SOURCE: Boston Consulting Group

Boston Consulting Group

September 15, 2009 00:01 ET

North America Overtaken by Europe as the World's Richest Region, as Equity-Heavy U.S. Investors Are Hit With Steep Losses, Says Report by The Boston Consulting Group

Global Wealth Slumped by More Than $12 Trillion in 2008 and Is Not Expected to Return to Precrisis Levels Until 2013; Pressure Is Mounting on Offshore Centers

NEW YORK, NY--(Marketwire - September 15, 2009) - The crisis is transforming the global map of the world's wealthiest people, with Europe nudging out North America as the richest region, according to a new report by The Boston Consulting Group (BCG). The report, titled "Delivering on the Client Promise: Global Wealth 2009," is being released today.

Global wealth fell from $104.7 trillion in 2007, measured in assets under management (AuM), to $92.4 trillion in 2008 -- a decline of 11.7 percent. It was the first decline since 2001(1).

-- The steepest decline was in North America, where wealth plummeted by 21.8 percent last year

-- In North America, the share of wealth held in equities fell from 50 percent in 2007 to 38 percent in 2008 -- but the region still had the highest proportion of wealth held in equities

-- Europe had $32.7 trillion in AuM, down 5.8 percent from the previous year, followed by North America, with $29.3 trillion in AuM

-- Latin America was the only region where wealth increased -- its AuM grew by 3 percent in 2008

The number of millionaire households worldwide fell from 11 million to about 9 million -- a drop of 17.8 percent. The decline was steepest in North America and Europe, at 22 percent in both regions, although the United States continued to have the most millionaire households -- nearly 4 million.

-- Singapore had the highest concentration of millionaires, with 8.5 percent of the country's households owning more than $1 million

-- Three of the six densest millionaire populations were in the Middle East -- in Kuwait, the United Arab Emirates, and Qatar

The crisis also narrowed the gap between the wealthy and nonwealthy. Wealth owned by households with less than $100,000 in AuM increased by 2 percent in 2008. It declined in all other segments. Among households with more than $5 million in AuM, wealth fell by 21.5 percent.

"Wealth will begin a slow recovery in 2010 but may not reach its precrisis level until 2013," said Peter Damisch, a BCG partner and a coauthor of the report. "We expect wealth to grow at an average annual rate of about 4 percent from year-end 2008 through 2013." Wealth will grow fastest in Asia-Pacific (excluding Japan) at 9.5 percent per year over the same period, he added.

Pressure Is Mounting on Offshore Wealth

Offshore wealth fell to $6.7 trillion in 2008, down from $7.3 trillion in 2007. Switzerland remained the largest offshore center. It accounted for $1.8 trillion, or 28 percent, of offshore wealth last year.

Increased regulatory scrutiny is changing the landscape of cross-border wealth management, with pressure mounting on offshore centers that have based their edge primarily on tax avoidance. "Once their tax and legal advantages evaporate, so too will their appeal," Damisch said. "Being inconspicuous is a tenuous value proposition in an era of increasing oversight."

Some nontraditional offshore centers -- including several outside Europe -- remain poised for growth. Singapore and Hong Kong, in particular, will continue to benefit from their proximity to other Asian countries, where wealth is expected to stage a faster recovery.

"Iconic offshore centers, like Switzerland, will remain competitive, but even the most venerable institutions will need to emphasize their underlying capabilities as international wealth managers," said Damisch.

Wealth Managers Were Resilient but Still Vulnerable

The wealth management industry has weathered the storm better than most other financial-services sectors, but it was hardly unscathed. Among the 124 institutions in BCG's benchmarking study, the median pretax profit margin fell to 30.0 percent in 2008, down from 36.4 percent in 2007.

Performance was dampened by client behavior. Stung by losses and scandals, clients shifted their assets to basic, low-margin investments. "Dazzling product complexity is no longer seen as a positive attribute -- if it ever really was," said Bruce Holley, a BCG senior partner and a coauthor of the report. "It is unclear when -- and to what extent -- assets will migrate back to high-margin investments, but wealth managers cannot count on a strong resurgence of these products in the short term."

"The industry will need to do more with less," continued Holley. "Revenues and profitability are sliding, but clients want more intensive service. Wealth managers have an opportunity to gain ground while assets and relationships remain in play, but only if they define a clear value proposition -- many, for example, will be able to enhance their offering by narrowing their product range. They also need a more aggressive client-acquisition strategy -- one that zeroes in on 'dislocated' wealth -- in order to gain share in this market."

The report also includes insights into other topics:

-- The response of Swiss banks to the reallocation of assets to basic products

-- Strategies for serving lower-tier clients

-- Responses of U.S. wealth managers to the crisis

-- The changing dynamics of Latin America's wealth market

To receive a copy of the report or arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

(1) The levels and changes in AuM in this release were measured in local currencies and converted into U.S. dollars using end-of-year 2008 exchange rates to exclude the effects of exchange rate fluctuations.

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