World Wealth Report 2020

jamieharrison

Global wealth grew by almost 9% in 2019 – despite economic slowdown, international trade wars and political tectonics like Brexit, Hong Kong social unrest, and turmoil in Latin America. Capgemini’s 2020 World Wealth Report (WWR) accounts for global wealth movements in the past year and delves into the impact of COVID-19. Developed markets led 2019 global wealth growth, North America took global lead for the first time since 2012 with 11% growth, surpassing Asia-Pacific. Yet the boom of the previous year has been cloaked with uncertainty as global economies brace for a projected 3% decline in 2020.

 Globally, COVID-19 wiped over $18 trillion from markets over the course of February and March 2020, before a slight recovery in April. Analysis from Capgemini suggests a decline of between 6% and 8% in global wealth until the end of April 2020 (compared with April 2019). Wealth managers now need to safeguard profits by meeting the evolving needs of HNWIs navigating this new economic landscape. Investment priorities have also shifted – sustainable investments that uphold environmental and social priorities are gaining significant prominence post-pandemic.

“This unpredictable period may also present opportunities to reach underserved or new investors, as demand for advice tends to increase during periods of market turbulence and the strategic case for sustainable investment advances.”

2019 was prosperous for wealth managers. In North America, an 11% increase in both HNWI population and wealth (compared with just 1% in 2018) meant the region accounted for 39% of global HNWI population gains and 37% of wealth growth. US equities made robust Q4 2019 gains as trade uncertainty faded during the Phase One trade deal roll-out, while markets benefited from measures taken by the US Federal Reserve to deploy billions of dollars into the financial system after tumult in mid-September caused by a dramatic policy shift which saw rates lowered. Growth was aided by optimism surrounding technology companies: the top five contributors in the market surge were tech stocks, and Apple and Microsoft accounted for nearly 15% of S&P gains.

European performance topped that of emerging regions – Asia-Pacific and Latin America – last year, with HNWI population and wealth growth at almost 9%. European central banks supported Eurozone stock markets by stepping back from tighter monetary policy, and despite Brexit uncertainty HNWI population and wealth grew in the UK by more than 6%.

Despite robust market performance from several countries in the region in 2019, APAC fell behind the average global HNWI growth rate (9%), expanding by 8%. Hong Kong, China, and Taiwan experienced double-digit HNWI population and wealth growth as China’s CSI 300 stock index climbed upward on the heels of more significant government support for the domestic economy. Economic downturn and weakening currencies meant India, South Korea and Singapore had sub-par growth.

The US, Japan, Germany, China and France retained their top-five position with the highest populations of HNWIs in 2019 – the top four were responsible for more than 67% of global HNWI population growth. Within the top 25 HNWI population markets, Capgemini has tracked a noteworthy shift: Sweden gained more than 10% in HNWI population growth, moving up two places to 23rd, and the Netherlands also surged into the top 10 thanks to a robust real estate sector and an increase in market capitalization.

Sustainable investing and value-added services gain traction
Growing interest in sustainable investing is offering firms a high-potential product opportunity. Environmental risks are becoming increasingly prominent and HNWI across the board are recognising the importance of sustainability. Among the ultra-HNWI segment, sustainable investing is building considerable momentum. While 27% of HNWIs expressed interest in SI products, 40% of ultra-HNWIs were willing to put cash into sustainability.

HNWIs plan to allocate 41% of their portfolio to SI products by the end of 2020, and 46% by the end of 2021. Wealth management firms have recognised the trend and are prepared to meet the demand – 80% now offer SI options. Funds focused on socially responsible investing have been a rare bright spot in 2020 market activity, and while HNWI investing in SI recognise social/environmental impact, they are also motivated by financial value. 39% expect to receive higher returns from sustainable investment products, while 33% view SI as sound and less speculative. Meanwhile, only 26% cite a desire to give back to society.

