The portfolios of the wealthy have almost recovered from the financial crisis, but that doesn’t mean they
trust their financial institutions anymore, BCG said today in a report.
Worldwide wealth, measured by assets under management at financial institutions, jumped to $111.5 trillion at the end of 2009, up from $100 trillion in December 2008 and just about equal to a record $111.6 trillion in 2007, The Boston Consulting Group said in the report, “Regaining Lost Ground: Resurgent Markets and New Opportunities.”
In North America, comprising the U.S. and Canada, assets under management jumped 15% from 2008 to $35.1 trillion, driven almost wholly by higher market values. Still, however, North American wealth hasn’t yet regained year-end 2007 levels of $38.3 trillion, BCG said.
Despite these steps toward recovering from a dramatic
recession, however, wealthy individuals are still quite skittish about their financial partners, according to BCG.
Indeed, wealthy clients, after moving assets from institution to institution during the crisis, may now just be “parking” assets at a different institution only temporarily, the report stated.
Money remains in play, and it’s up to wealth managers to improve their communications and their own internal processes to win and retain clients who are still rattled by the financial crisis.
“Markets go up and down pretty quickly,” said Monish Kumar, senior partner and global leader of asset and wealth management at BCG. “Trust can erode quickly too, but it takes a long time to build back up. The
trust that’s been eroded is really an emotional dimension of the overall experience a client seeks with his or her wealth manager.”
Institutions and advisers who didn’t consider the emotional state of their clients during the financial crisis likely lost out, Mr. Kumar said. “When something like the financial crisis happens, and you don’t get a feeling of reassurance and you don’t get a sense that the right decisions were made, regardless of performance, it does lead to some erosion of
trust,” Mr. Kumar said.
To win and retain clients now, he said, advisers should employ empathy. “A lot of it is putting yourself in your clients’ shoes and thinking about their emotions around the financial crisis. What is their state of mind, and what can you do to be helpful at this point? Wealth managers need to recognize that they are providing an intrinsically emotional service.”
For their part, large institutions “must focus on quality, precision and service delivery — as well as on truly understanding the client,” the report stated.
To boot, they can also do a better job of serving women. According to a separate BCG survey, over half the women surveyed said wealth managers could be doing a better job meeting their needs.
It will be a challenge to summon the resources needed to attract and retain clients, because some financial institutions have been deeply damaged by the crisis. Revenue, margins and profitability all dropped from 2008 to 2009, BCG said, and institutions haven’t yet recovered.
The firm surveyed 114 wealth management institutions, including private banks and brokerages, and conducted more than 30 interviews with wealth managers to write today’s report.
The firm also said that the picture isn’t likely to improve soon.
“The pressures on growth and profitability will continue even though global wealth is expected to increase at an average annual rate of nearly 6% from year-end 2009 through 2014,” the report stated.
Right now, the skittishness of investors is reflected in their asset allocation. BCG found that clients have a more conservative mix of assets, with stocks constituting 42% in 2009, compared with 47% two years earlier.
The report also detailed how millionaires are faring worldwide.
In North America, millionaires make up half of the wealth, a contrast from parts of the rest of the world. In Europe and Japan, for example, millionaires hold just about a quarter of the assets under management. Singapore saw the highest growth in millionaire households, up 35%, followed by 33% for Malaysia, 32% for Slovakia and 31% for China.
Europe remains the wealthiest region overall, representing one-third of the world’s wealth with $37.1 trillion in assets under management. There, as in several other regions, wealth has now surpassed pre-crisis levels.
