The landscape of wealth management has undergone significant changes in recent years, driven by the evolving needs and expectations of ultra-high-net-worth individuals and a new generation of self-made super-rich, according to a recent report.
The Capgemini Research Institute’s World Wealth Report 2024 found the number of wealth management relationships maintained by UHNWs has risen from an average of three in 2020 to seven in 2023. The findings suggest UHNW clients are not finding the support and advice they need within a single firm and so choose to engage a number of advisers.
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Furthermore, 78 per cent of UHNWs indicated they are likely to switch their primary wealth management firm in 2024, with many suggesting they will make the move to a single-family office in search of greater personalisation and flexibility.
The report, which questioned 3,119 HNWs across North America, Latin America, Europe, Middle East and Asia-Pacific, noted this trend presents an opportunity, as well as a challenge to wealth management services.
HNW growth soars globally
The shift towards family offices and a more personalised service reflected a rising population of younger, self-made ultra-high-net-worth individuals and the sustained growth of the UHNW population and their evolving service preferences, the report suggested.
Global HNW wealth expanded by 4.7 per cent in 2023 to $86.8 trillion, an upward trend that offsets last year’s decline. Similarly, the HNW population increased by 5.1 per cent to 22.8 million globally and continues to grow despite market unpredictability.
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North America registered the strongest HNW recovery worldwide in 2023 with year-on-year growth at 7.2 per cent for wealth and 7.1 per cent for population. The recovery was driven by solid economic resilience, cooling inflationary pressures, and a formidable US equity market.
Demand for more personalised financial and non-financial services will only grow over the next two decades, as ageing generations are set to transfer over $80 trillion in what has become known as the ‘great wealth transfer’. The report said this represents ‘a lucrative opportunity for wealth management firms’.
The rise of the family office
Family offices, with their diverse operating models fully aligned with the objectives of the families they serve, are becoming more visible and significantly challenging traditional wealth management firms. Just over half (52 per cent) of UHNWs want to set up a family office, the report found.
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Single-family offices, which exclusively serve one family, are typically established by hiring a team of specialists from banking, wealth management, or industry bodies. These offices provide a higher level of control and agility compared to multi-family offices and are viable only for a select group of UHNWs with substantial wealth.
Over the past decade, the number of single-family offices has increased by 200 per cent, reaching more than 10,000 in 2022.
Crossroads for wealth management
The wealth management industry must adapt to the changing needs of younger, self-made UHNWs by offering a comprehensive suite of services that combine financial and non-financial value-added benefits, the survey said.
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The growing preference for family offices poses both a challenge and an opportunity for traditional wealth management firms, with strategic collaboration with family offices presenting a viable path for wealth management firms to enhance their service offerings, the report’s authors said.
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‘Based on our research findings and analyses, we recommend that wealth management firms evolve into one-stop shops that provide a full suite of products and services,’ the report said.
This transformation involves integrating internal teams with third-party partners to create a broad and efficient ecosystem capable of delivering services through clients' preferred channels, Capgemini’s researchers said.
While in-person interactions remain crucial, the growing importance of digital channels was also highlighted by the survey. Client-centric wealth management firms were encouraged to offer omnichannel and hyper-personalised experiences to meet the evolving expectations of UHNWs.
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Nilesh Vaidya, global industry head of retail banking and wealth management at Capgemini, added: 'Clients are demanding more from their wealth managers and the stakes have never been higher. There are active steps firms can take to engage and retain clients for a personalised, omnichannel experience as the great wealth transfer unfolds and growth of HNWIs continues.'
