Here is a lead-in to reframe the 2024 wealth management landscape.

China has 860,000 millionaires, more than the number of people in Guyana. Germany has slightly over 800,000 millionaires, which could single-handedly replace all of Bhutan's population. Perhaps more interesting is Switzerland, whose millionaire population (428,000) could replace Iceland. At a population of 8 million, one out of every 20 Swiss residents has more than US$1Mn of investable wealth.

Henley Partners & World Bank Data, 2024

The tabulated information is one way to contextualise private wealth distribution across geographies and underscores the fast growth of the global wealth management industry.

To outperform the market, Bain&Co reports that financial services companies will rely on customer’s demand for wealth management. After all, by 2030, the market size is expected to double to more than US$500B, as an estimated 250 million Generation Y and Z customers (born between 1981 and 2012) will earn over US$100,000 annually. The wealth management industry is not merely changing—it is undergoing a full-fledged revolution. In fact, between 2021 and 2030, the projections of a US$90 Tn increase in liquid assets from all global investors are expected to be led by the Americas and Asia-Pacific. There is, however, a broader context to this.

The future will be decided by how the present reconciles with the past
The wealth management transformation has been deeply influenced by the continual drop in U.S. interest rates over 40 years. Even with the Federal Reserve hiking interest rates by 400 basis points in 2022—the fastest increase in decades—the rates still fall below historical levels. From 13.9% (1981) to 0.9% (2020), the average annual interest rate in the U.S. has fallen steadily because of slower GDP and employment growth. Chart

https://www.citizensbank.com/corporate-finance/insights.aspx?ctzMode=VCP-ODA_VCP_CMC_CTZ_ECS_VCPINT

Interest rate rollercoaster: A 45-year high and its ripple effects
The US Federal Reserve's aggressive interest rate hikes have triggered a cascade of effects in the wealth management arena. Bond yields surged 30% in some categories, while traditional 60/40 portfolios experienced their worst performance in a century. Savvy wealth managers are now pivoting towards alternative investments like private equity and real estate, with allocations expected to grow by 15% in the next two years.

Rising interest rates have also led to a resurgence in fixed-income products as investors seek stable returns amidst market volatility. High-yield savings accounts and certificates of deposit are regaining popularity, forcing wealth managers to reevaluate their cash management strategies and offer more competitive yields to retain clients. In other words, the winners would be organisations that build adaptation into their strategies and future-proof operations with resilience.  

While the higher US interest rates reduce the GDPs of foreign economies, advanced economies are estimated to be impacted by 0.5%, and emerging economies are hit by 0.8% over three years.

Regarding the EU and Japan, what is sauce for the goose is sauce for the gander.

The Interest Rate in the Euro Area averaged 1.83 percent from 1998 until 2024, reaching an all-time high of 4.75 percent in October 2000 and a record low of 0.00 percent in March 2016.  Similarly, Japan ended its eight-year period of negative interest in March 2024. In a 7-2 majority vote, Japan’s central bank increased short-term interest rates to 0-0.1% from minus 0.1% - the country’s first rate hike in 17 years.

The great convergence: where private wealth meets the masses
The once-distinct lines between private and traditional wealth management are dissolving rapidly. Morgan Stanley's acquisition of E*TRADE in 2020 is a prime milestone demonstrating how established market leaders expand their reach to capture a broader clientele.

As more self-directed and self-educated customers prefer digital delivery, firms are scaling their high-touch hybrid approaches through a matrix of business models: function as an integrated platform provider, specialising in customer acquisition, and/or provide specialist services like ESG, Cryptos, Private equity, Retirement Solutions, etc. Year on year, mergers and acquisitions in the wealth tech space increase by 25%—a dynamic that promises unprecedented consolidation and innovation drive.

A McKinsey report further highlights this convergence, indicating that 70% of high-net-worth individuals now expect their advisors to provide a holistic suite of services beyond investment management, such as tax planning and estate management.

Furthermore, the rise of digital platforms and robo-advisors has democratised access to sophisticated investment strategies previously reserved for the ultra-wealthy. Consider two instances where Wealthfront and Betterment, two leading robo-advisors, have amassed over US$50 billion in assets under management, catering to a new generation of investors who value convenience, transparency, and low fees.

The asset management boom: a haven in uncertain times
Investors are increasingly seeking refuge from market volatility in the arms of professional asset managers. BlackRock, the world's largest asset manager, saw its assets under management (AUM) swell from US$53B in 1994 to US$10,646 Bn in 2024, a 10% increase year over year. This trend is being driven by a growing awareness of the importance of diversification and risk management, particularly among younger investors who are less inclined to "do it themselves."

Moreover, the rise of sustainable investing and ESG (Environmental, Social, and Governance) factors further propels the asset management boom. A recent study by Morgan Stanley found that 85% of investors are interested in sustainable investing, with millennials leading the charge. This demand has prompted asset managers to launch many ESG-focused funds, attracting billions of dollars in new investments.

Seizing opportunities in the second half of 2024
As market forces catalyse an expanding wealth continuum with previously underserved wealth bands becoming more lucrative, the stronger players will succeed by developing product offerings and providing specialised services that target the affluent investor wealth band.

Next, to smartly rebalance portfolios that preserve wealth and offer stable returns, wealth management firms will leverage GenAI and other emergent tech to boost relationship manager efficiency. Similarly, the focus will shift to choosing investments aligned with social causes and preparing for anticipated regulations to bolster customer trust, even in the face of high-profile collapses of crypto firms.

Conclusion. Moving from wealth preservation to growth
From an industry perspective, the leaders in the wealth management space will navigate the high interest rates, persistent inflation, and geopolitical stability with a slew of growth strategies:

• Employ Real-time portfolio analytics to navigate volatility
• AI-led analytics to forecast asset performance
• Improve the literacy of advisors, investors, and fund managers
• Re-align to the new normal in investment strategies
• Tokenise assets for increased liquidity, fractional ownership, and simplified trading.
• Use intelligent automation models to streamline manual tasks across the value chain.
• Adopt standardised and traceable ESG metrics.
• Attract and retain top talent with expertise in digital transformation, data analytics, and ESG investing

The wealth management industry is at a pivotal juncture. Those who can embrace change, leverage data-driven insights, and prioritise client needs will emerge as the leaders of tomorrow.

Is your firm ready to seize the moment?