The 20th annual study of global wealth management conducted by Boston Consulting Group (BCG) has taken a 20-20 view of the industry, looking back over the past two decades as well as ahead to 2040, to provide a detailed retrospective on wealth growth over the past 20 years and evaluate the potential long-term impact of the COVID-19 crisis. According to the report, titled ‘Global Wealth 2020: The Future of Wealth Management—A CEO Agenda,’ 48.5 percent of the UAE’s wealth was held by millionaires in 2019, while the country’s millionaires are expected to grow by 4.2 percent annually over the coming years.
BCG findings suggest the UAE represented 7.1 percent of the share of personal wealth poolin 2019 in the Middle East and Africa, having grown by 3.8 percent annually to USD 400 billion between 2014 and 2019. Currency and deposits represented the country’s largest onshore asset class, accounting for 69.2 percent of total personal wealth in 2019, while life insurance and pensions are expected to grow the fastest at 7.1 percent through 2024.
“Despite the current economic decline and precarious outlook globally for the coming years, estimates indicate the UAE will still record sustainable growth across several areas within the wealth segment,” said Mustafa Bosca, Managing Director and Partner, BCG.”
BCG has also created a vision for the future of wealth management, examining how the industry’s value proposition and offerings will change over the next two decades, how forms of interaction will evolve, and which new business models will emerge. Furthermore, BCG offers wealth management CEOs a comprehensive agenda for protecting the bottom line, prioritizing the areas in which they hope to win in the future, and building appropriate supporting capabilities.
In the report, BCG outlines three potential scenarios for post-COVID-19 growth: “quick rebound,” “slow recovery,” and “lasting damage.” Regardless of which scenario emerges, wealth management providers are likely to face more pressure, and many of them were already in challenging positions before COVID-19. Client needs and expectations are changing at an accelerated pace, competition is intensifying, and cost-to-income ratios have been significantly higher than prior to the previous financial crisis – 77 percent in 2018 compared with 60 percent in 2007.
Although some wealth management providers have made advances in recent years in adopting their businesses to the changing environment, nearly all have still had considerable work to do, and CEOs must treat 2020 as a pivotal point. BCG’s recommended agenda for wealth management CEOs features three key imperatives:
- Protect the bottom line by pursuing smart revenue uplift, optimizing the front-office setup, streamlining compliance and risk-management processes, and improving structural efficiency.
- Win the future by developing more personalized value propositions, enhancing ESG and impact-investment offerings, designing challenger plays, and leveraging ecosystems and M&A
- Build capabilities by gaining better client understanding, attracting top talent, investing in digital and data, and designing state-of-the-art technology platforms
“With the uncertainty and unpredictability surrounding the economic climate, wealth managers and CEOs should immediately begin strategizing for each of the scenarios that have been outlined,” said Mustafa Bosca. “Regardless of likelihood in terms of one transpiring and the other two not, it is important to have contingencies in place for every potential occurrence. Difficult times are undoubtedly ahead, and measures must be taken, so they are able to navigate through the impending period.”