June 10, 2010 / 7:23 PM / 8 years ago

UPDATE 1-Global wealth up in '09, but adviser income fell

* Global wealth up 12 pct to $111.5 trln, shy of ‘07 peak

* Client trust in their advisers remains diminished

* North American client assets up 15 pct to $35.1 trln (Adds detail from report, partner comments)

By Joseph A. Giannone

NEW YORK, June 10 (Reuters) - The combined wealth of households around the world rose 12 percent last year and nearly surpassed the 2007 high-water mark, yet money managers faced lower revenue and shrinking profit margins, according to an industry study released on Thursday.

Global assets under management rose to $111.5 trillion, just short of the 2007 year-end peak, Boston Consulting Group said in its annual study of the wealth management business. But while client assets have almost recovered from the 2008 financial crisis, client trust in their advisers has not.

North America led the world with a $4.6 trillion increase in total assets, up 15 percent to $35.1 trillion, while Asia-Pacific countries posted the strongest recovery with a 22 percent jump, or $3.1 trillion, to $17.1 trillion.

Europe remained the wealthiest corner of the world, weighing in at $37.1 trillion of assets.

Boston Consulting noted that, among world regions, only the United States and Japan had not regained 2007 levels. The collapse of debt markets, followed by a deep recession, led to a 10 percent plunge in global wealth.

Looking ahead, BCG projects global wealth will increase at an average annual rate of 6 percent this year through 2014, faster than was reported in the five years ending last year.

Much of that growth will be driven by the Asia Pacific region where, excluding Japan, investable assets will increase at twice the global rate.

“There’s no doubt that wealth will continue to grow faster in emerging markets, fueled by strong economic growth,” said Tjun Tang, a BCG partner and a coauthor of the report.


Offshoring wealth by the rich also grew 9 percent last year, with $7.4 trillion in assets placed in countries where the investor has no legal residence. Switzerland remains the largest offshore banking center with $2 trillion, BCG said.

Regulatory pressure on offshoring is expected to reverse that growth. Offshore assets are expected to shrink from 7 percent of global wealth to just over 6 percent in 2014.

“Although undeclared assets account for a small and declining share of offshore wealth,” said Peter Damisch, a BCG partner and a coauthor of the report, “the push for transparency will compel some clients — particularly those in North America and Europe — to move their assets.”

Boston Consulting said banks need to adjust their strategy and even abandon certain markets if they want to bolster returns. Zurich-based principal Anna Zakrzewski said global banks support 10 to 15 platforms for clients in multiple cities and countries, a practice than can be costly.

“Banks need to focus their resources on the high growth markets,” she told a briefing on the report. Compensation should not be the focus of cost-cutting, she added. though banks can benefit from introducing more performance-based pay.

Revenue has come under pressure as asset-levels shrink, driving down management fees. The mix of business also depressed margins, as anxious clients moved more money into cash and fixed-income investments.

Based on a survey of 114 wealth management firms, assets on average grew 14 percent last year, but revenue fell 7.3 percent and revenue margins narrowed 12 basis points to 0.83 percent. In the wake of the financial crisis, families executed fewer transactions, haggled over fees and shifted their money to lower-margin products like money-market funds.

Expenses last year rose as a proportion of revenue to 74 percent, squeezing profits.

Looking ahead, advisers cannot just hope that clients will reinvest and stay. Roughly half of the assets “uprooted” and parked in lower-risk vehicles will, when they return to the market, be up for grabs.

Banks “can’t assume they will get their fair share of those assets,” senior partner Bruce Holley told the briefing. “If they don’t actively manage the reallocation of that cash, they’ll lose out. It won’t happen automatically.”

The report also noted that, as wealth rose, it has been concentrated among fewer people. The number of millionaires rose by 14 percent last year.

Less than 1 percent of the world’s households are millionaires and yet they hold 38 percent of the money. Families with more than $5 million represent less than one-tenth of a percent of world households, yet hold 21 percent of the wealth. (Reporting by Joseph A. Giannone; editing by Andre Grenon and Tim Dobbyn)

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