Wealth industry missing out on $230bn opportunity in lower HNW and affluent segments

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According to the latest Morgan Stanley and Oliver Wyman global wealth and asset management report, entitled Time to Evolve, for over a decade many wealth managers have put their growth focus on the ultra-high-net-worth and higher-net-worth segments and so have not prioritised less wealthy clients.

Facilitated by the digital transformation, wealth managers can make financial advice and investments accessible to a more diverse client base at lower, differentiated costs, with clients being able to pick and choose their own personalised solutions.

“The wealth industry is on the cusp of the next evolution towards ‘Wealth Management 3.0′, offering attractive growth opportunities and the ability to make financial advice and investments more accessible to a broader demographic and range of clients,” the report notes.

“For many wealth managers, this will require significant change and investment in their coverage and service models as well as operating models and technology in order to win market share profitably in the future.”

Majority of global AuM in mutual funds and ETFs sits in legacy products

The firms expect UHNW investors with more than $50m in wealth to continue to drive wealth creation and to account for more than 40% of total wealth growth by 2026. However, this segment accounts for less than 15% of the overall potential wealth management revenue pool and for less than 20% of its growth.

According to the report, the largest revenue growth opportunity will be in the affluent and low high-net-worth client segments with more than $300k and less than $5m in wealth. 

This segment looks set to create around $45bn of new revenues and account for about 60% of the total wealth management revenue pool by 2026. Out of the $230bn revenue pool the firms estimate, only 15-20% is penetrated by wealth managers.

As the share of the wealth and retail client segment of total assets under management grows from 58% to 64% in the next 5 years, the wealth management channel becomes ever more important to asset managers.

“Asset managers face fundamental choices: partner and distribute through wealth managers, build captive digital-led wealth management distribution solutions, or establish open platforms geared towards this segment,” the report states.