North America breaks five-year trend and overtakes APAC in HNW population and wealth
The global high-net-worth individual (HNWI) population grew 6.3 per cent, surpassing the 20-million bar, while HNWI wealth grew 7.6 per cent in 2020, nearly reaching USD80 trillion.
Boosted by rising equity markets and government stimulus, North America surpassed Asia-Pacific to become the 2020 leader in both HNWI population and wealth. The 25th anniversary edition of Capgemini’s World Wealth Report (WWR) examines global wealth evolution in the past year and HNWI trends and influences from the last quarter century.
In 2020, the ultra-HNWI segment led overall HNWI population and wealth growth at 9.6 per cent and 9.1 per cent, respectively, while millionaires next door and mid-tier millionaires had lower population and wealth growth at around 6 per cent and 8 per cent, respectively.
According to the report, which is the industry’s oldest and among the most referenced wealth studies, HNWIs have become more involved in their investments over the last 25 years, and now seek more and broader advisory support. As tech players continue to enter the wealth management space, wealth management firms need to move toward technology-enabled advice and hyper-personalised business models. As Covid-19 brought the third global economic upheaval of the 21st Century, lessons from the 2002 tech bubble and 2008 global financial crisis continue to point to the tendency of HNWIs to self-direct investments in a bullish market but return to advice-seeking during crisis and market volatility.
Technological breakthroughs, changing social dynamics, new ecosystem players, democratisation of investment management and the rise of digital channels and assets, will all impact the success or failure of wealth management firms in the future. Today’s HNWIs are interested in hybrid models and increasingly seek a mix of digital and direct interaction. Some 34 per cent per cent of HNWIs say they are actively leveraging WealthTech services. Moreover, wealth management firms find WealthTechs with consumer lifecycle expertise to be good-fit collaborators that can enhance their capabilities, reach, and market trend responsiveness. The top two reasons, identified by executive survey participants, to partner with WealthTechs are gaining access to new client segments and providing new and unique client offerings.
“The wealth management industry must push its frontiers to capture customer mindshare and best serve HNW clients accustomed to BigTech convenience and personalisation,” says Anirban Bose, Financial Services Strategic Business Unit CEO & Group Executive Board Member, Capgemini. “Investing in technology and talent is a critical need for wealth management firms to maintain their market share as WealthTechs continue to grow and BigTech entry into the space looms.”
Amid an increasingly fast pace of disruption, wealth management firms can build resilient and agile operating models by investing in technologies such as cloud, APIs, and microservices. While the industry’s reputation for expertise and experience remains its primary strength, firms will need to incorporate data-driven insights into their client engagement and investment strategies. Investment performance will continue to be paramount, but firms will also need to focus on delivering value as well as environmental, social, and corporate governance (ESG) options.
Wealth management was and continues to be a relationship-based business. With wealth management client profiles rapidly evolving to include millennial and Gen Z HNWIs, women, non-traditional families, and more, firms must train their advisors and staff to meet more diverse segment-specific client expectations and behaviours. Hiring and digitally empowering a heterogeneous advisor workforce while re-skilling staff to engage with a variety of client segments is the way forward cites the report. Nevertheless, 63 per cent of advisors surveyed said they are not satisfied with their wealth management firm’s efforts to provide tools/training to meet changing client needs.
To meet evolving HNWI expectations, firms will also need BigTech strategies with hyper-personalisation, lifestyle ecosystem offerings, and intuitive embedded interfaces to retain relevance among a diverse client base.
With the current stock market surge, HNWIs are also seeking to diversify their portfolio with alternative investments. Sustainable investing is now maturing, with 43 per cent of ultra-HNWIs and 39 per cent of younger (age ≤40) HNWIs likely to request an ESG score for products offered by their firm. Additionally, 72 per cent of surveyed HNWIs said they have invested in cryptocurrencies, and 74 per cent in other digital assets such as website domain names or apps. Special purpose acquisition companies (SPACs) are becoming more popular, while non-fungible tokens (NFTs) are slowly gaining asset-class credibility. The rise of zero-commission retail investing has piqued the interest of HNWIs as well, with 39 per cent saying they desire zero-fee trading, but their wealth management firm is yet to oblige.