North American personal wealth set to breach $100 trillion barrier
Households in North America today hold approximately $90 trillion of personal financial wealth. According to a new report from BCG, North American personal wealth is set to continue rising in the coming years, reaching a projected $117.6 trillion by 2023.
The stable growth of personal financial wealth halted in 2018, after a rough fourth quarter for major stock indexes caused the wealth level growth rate to fall by more than 5% year-on-year. Major market indexes fell by as much as 20% last year – the worst year for stocks in a decade – pushing down equities and large regional portfolios. High valuation levels, geopolitical risks, and normalizing interest rates also contributed to the decline.
According to BCG’s annual Global Wealth report, global personal financial wealth grew by only 1.6% in 2018 to reach $205.9 trillion, down from the 7.5% growth registered in 2017. The compound annual growth rate for global wealth was 6.2% between 2013 and 2017.
Declines in equities and investment funds particularly impacted North America and Western Europe because of a high concentration of equity-rich portfolios. North America, as such, saw personal wealth decline 0.4% in 2018, while Western Europe saw marginal growth of 0.6%, buoyed by stronger growth rates in Germany and the Nordics. Asia, meanwhile, saw asset growth of 7.1% (down from 11.5% in 2017), while the Middle East saw growth of 5.7%.
The number of global millionaires grew by 2.1% year-on-year to reach 22.1 million, holding a combined 50% of personal financial assets. North America continues to hold the lion’s share of the globe’s millionaires, at 15.1 million. Asia-Pacific, which currently holds 2.1M millionaires, will see the fastest growth in millionaire population, at a rate of 10.1% between 2018 and 2023.
The BCG report expects a worldwide CAGR growth in wealth of 5.7% between 2018 and 2023, based on projections using a variety of macroeconomic and market indicators.
North America is tagged to see wealth grow by 5.4%, reaching $118 trillion by 2023. “North America should continue to be a nexus for wealth creation, given the high concentration of equities in the region’s wealth pool and the likelihood that capital markets in Canada and the US will continue to see positive – even if slower – growth,” the report notes.
Gains in Western Europe are projected to be more reserved, at 3.9%, reaching $53.1 trillion in 2023. Asia, on the other hand, will have the strongest growth, with a CAGR of 9.4% to reach $58.2 trillion.
Challenging climate
The BCG report also notes the typical refrain of technological challenges, as wealth managers face competition from fintech and nontraditional players entering the market. Customers also increasingly expect the ease and convenience of digital apps, an area where many traditional players lag behind.
Aside from tackling technological and customer experience deficits, the report recommends that wealth managers sharpen their focus on key segments for growth. Though the mature markets of North America and Western Europe are seeing slower growth rates, they still hold 61% and 19% respectively of the global revenue pool for the private banking channel. “By zeroing in on select high-growth segments – measured by wallet size or by behavioral attributes – wealth managers can increase their revenues appreciably,” states the report. “However, a firm’s ability to attract and retain this subsegment depends on its skill at creating suitably tailored products, service, and coverage.”
