Global Wealth Management Report 2020 - Oliver Wyman
MBLUEPAPERWealth Management GlobalAfter the StormCovid 19 has permanently changed the way Wealth Managers deliver adviceand serve their clients. To drive outperformance over the next 5 years, firmsshould double down on technology investments, strategically cut costs, builddifferentiated product offerings and consider inorganic opportunities.Oliver Wyman is a global leader in management consulting. For more information, visit www.oliverwyman.com.Oliver Wyman is not authorized or regulated by the PRA or the FCA and is not providing investment advice. Oliver Wyman authors are not research analysts and are neither FCAnor FINRA registered.Oliver Wyman authors have only contributed their expertise on business strategy within the report. Oliver Wyman’s views are clearly delineated.The securities and valuation sections of this report are the work of Morgan Stanley only and not Oliver Wyman.For disclosures specifically pertaining to Oliver Wyman, please see the Disclosure Section located at the end of this report.Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict ofinterest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investmentdecision.
MAuthorsBLUEPAPERMORGAN STANLEYOLIVER WYMANBetsy L. Graseck, CFA1Kai UpadekEQUITY ANALYSTPARTNER 1 212 761 8473 44 20 7852 erwyman.comMagdalena L Stoklosa, CFA2Christian EdelmannEQUITY ANALYSTPARTNER 44 20 7425 3933 44 20 7852 Edelmann@oliverwyman.comNick Lord3Bradley KellumEQUITY ANALYSTPARTNER 65 6834 6746 1 646 364 erwyman.comMichael J. Cyprys, CFA, CPA1Lian ZerafaEQUITY ANALYSTPARTNER 1 212 761 7619 1 416 433 iverwyman.comManan Gosalia1Julian GorskiEQUITY ANALYST 1 212 345 2062 1 212 761 ganstanley.comJoao Miguel RodriguesIzabel Dobreva2 49 30 3999 4558EQUITY ANALYSTJoaoMiguel.Rodrigues@oliverwyman.com 44 20 7677-5006Izabel.Dobreva@morganstanley.comPhilip Schroeder 44 20 7852 74281Ryan KennyPhilip.Schroeder@oliverwyman.comRESEARCH ASSOCIATE 1 212 761 1664Ryan.Kenny@morganstanley.com1 Morgan Stanley & Co. LLC2 Morgan Stanley & Co. International plc 3 Morgan Stanley Asia (Singapore) Pte. Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict ofinterest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investmentdecision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions oncommunications with a subject company, public appearances and trading securities held by a research analyst account.
MContentsBLUEPAPER4Messages for the C-Suite6Executive Summary13State of the Industry17Imperatives for Wealth Managers
MMessages for the C-SuiteBLUEPAPERCovid-19 has fundamentally changed the Wealth Managementadvice delivery model of the future will see RMs remaining cen-industry, evolving client demands and diminishing outlooks for top-tral to client relationships, supported with strong digital capa-line growth. However, Wealth Managers have so far risen to the chal-bilities.lenge, with integrated Wealth Managers proving to be a stableanchor to group valuations, and they can continue to earn a high multiple relative to other Financial Services sectors if managementteams have the right strategy. As senior banking leaders determinethe future shape of their firms, Wealth Managers should be centralto the discussion.The global economy has entered a period of significant uncertainty,l Defend business economics: Costs will be in the spotlight asbottom lines are pressured by diminished growth and challenged revenue margins. Wealth Managers must improve theirapproaches to cost management to deliver positive operatingleverage. We estimate that efficiency plays can reduce averageindustry cost income ratios by up to 12 percentage pointsthrough focus on three key areas:¡with Covid-19 presenting a dramatically changed reality. Our baseaddress the additional complexity created post the globalcase sees global high net worth (HNW) wealth lose more than a yearfinancial crisis, there remains ample room for tactical costof growth versus pre-Covid-19 forecasts before rebounding tocuts through removal of excessive management layers, opti-growth in 2021. We see HNW wealth declining by 4 percent or 3.1mization of RM headcount or reduction in front office sup-trillion in 2020, a major departure from the previous decade’s consistent annual growth trajectory.port headcount¡Streamlined group service delivery (short to medium term)– Streamlined group service delivery, especially from secondThe full impact of Covid-19 on Wealth Managers’ economics is yet toline functions, Finance, Human Resources (HR), Legal andshow. While management teams should prepare for a more challenging revenue outlook in the near term, we think pretax marginsTactical cost cuts (short term) – Despite recent efforts toOperations¡can expand idiosyncratically over the medium