Digital wealth managers attract $14.5bn, 11% of global investment

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Digital wealth managers attracted $14.5 billion in funding in 2021, representing 11 percent of total global investments, according to a Boston Consulting Group (BCG) report.

Global financial wealth reached a record high of $530 trillion in 2021, fuelled by strong equity markets, healthy corporate profits and a surge in demand for real assets.

According to the report, online platforms are offering wealth management services and delivering faster customer growth, cheaper cost structures, and superior innovation, and therefore, command a significant market premium, which is threatening the market dominance of traditional players.

The 22nd edition of the annual report on the global wealth management industry report, titled ‘Global wealth 2022: standing still is not an option’, confirms that digital wealth managers have an edge over traditional ones as they are democratising investment opportunities for a large group of investors.

“They are automating operations, providing customisable discretionary mandates at scale, using hybrid models for investment advisory and creating teams that use data for client acquisition and offering exposure to cryptocurrencies.”

Phillipa Osakwe-Okoye, principal, BCG Lagos, said, “As a new crop of technology-driven investment firms offering dollar-denominated investments to a wider investor group emerge in Nigeria, traditional wealth managers can better leverage evolving trends in private equity, digital wealth and crypto to embrace a digital service model and compete more effectively.”

“Sustainable wealth creation is possible and an attractive proposition as shown by the growing number of fintech firms in Nigeria and the increased scale of investments they attract and manage. Nigerian fintech firms raised $800 million in 2021, boosting the valuation of some of these fast-growing start-ups and turning them into unicorns amid local and global economic headwinds.”

“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.

“Although this stability provides tremendous opportunity for wealth managers, they must make strategic choices to remain competitive. Wealth clients are looking for next-generation offers and next-level service—including net-zero, crypto, personalisation, and digitisation. The most important question facing wealth managers today is not which initiatives to prioritise, but how best to implement them.”

Read also: Nigerian equity market gains N3.01 trillion in first quarter of 2022

The report stated that the Middle East and Africa (ME&A) could see the biggest leap in wealth growth, buoyed by the regions’ massive energy holdings, wealth is on track to rise by a CAGR of 5.4 percent over the next five years.

The report predicts that wealth assets will continue to rise in value in all regions. But Asia-Pacific will maintain the fastest rates of wealth growth, with asset values poised to increase by a compound annual growth rate (CAGR) of 8.4 percent through 2026. If that rate holds, the region could be home to nearly one-quarter of the world’s wealth by 2026.

In North America, wealth growth will be slower than in years past, with an estimated CAGR of 4.7 percent through 2026, down from a prior five-year average of 9.1 percent. Likewise, in Western Europe, wealth growth is likely to slow from roughly 4.5 percent over the past five years to less than 4 percent annually until 2026.

Findings showed that despite geopolitical and economic destabilisers such as inflation and Russia’s invasion of Ukraine, approximately $80 trillion in new wealth is likely to be created over the next five years.

In a notable industry shift, Hong Kong will probably overtake Switzerland in 2023 as the domicile managing the largest amount of private cross-border wealth, ending a run of more than 200 years of Swiss dominance.