Summary: Emerging-market fortunes differ from those in mature markets in terms of the openness of ultra high net worth individuals (UHNWIs) about their holdings and fortunes, as well as their countrymen’s attitudes toward gathering wealth. Although entrepreneurs from emerging markets have made impressive strides in building global companies, they are still at a disadvantage in terms of creating global brands. Because their fortunes are mostly first generation, the personal money management practices in the emerging markets are also at an earlier stage than in mature markets.

BCG’s twelfth annual report on the global wealth-management industry explores these questions, and also examines the current size of the market, the present dynamics of offshore banking, the performance levels of leading institutions, the emergence of alternative business models, and key trends that all players must adapt to. Ultimately, wealth managers must continue to find ways to raise their performance in a climate of volatile equity and bond markets, increasingly demanding clients, and ever-watchful regulatory agencies.

Using exclusive data and survey results, the authors uncover how the wealth being generated by the world’s fastest growing economies is an integral part of the equation, but also discover that economic growth alone is not enough to create cities considered genuinely important by the world’s wealthiest people.

Some highlights:

• Today’s client is cautious, smart, less loyal and expects excellent service and clear value.

• Regulation has become the not-so-invisible hand, increasing the cost of operations.

• Greater operational efficiency and effectiveness are required, not just to compete but to survive.

• Standing still is no longer an option and institutions must now quickly adapt or face being left behind.

The 2011 biennial report surveyed a record 275 institutions from 67 countries, and found that wealth management continues to be a lucrative business with untapped potential for significant growth if institutions can be agile in adapting to meet changing demands. Findings point out that industry faces multiple pressures in five key areas:

• Performance and change

• Markets and clients

• Client relationship managers and human capital

• Operations and technology

• Risk management and regulation

“The past few years have seen great fluctuations in HNWI wealth and population,” said John Thiel, Head of U.S. Wealth Management and the Private Banking & Investment Group, Merrill Lynch Global Wealth Management. “In 2010, we saw growth rates slow down from the higher double-digit levels of 2009 when many markets were quickly returning from significant crisis-related losses.”

The global HNWI population remained highly concentrated in the U.S., Japan and Germany, which together accounted for 53.0 percent of the world’s HNWIs. The U.S. is still home to the single largest HNW segment in the world, with its 3.1 million HNWIs accounting for 28.6 percent of the global HNWI population.

“While over half of the global HNWI population still resides in the top three countries, the concentration of HNWIs is fragmenting very gradually over time,” said Jean Lassignardie, Global Head of Sales and Marketing, Capgemini Global Financial Services. “The concentration of HNWIs among these areas will continue to erode if the HNWI populations of emerging and developing markets continue to grow faster than those of developed markets.”

Asia-Pacific posted the strongest regional rate of HNWI population growth in 2010, among the top three markets. While HNWI wealth had already overtaken Europe in 2009, Asia-Pacific has now surpassed Europe in terms of HNWI population, expanding 9.7 percent to 3.3 million, while Europe grew 6.3 percent to 3.1 million. Asia-Pacific HNWIs’ wealth gained 12.1 percent to US$10.8 trillion, exceeding Europe’s HNWI wealth of US$10.2 trillion, where the wealth increase was 7.2 percent in 2010. Asia-Pacific is now the second largest region for both HNWI wealth and population, second only to North America.

Also of note in the Asia-Pacific region, India’s HNWI population became the world’s twelfth largest in 2010, entering the top 12 for the first time.

The study suggests that the rebalancing of global wealth is expected to accelerate over the next decade. Emerging market (EM) economies are likely to prove to be more dynamic in terms of growth rates, creating significant opportunities for wealth managers seeking to gain a share of these potentially lucrative markets. Among emerging markets, China may continue to be the driving force in the growth of millionaire wealth, followed by Brazil and Russia. Of the 25 economies examined in this study, China and South Korea are likely to join the top10 in terms of the total number of millionaires by 2020.