and long term. WealthTransforming the operating model (medium term) –Transformations to operating models and associated ITManagers have previously benefited from strong growth in high netinfrastructure driving both cost savings and incremental rev-worth (HNW) client wealth, which has offset declining revenue mar-enues. Although these transformations have the potential togins and masked operating model inefficiencies. With this tailwinddeliver significant CIR improvement, they are a complexgone for the immediate future, Wealth Managers need to act now toundertaking for any player and can introduce significant risk.position their business for growth in the “new normal”.l Consolidate share and drive growth: Wealth Managers whoPriorities for the C-SuiteThis bluepaper identifies several imperatives for Wealth Managers towin in the new environment:l Adapt to the new normal: With digital engagement increasing7-10x across leading Wealth Managers following the onset ofthe pandemic, Covid-19 has altered clients’ expectations forfinancial advisor (FA)/relationship manager (RM) interaction,while also underscoring the value of human advice. WealthManagers must move quickly to design an omni-channel advicedelivery model and accelerate their digitization efforts. The4can act from a position of strength should move to consolidateshare and increase growth by enhancing their product offeringsand footprints through organic and inorganic means.¡Wealth Managers must develop differentiated propositionsto protect and grow their revenue base. Management teamsshould focus on four key priorities:nWealth Managers that can credibly build out their sustainable investing offerings will be positioned to growwallet with a highly attractive and often younger clientsegment. We project HNW and ultra-high-net-worth(UHNW) sustainable investments to grow by 18 percenteach year to a total of 9 trillion by 2024.
MnWealth Managers should significantly expand their pri-nWealth Managers should consider developing digitalvate markets offerings to recapture UHNW wallet lost toassets offerings to differentiate their proposition and todisintermediation over previous years. By 2024 we expectattract a potentially high-value client segment.illiquid/alternatives UHNW assets to increase to 24 tril-nBLUEPAPER¡Management teams should have a renewed look at inorganiclion from 16 trillion today, representing an annualizedgrowth opportunities, as Covid-19 has challenged thegrowth rate of 8 percent. The opportunity is lower fororganic growth outlook and repriced some potentially inter-HNW, given suitability challenges and reduced HNWesting targets. Certain markets, like the US, the UK andinterest in alternatives following Covid-19.Switzerland, are the most ripe for consolidation and weAdding protection offerings like life insurance, healthexpect to see a continuation of activity in the coming years.insurance and P&C insurance can firmly cement WealthWhile management teams should continue to consider tradi-Managers’ position at the center of client financial needstional mergers and acquisition (M&A) plays, strategic part-while capturing low-hanging incremental revenues. Wenerships are emerging as the new M&A, particularly forestimate that offering protection products can provide across-border expansion.top-line uplift of 4 percent and defend client relationships against further encroachment by insurers that areexpanding into the investments space. Wealth Managersshould also consider larger ecosystem plays.MORGAN STANLEY RESEARCH5
MExecutive SummaryDuring Covid-19, integrated Wealth Managers have proven to bea stable anchor to group valuationsBLUEPAPERl Our bull case, “Accelerated rebound”, sees only modest upsideto our base case, with a stronger near-term rebound in assetprices leading to a significantly improved picture for wealth inAs senior banking leaders assess their business portfolio on the back2020. Longer-term, the economic outlook and asset price pathof Covid-19, Wealth Managers should be central to the discussion.remain largely in-line with our base case.Global bank-owned Wealth Managers have contributed an increasingl Our bear case, “Sustained downturn”, sees policy measuresshare of group valuations since 2013. As Covid-19 puts pressure onunable to support the global economy, with a significant down-businesses such as corporate lending, consumer lending and invest-turn in 2020 and a slow recovery thereafter.ment banking, the more stable Wealth Management business onceagain increases in attractiveness on a relative basis.Exhibit 2:Global HNW wealth: base, bull, and bear case (2018-2024, USD Trillion)Exhibit 1:Average Wealth Management unit valuation as a percentage of totalgroup valuation (2013-Q1 2020, average of leading bank-owned