Hyper-personalise to meet evolving expectations
Unpredictability in 2020 is set to drive asset adjustments as well as higher client expectations and scrutiny around advisory fees. Equities became the most significant asset class in early 2020 and accounted for 30% of global HNWIs’ financial portfolios, largely due to robust equity markets and financial stimulus restoring trust. HNWIs are also becoming increasingly critical over wealth managers’ fees, with 33% uncomfortable with rates in 2019. Discomfort is expected to rise as a result of volatile market behaviour. More than one in five HNWIs might switch firms due to fees in the next year, citing a preference for performance and service-based fees over asset-based ones.

The nature of disruption rarely allows enough time for strategic reaction, so digital capabilities have become central to business continuity. Hyper-personalised offerings powered by AI, analytics and other technology can meet the evolving HNWIs expectations in areas including:

 

Almost 60% of wealth management executives cite natural events like floods and pandemics as the number one industry disruptor, with global economic slowdown (39%) and changing client profiles and expectations (35%) ranking next. Within this context, firms are missing an opportunity to meet the needs of HNWI by providing the personalised information and services they really need.

Pre-COVID (Jan-Feb 2020), investors reported being least satisfied with touchpoints related to personal information or services from their firm, and more than 60% of HNWIs reported unsatisfactory experiences during their attempts to access information about new wealth offerings or market information. HNWIs aged 50-59 were the most dissatisfied with their experience related to information access and value-added services.

To safeguard profits in these uncertain times, Capgemini recommends that wealth managers focus on critical touchpoints and operating model optimisation with a clear focus on acquisition, advisory and value-added services stages of the value chain.

The BigTech trojan horse
While less-than-stellar customer experience does not characterise core wealth management services, it represents a missed opportunity to ‘wow’ clients. More than 40% of the HNWIs Capgemini interviewed say good experiences profoundly affect their overall impression of a firm, and this is likely to increase as a result of COVID-19.

While wealth managers (26%) do not rank BigTech competition among the top potential disruptors, HNWIs certainly believe that BigTechs can outperform incumbent firms when it comes to information access and value-added services. This is cause for concern. The reality of the threat has become clear as 74% of HNWIs report a willingness to consider BigTech offerings, jumping to 94% among those who say they may switch their primary wealth management firm in the next 12 months.

HNWIs in Latin America and Asia-Pacific (excl. Japan) expressed the highest likelihood to adopt wealth management offerings from BigTechs. In Japan and North America, BigTech adoption increases dramatically for HNWI who are likely to switch within 12 months. Unsurprisingly, HNWIs younger than 40 are most inclined, with willingness reaching nearly 90%.

As BigTechs gain financial services ground, wealth management firms have little choice but to enhance digital customer engagement – quickly.  A side-by-side look at touchpoints that evoked the least HNWI satisfaction and those most vulnerable to BigTech encroachment reveals three stages of the client journey as areas of focus: acquisition, advisory, and value-added services.

For wealth management firms, a two-pronged strategy based on Open X[1] principles will allow wealth managers to quickly and cost-effectively enhance capabilities across the value chain. For acquisition, advisory and value-added services, firms should invest in tech to build capabilities in-house and leverage ecosystem collaboration and WealthTech partnerships to enhance capabilities.

“In the face of today’s extraordinary uncertainty, firms must build resilient and agile business and operating models,”

Anirban Bose, Financial Services Strategic Business Unit CEO & Group Executive Board Member, Capgemini.

 “Wealth managers need to use events in 2020 to determine which critical capabilities have the biggest potential to boost profit and improve customer experience. Emerging technologies like AI, analytics and automation are enabling firms to enhance revenues through better client engagement and reduce costs by streamlining processes. There are numerous opportunities for firms to assess and reinvent their business for post-pandemic success. How firms respond today will determine the success of their business tomorrow.”

While the immediate focus for wealth managers might be on business retention, building capabilities – both now and in anticipation of recovery – may pave the way to future opportunities and new revenue streams.  Successful firms will be those that can harmonise with their ecosystem to quickly meet high net-worth clients’ demand for easy-to-access personalised information and tailored investment strategies.

