Private wealth in North America grew a measly 2 percent to $60 trillion in 2015, down from a growth rate of 6 percent in 2014, according to Boston Consulting Group’s Global Wealth 2016: Navigating the New Client Landscape report. One reason for the slowdown is that the wealth being added here is based on the performance of existing assets, rather than being newly created.
“Because the U.S. is growing at such a low rate, the idea of actually sustaining an average type of net new asset growth puts a lot of pressure on the wealth players,” said Bruce Holley, senior partner at Boston Consulting Group. “So the gig is not so much capturing new assets in the space, but also it’s about capturing new assets in the space and stealing share from others.”
Over the next five years, 81 percent of the growth in North American wealth will be driven by existing assets, with only 19 percent of the growth coming from new wealth, BCG estimates. So to compete and gain net new assets, wealth managers will have to do a better job identifying target clients, cross-selling and up-selling to existing clients, and retaining existing clients, Holley said during a media briefing in New York on Tuesday.
This pressure to compete, along with increased regulatory burdens created by the Department of Labor’s fiduciary rule, could cause some advisors to leave the industry, said Brent Beardsley, senior partner at BCG. Beardsley pointed to the United Kingdom as a cautionary tale, with its Retail Distribution Review rules. Many advisors there could no longer afford to serve affluent customers.
“What happened in the industry is literally millions of advisors retired; they left the industry because they didn’t want to adopt their model,” he said. “They couldn’t make money. That’s very possible to happen in the U.S. with the DOL.
“Many of these advisors, especially if they’re long-tenured advisors who are serving lower-wealth clients and they have to change their model completely with the DOL and the fiduciary standard, we expect to see a lot of advisors to say, ‘I’m done. I’m over 55; I’m just going to retire instead of dealing with all of this additional regulatory headache.’”
Overall, global wealth slowed to 5 percent in 2015, reaching a total of $168 trillion. That compares to growth of 7.5 percent in 2014. BCG expects global wealth to increase 6 percent a year to reach $224 trillion by 2020.