symbiotically with technology to drive radical market change and fresh opportunities by 2021. Roubini ThoughtLab economists forecast massive wealth creation over the next five years, with household assets rising $89 trillion – from $207 trillion to $296 trillion – in 25 top world markets (representing about 60% of world GDP). The rise in household assets in these markets alone will pump about $50 trillion into the wealth industry.
Noted economist Dr. Nouriel Roubini sees several demographic forces driving wealth creation. “In emerging markets, populations are going from low per-capita income to medium per-capita income – and creating a middle class that will save more. This is happening in many parts of the world, from India to China, and from Latin America to Asia.” Dr. Roubini also believes the aging of populations, especially in mature markets, will boost savings. “If we’re going to live longer, then when we work, we need to save more to have enough savings for old age.”
This tectonic shift will redefine the topography of wealth, requiring investment providers to increase their knowledge of a heterogeneous set of customers across new markets. Our analysis shows that the largest proportional increases in household wealth between now and 2021 are likely to be in emerging markets, such as Poland (106%), China (106%) and Mexico (84%). Some developed markets are also likely to see robust growth, such as Australia (83%), Israel (62%), France (52%), and Canada (50%). (See Figure 1-2.)
Kevin Barr, EVP of SEI and Head of SEI’s Investment Management, notes that “investment providers will need to serve clients in emerging economies that are now some of the wealthier parts of the world.” State Street’s Wilson agrees. The wealth services “industry will move,” he says, because “other parts of the world, such as the BRIC countries or other emerging economies, are going to be a mass area of wealth, not just in the aggregate, but also in the number of high-net-worth individuals.”
This is already happening: According to Capgemini, Asia’s millionaires saw their wealth grow by 9.9% in 2015, driven partly by a 16.2% rise in China. More generally, BCG projects that, by 2020, the Asia Pacific (including Japan) will overtake Europe as the second-richest region of the world, after North America.
Even in traditional wealth centers, money will be growing and changing hands. The Roubini analysis found that the US will enjoy the largest single absolute increase in household assets between now and 2021, an estimated rise of more than $44 trillion, bringing total household wealth to $152 trillion. (See Figure 1-3.)
The asset owners, however, will differ. In the years ahead, a large percentage of today’s $168 trillion in global wealth will be transferred via inheritance from baby boomers to Gen X and millennials – generations that have repeatedly shown sharp differences in behavior. The composition of the investor base by gender is also changing, notes Amit Sahasrabudhe, Head of Wealth Management Strategy and Digital Solutions at RBC: “In the next five to seven years, in Canada and the US, the majority of wealth will be managed by women investors – because of both inheritance and their own accumulation.” (Listen to our Better Conversations podcast on this topic: Women and wealth)
At the same time, technology will enable wealth firms to reach investors whose small savings would have previously made them unprofitable to service. Pagano expects this development to reach a logical extreme. “Everyone with a bank account is going to become an investor,” as large numbers of technologically enabled microinvestors generate small average amounts, but an enormous aggregate pool of capital. Futurist Alex Tapscott, Founder and CEO of Northwest Passage Ventures, concurs, “There are huge untapped markets made up of people who are currently unbanked. À la carte digital services could tap into trillions of dollars in the so-called gray economy in the developing world.”
The wealth services industry, then, will enjoy a rising tide of investable capital that could lift many boats. However, taking advantage of this opportunity will require more than change around the edges. Investment providers will need to sharpen their understanding of a diverse universe of clients around the world and find new ways to reach and interact with them, particularly through digital technology.
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This article was written by Roubini ThoughtLab and is based on a global survey that BMO Global Asset Management sponsored. BMO Global Asset Management is not affiliated with Roubini ThoughtLab. The views and opinions expressed in this article do not necessarily reflect those held by BMO Global Asset Management or any division of BMO Harris Bank N.A., nor by BMO Financial Group or any part of BMO Financial Group.