WealthManagers)797283807671Covid-1942%Percentage of group Source: Oliver Wyman analysisNote: HNW investors are defined as households with financial assets greater or equal to USD 1 million.HNW wealth represents financial assets owned by HNWIs, including investable assets (deposits, equities,bonds, mutual funds and alternatives), excluding assets held in insurance policies, pensions and directreal estate or any other real assets. Source: Oliver Wyman Wealth Management ModelCovid-19 represents a new reality; given the uncertainty weFor the purposes of this report, we focus our analysis on our basemodel three scenarios for global HNW wealth growthcase, “Recession and rebound”. However, given the high degree ofuncertainty in the current environment, Wealth Managers mustAfter a golden decade in which Wealth Managers benefited fromadopt flexible, scenario-based approaches to strategic planning.more than 8 percent annual wealth growth on average, Covid-19 hasInstitutions that have not invested in building flexible forecastingintroduced a different reality. The global economy has entered aprocesses are facing pressures internally and externally to answerperiod of significant uncertainty. As a result, we have modelled threeincreasingly complex what-ifs for their businesses. Traditional plan-scenarios for HNW wealth growth:ning processes are often manual, labor intensive, and disconnectedfrom financial resource considerations. With economic conditionsl Our base case, “Recession and rebound”, sees policy responsesuncertain and volatile, nimble planning infrastructure is crucial toeffective in containing the pandemic, while rate cuts and fiscalinform strategic decisions and management actions amidst uncer-stimuli support the economy to drive a U-shaped or similartainty.recovery.6
MBLUEPAPEROur base case sees global HNW wealth lose more than a year ofExhibit 3:growth vs. pre-Covid-19 forecastsGlobal HNW wealth: base, bull, and bear cases vs. pre-Covid-19 estimate (2019-2024, USD Trillion)In our base case we expect global HNW wealth to fall by 4 percentBase CasePre-Covid-19 estimateBull CaseBear Case 110in 2020, before rebounding to growth in 2021. Oliver Wyman’s preCovid-19 estimates saw wealth growing consistently at 6 percent 100from 2019 onward. As a result, we expect Covid-19 to representroughly one lost year of wealth growth. 90 80 70201920202021202220232024Note: Pre-Covid-19 estimate made based on inputs (GDP growth, asset performance, etc.) retrieved atyear-end 2019. Post-Covid-19 forecast based on inputs retrieved beginning of April 2020. Source: OliverWyman Wealth Management ModelExhibit 4:AUM performance vs. NNM – base case (2019-24 CAGR, percent of AUM)Developed marketsEmerging markets12%9%8%7%6%6%5%4%4%1%North America2%3%3%3%3%3%3%3%4%3%2%1%Western Europe2%1%JapanChinaNNMLatin AmericaAsset performanceOther APACMiddle East & AfricaEastern EuropeAUM growthSource: Oliver Wyman Wealth Management ModelThe growth outlook for assets under management (AUM) inThe concentration of AUM growth in emerging markets will have adeveloped markets is slowermeaningful impact on priorities for the industry. Notably, globalWealth Managers should continue to assess opportunities to partici-As global wealth recovers from this lost year, we expect the AUMpate in emergi
Wealth Management Global After the Storm Oliver Wyman is a global leader in management consulting. For more information, visit www.oliverwyman.com. Oliver Wyman is not authorized or regulated by the PRA or the FCA and is not providing investment advice. Oliver Wyman authors are not research analysts and are neither FCA
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the top, and, thus, lower wealth mobility. Conversely, higher wealth mobility where self-made wealth replaces inherited wealth would result in more men at the top of the wealth distribution. Judged by this proxy, and corroborated by various data sources, wealth mobility decreased in the period 1925– 1969 and increased thereafter.
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6 SHAPING THE FUTURE OF FIDUCIARY SERVICES IN GLOBAL WEALTH MANAGEMENT EECUIE SUMMARY GROWTH IN GLOBAL WEALTH Source: Capgemini Financial Services Analysis, 2015 Global investable wealth of US 56.4T up 7.2% from 2013 Asia Pacific rising to US 21.2T at 10.3% growth; overtaking North America as the world's largest wealth market. Latam to decline .
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regarding the notions of wealth and risk. To better align with an investor-centric wealth management philosophy, the Wealth Allocation Framework expands the definition of wealth to recognize all assets and liabilities—an investor's total wealth: Tangible capital such as home, home mortgage, insurance, investment real estate and art