The World Wealth Report covers 71 countries in the market-sizing model, accounting for more than 98% of global gross national income and 99% of world stock market capitalization. The report has built a strong and lasting reputation as the industry benchmark for HNWIs market sizing—originally at a global and regional level but increasingly at a country level. June 18 2010

Property, unsurprisingly, is the cornerstone of the report and includes the latest results from Knight Frank’s unique Prime International Residential Index, which tracks the performance of the world’s most expensive property markets. The 2010 issue also looks in detail at prime property markets in the Asia Pacific region, which continues to drive the world’s economic recovery, and the outlook for the property investment sector.

In Trends, the report analyses other markets, such as art, that are of interest to the wealthy individual. Often, there are more similarities than differences when these markets are compared with the prime property sector.

Monitor is where the authors draw on the insight of leading global political and economic commentators to help understand the global patterns and events that can impact on wealth and prime property ownership. 2010’s report features an exclusive interview with Ian Bremmer of Eurasia Group, the world's foremost political risk analyst and consultant. In this section the results of Knight Frank’s annual survey of the cities that really matter to the world’s wealthy are unveiled as well.

Finally, the chapter on Attitudes reveals the results of the Wealth Report's annual Attitudes Survey, which looks at how high-net-worth individuals view the outlook for the different investment classes and their own personal wealth. Also featured is an exclusive interview with Trudie Styler, wife of rock star Sting, who says that some prime properties can literally change your life.

Stuart Fraser, Policy Chairman at the City of London Corporation, said, "Although London and New York have always led the pack, this research is a wake-up call for decision-makers that our standing as a world-leading global financial centre should not be taken for granted. We cannot afford to be complacent in the face of growing competition across the world, not just in the USA but also increasingly Asia." He also said there is a danger that new regulation could accelerate this shift in the financial centre of gravity towards fast-developing markets by undermining the UK's competitiveness. "Industry and government must work together to ensure that this does not happen."

Policy measures for improving financial regulation

Progress in implementing the London Summit recommendations for strengthening financial stability

A release from the Board today advised that it and its members are taking forward a major programme of financial reforms based on clear principles and timetables for implementation that are designed to ensure that a crisis on this scale never happens again.

The FSB has welcomed the support of G20 Leaders for this programme, noting that much has already been achieved, and much is underway that. When implemented, it said, the programme will create a more disciplined and less procyclical financial system that better supports balanced sustainable economic growth. Policy development is not complete, however, and detailed implementation of the full set of needed reforms will take time and perseverance.

The reforms set out in the report “Improving Financial Regulation” cover the following key areas:

• Strengthening the global capital framework for banks. New rules will be set out by end-2009, calibrated in 2010 and phased in as financial conditions improve and recovery is assured.

• Making global liquidity more robust. A new minimum global liquidity standard for banks will be issued by end-2009, and measures that could mitigate cross-border liquidity problems at the national level reviewed.

• Reducing the moral hazard posed by systemically important institutions. Measures will be developed over the next 12 months that can be taken to reduce the systemic risks that these institutions pose.

• Strengthening accounting standards. Further work is encouraged to improve standards on valuation and provisioning and achieve a single set of high-quality global accounting standards.

• Improving compensation practices. The FSB has set out in a separate report implementation standards for the FSB compensation principles.

• Expanding oversight of the financial system. Work is progressing to ensure that all systemically important activity is subjected to appropriate oversight and regulation, including relating to hedge funds and credit rating agencies.

• Strengthening the robustness of the OTC derivatives market. Standards will be strengthened and consistently applied to address systemic risks, including covering capital requirements to reflect the risks of OTC derivatives and further incentivise the move to central counterparties and, where appropriate, organised exchanges.

• Re-launching securitisation on a sound basis. The official sector must provide the framework that ensures discipline in the securitisation market as it revives.

• Promoting adherence to international standards. The FSB is developing a system of peer reviews of regulatory and prudential standards and of policies agreed in the FSB.

The FSB has also submitted today to G20 Leaders for their endorsement a charter formally establishing the FSB and setting out its mandate and method of operation.

The FSB, which was re-established in April 2009 as the successor to the Financial Stability Forum (FSF), brings together national authorities responsible for financial stability in significant international financial centres, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. It promotes international financial stability through enhanced information exchange and cooperation in financial supervision and surveillance.