Focusing on the wealthiest clients is paying off for wealth management firms as millionaires represent the fastest growing and most profitable segment of the financial advice market, according to
a report from The Boston Consulting Group.
The total share of wealth held by millionaire households grew by 16% globally last year, largely driven by strong performance in equity markets, according to the report. The fastest growing segment was those with $20 million to $100 million, which grew by 34% based on total wealth in 2014, the report said. At the same time, the segment with less than $1 million grew 9%.
The United States, which has the largest share of millionaires with almost 7 million households, saw the number of millionaires grow by about 5%, according to the report, which pegs total wealth of households in the U.S. at $46 trillion.
Equities were the main driver behind that growth, according to the report. About 78% of the growth in wealth in North America came from existing assets, including equity and bond performance, while 22% came from GDP growth and savings.
That's good news for the largest brokerage firms and registered investment advisers who have been moving upmarket to focus on that segment.
At Morgan Stanley Wealth Management, for example, clients with $10 million or more in assets account for $746 billion of the firm's more than $2 trillion in assets, according to an
investor presentation from January. That segment grew 82% from 2009, while the share of assets held by clients with $100,000 declined by almost a quarter.
Clients with around $1 million to $10 million are generally some of the most profitable, according to Bruce Holley, a senior partner who focuses on wealth management at Boston Consulting Group.
Those with about $10 million, however, can be tougher to serve, as they require additional specialists and resources while being able to negotiate lower fees. Firms that target wealthier investors have to segment those clients and be careful to allocate resources, Mr. Holley said.
“Typically, the larger the asset the lower the return on assets,” he explained. “It can be more challenging to deliver profitability.”
The other caveat is that firms can't forget about the affluent market segment with less than $1 million. The rise of those investors will be the main drivers of the growth in millionaires, according to the report. There were 2.1 million new millionaires globally in 2014, according to the report.
(This article has been updated to indicate that the total wealth of households in the U.S. is $46 trillion, not $57 trillion. U.S. household wealth is estimated to grow to $57 trillion by 2019.)