Market sizing
The World Wealth Report 2020 covers 71 countries in the market-sizing model, accounting for more than 98% of global gross national income and 99% of world stock market capitalisation. We estimate the size and growth of wealth in various regions using the Capgemini Lorenz curve methodology, which was originally developed during consulting engagements in the 1980s. It is updated on an annual basis to calculate the value of HNWI investable wealth at a macro level.

The model is built in two stages: the estimation of total wealth by country, and the distribution of this wealth across the adult population in that country. Total wealth levels by country are estimated using national account statistics from recognized sources, such as the International Monetary Fund and the World Bank, to identify the total amount of national savings in each year. These are added over time to arrive at total accumulated country wealth. As this captures financial assets at book value, the final figures are adjusted, based on world stock indexes to reflect the market value of the equity portion of HNWI wealth.

Wealth distribution by country is based on formalised relationships between wealth and income.
Data on income distribution is provided by the World Bank, the Economist Intelligence Unit, and countries’ national statistics. We then use the resulting Lorenz curves to distribute wealth across the adult population in each country. To arrive at investable wealth as a proportion of total wealth, we use statistics from countries with available data to calculate their investable wealth figures and extrapolate these findings to the rest of the world. Each year, we continue to enhance our macroeconomic model with an increased analysis of domestic economic factors that influence wealth creation. We work with colleagues around the globe from several firms to best account for the impact of domestic, fiscal, and monetary policies – over time – on HNWI wealth generation.

The investable asset figures we publish include the value of private equity holdings stated at book value, as well as all forms of publicly quoted equities, bonds, funds, and cash deposits. They exclude collectibles, consumables, consumer durables, and real estate used for primary residences. Offshore investments are theoretically accounted for, but only insofar as countries can make accurate estimates of relative flows of property and investment in and out of their jurisdictions. We account for undeclared savings in the report.

Given exchange rate fluctuations over recent years, particularly with respect to the US dollar, we assess the impact of currency fluctuations on our results. From our analysis, we conclude that our methodology is robust, and exchange rate fluctuations do not have a significant impact on the findings.

2020 Global High-Net-Worth Insights Survey
The Capgemini 2020 Global HNW Insights Survey queried more than 2,500 HNWIs across 21 major wealth markets in North America, Latin America, Europe, and the Asia-Pacific region. Respondent demographics, as broken down by region, age, gender, and wealth band, are captured in Figures M1 and M2.

The Global HNW Insights Survey was administered in January and February 2020 in collaboration with Scorpio Partnership, a firm with more than 20 years of experience in conducting private client and professional advisor interviews in the wealth management industry.

The 2020 survey covered key areas around HNWI investment behaviour, including HNWI trust and confidence, satisfaction, comfort level with fees, and personalised services. The survey measured current HNWI investment behavioural patterns of global HNWIs, including their asset allocation preferences, as well as the geographic allocations of their investments. The survey also covered HNWIs’ experience across various touchpoints in their wealth management journey, interest in value-added services, and views regarding sustainable investing.

To arrive at global and regional values, country- and region-level weightings, based on the respective share of the global HNWI population, were used. This was done to ensure that the survey results are representative of the actual HNWI population.

About Capgemini
Capgemini is a global leader in consulting, digital transformation, technology and engineering services. The Group is at the forefront of innovation to address the entire breadth of clients’ opportunities in the evolving world of cloud, digital and platforms. Building on its strong 50-year+ heritage and deep industry-specific expertise, Capgemini enables organizations to realize their business ambitions through an array of services from strategy to operations. Capgemini is driven by the conviction that the business value of technology comes from and through people. Today, it is a multicultural company of 270,000 team members in almost 50 countries. With Altran, the Group reported 2019 combined revenues of €17billion.

Visit us at www.capgemini.com. People matter, results count.