Over the last 15 years following the 2008 financial crisis, global wealth has expanded significantly; in fact global financial assets grew 10.6% between 2020 and 2021, the fastest rate of growth in over a decade. But that expansion came to a halt in 2022, with global wealth declining 4%, the first drop since 2008. And North America experienced the largest decline in financial assets at 8%, according to Boston Consulting Group’s Global Wealth Report 2023.
The consulting firm attributes the decline to rampant inflation, poor equity market performance and geopolitical uncertainty related to the war in Ukraine.
Global financial assets were down from $264 trillion in 2021 to $255 trillion in 2022. In North America, financial assets slipped from $126 trillion in 2021 to $116 trillion in 2022.
Despite the trouble in 2022, BCG expects global wealth to rebound, growing 5% to $267 trillion by the end of this year. By 2027, global wealth is projected to reach $329 trillion, at a compound annual growth rate of 5.3%. North American assets are expected to reach $146 trillion by 2027, a CAGR of 4.7%.
“Contributing factors are projected to include an overall improving macroeconomic outlook, China increasingly reopening for business following its strict COVID-related lockdown, an ongoing rebound in stock markets (especially in the U.S., following the plummet in 2022), strong growth in Asia-Pacific (particularly in the tech and startup sectors), and growth in the Middle East,” the report stated.
But last year’s performance negatively impacted wealth managers’ profitability, and 2022 proved advisors can’t lean on market performance as the only lever of growth. Overall, client business volumes, which BCG defines as assets and liabilities under management, declined nearly 12% for wealth managers globally. BCG attributed the fall to shrinking assets under management, down 10.5%, driven by poor capital markets performance.
North American wealth managers saw a far steeper decline of 13.1% in client business volumes than other regions, which carried lower exposures to direct equities and fixed income, the report said. For U.S. wealth managers, pretax profit margins were down 3.1 basis points.
Last year was also characterized by higher costs, with wealth managers globally spending more on front-office costs, up 1.3 basis points, and non-front-office costs, up 2 basis points, which includes personnel, technology and operations.
“The former were fueled by an expansion in front-office teams—often prompted by positive business dynamics in 2021—as well as by wage inflation, which may not yet be fully accounted for in 2022 performances," the report stated. "This expansion, initiated with a goal of accelerating business growth, was already visible in 2021, and the number of client advisors further increased in 2022—a 7.8% rise in net front-office full-time equivalents (FTEs)—as players continued to focus on growth by bringing in additional clients instead of relying solely on market performance.”