The current market turbulence may have most investors down at the moment, but 2021 was a year of growth for high-net-worth individuals’ wealth.
Capgemini found in its latest World Wealth Report that strong stock market performance last year helped boost wealth around the world, with the global high-net-worth population growing by nearly 8%, and wealth for the group up a similar amount, or $6.4 trillion.
North American individuals saw a boom of 13.8% wealth growth, and a 13.2% boost to the high-net-worth population. In contrast, Asia Pacific, which usually tops the charts, saw a 5.4% growth of high-net-worth wealth last year.
“Wealth development is resoundingly resilient, and even against the backdrop of geopolitical turmoil the growth rate will remain positive,” said Anna Zakrewski, global leader of Boston Consulting Group’s wealth management segment, in a press release. “[Wealth managers] must make strategic choices to remain competitive.”
Despite the ongoing pandemic, Covid had little impact on how the world’s wealthiest investors chose where to put their money, according to Capgemini. Investors were positive in their mindset, looking to equities and alternative investments. They also favored environmental, social and governance (ESG) investment options, an area where wealth management firms still have room to grow and meet demand as governments ramp up their policy focus on net zero initiatives and recovery in the wake of the pandemic. Boston Consulting Group estimates that by 2026, sustainable investing could account for 8% to 17% of privately invested wealth, an increase from today’s 4% to 11%.
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Of course, the question remains as to how 2022 will shake out. At the moment, the markets are still suffering from a slew of problems, ranging from rising inflation and spiking interest rates to gas prices and Russia’s war with Ukraine. Such difficulties may push investors harder, forcing them to restructure their portfolios.
This is an opportunity for wealth managers to play on the trends of 2021, with the wealth boom and interest in alternative investments, to lead clients in new areas and better balance their portfolios.
For instance, digital assets have become an increasingly important part of investors’ portfolios, with 91% of high-net-worth individuals under the age of 40 holding digital assets, according to Capgemini. Some 71% overall invest in digital assets, and most say cryptocurrencies are their favorite digital option.
But the price of Bitcoin BTC has fallen more than 50% year-to-date, with the price hovering above $20,000 at the start of July, compared to nearly $50,000 at the start of the year. So what other digital options are available that could appeal to clients?
Wealth management firms have the opportunity to build the digital asset part of their business to not only meet the demands of their clients, but also to educate those ready to expand their limited experience in the space but showing them alternatives to cryptocurrencies and finding ways to counterbalance the volatility of options like Bitcoin. Boston Consulting Group noted that almost 80% of wealth management clients they surveyed said they would consider increasing their crypto holdings if wealth managers offered advisory and education services.
Times of turbulence are opportunities for communication and education in ways that bull markets often are not. Right now investors are looking for guidance, and trying to decide how to control their losses. Last year’s wealth boom provided a buffer, so wealth managers must look forward to keep their clients engaged and positive.