Digital wealth managers riding high on wave of democratization

Report from BCG finds online wealth platforms, which accounted for 11% of global investments last year, have an edge over traditional ones
Digital wealth managers riding high on wave of democratization

New research by the Boston Consulting Group (BCG) has found that digital wealth managers received US$14.5 billion in capital in 2021, accounting for 11% of total worldwide investments.

Strong equities markets, good corporate profits, and a rise in demand for real assets propelled global financial wealth to a record high of US$530 trillion in 2021.

Online platforms, according to the report, provide wealth management services and bring faster client growth, lower cost structures, and higher innovation, commanding a considerable market premium and endangering traditional businesses' market dominance.

“Global wealth 2022: standing still is not an option”, the 22nd edition of the annual report on the global wealth management industry report, acknowledges that digital wealth managers have an advantage over traditional wealth managers because they are democratizing investment opportunities for a large group of investors.

According to the report, “[t]hey are automating operations, providing customizable discretionary mandates at scale, using hybrid models for investment advisory and creating teams that use data for client acquisition and offering exposure to cryptocurrencies.”

“Wealth development is resoundingly resilient, and even against the backdrop of geopolitical turmoil the growth rate will remain positive,” said Anna Zakrzewski, global leader of BCG’s wealth management segment and a co-author of the report.

Zakrzewski added that although this stability provides tremendous opportunity for wealth managers, they must make strategic choices to remain competitive. Wealth clients seek next-generation offers and next-level service, including net-zero, crypto, personalization, and digitization. The most important question facing wealth managers today, Zakrzewski argued, is not which initiatives to prioritize, but how best to implement them.

The report forecasts that the value of wealth assets would continue to rise in all regions. Asia-Pacific will continue to have the strongest rates of wealth creation, with asset values expected to rise at an annual rate of 8.4% through 2026. If current trends continue, the region might control nearly a quarter of the world's wealth by 2026.

Wealth growth in North America will be slower than in previous years, with a CAGR of 4.7% expected through 2026, down from a five-year average of 9.1%.

Similarly, wealth growth in Western Europe is expected to decrease from about 4.5 percent in the previous five years to less than 4 percent yearly through 2026.

Despite geopolitical and economic destabilizers like as inflation and Russia's invasion of Ukraine, the study found that over the next five years, about US$80 trillion in new wealth is projected to be produced.

In a significant industry shift, Hong Kong is expected to replace Switzerland as the domicile managing the largest amount of private cross-border money in 2023, ending Switzerland's supremacy of more than 200 years.