The Rich Return To Richer Returns: Global Wealth 2004

The Rich Return to Richer Returns

G LO B A L W E A LT H 2 0 0 4
Amsterdam Houston Prague
Athens Istanbul Rome
Atlanta Jakarta San Francisco
Auckland Kuala Lumpur Santiago
Bangkok Lisbon São Paulo
Barcelona London Seoul
Beijing Los Angeles Shanghai
Berlin Madrid Singapore
Boston Melbourne Stockholm
Brussels Mexico City Stuttgart
Budapest Miami Sydney
Buenos Aires Milan Taipei
Chicago Monterrey Tokyo
Cologne Moscow Toronto
Copenhagen Mumbai Vienna
Dallas Munich Warsaw
Düsseldorf Nagoya Washington
Frankfurt New Delhi Zürich
Hamburg New York
Helsinki Oslo
Hong Kong Paris
BCG
www.bcg.com BCG REPORT
The Boston Consulting Group is a general management consulting firm The Boston Consulting Group publishes other reports and articles that may be of interest to senior financial executives.
that is a global leader in business strategy. BCG has helped companies Recent examples include:
in every major industry and market achieve a competitive advantage by
developing and implementing winning strategies. Founded in 1963, the
firm now operates 60 offices in 37 countries. For further information, Preparing for the Endgame: Global Payments 2004
please visit our Web site at www.bcg.com. A report by The Boston Consulting Group, October 2004
Winners in the Age of the Titans: Creating Value in Banking 2004

A report by The Boston Consulting Group, May 2004
Winning in a Challenging Market: Global Wealth 2003

A Senior Management Perspective by The Boston Consulting Group,
July 2003
Navigating the Maze: Global Asset Management 2003

June 2003
The Payments Puzzle: Putting the Pieces Together, Global Payments 2003
A report by The Boston Consulting Group, February 2003
Prospering in Uncertain Times: Global Wealth 2002

July 2002
For a complete list of BCG publications and information about how

to obtain copies, please visit our Web site at www.bcg.com.
To receive future publications in electronic form about this topic

or others, please visit our subscription Web site at
www.bcg.com/subscribe.
ANDREW DYER
CHRISTIAN DE JUNIAC
BRUCE M. HOLLEY
VICTOR AERNI
NOVEMBER 2004
www.bcg.com
© The Boston Consulting Group, Inc. 2004. All rights reserved.
For information or permission to reprint, please contact BCG at:

E-mail: bcg-info@bcg.com
Fax: +1 617 973 1339, attention BCG/Permissions
Mail: BCG/Permissions
The Boston Consulting Group, Inc.
Exchange Place
Boston, MA 02109
USA
2 BCG REPORT
Table of Contents
Note to the Reader 4
Acknowledgments 5
Preface 6
Summar y of Key Findings 8
Confidence Returns 10
A Welcome Recovery 10
Regional Differences 12
Growing Markets 16
Emerging Wealthy Investors 16
Mass Affluent Investors 16
Achieving Growth: Offshore Versus Onshore Markets 18
Promising New Markets 19

Greater China 19
India 20
A Management Agenda 22
Methodology 26
Market-Sizing Database 26
BCG Wealth Manager Performance Survey 26
Appendix I: Wealth Management Data 27
Appendix II: Summar y of Previous Years’ Findings 30
The Rich Return to Richer Returns 3

Note to the Reader
In our report this year, we discuss emerging wealthy and mass affluent investors, as well as the broad cate-
gory of established wealthy investors. We define emerging wealthy investors as those with $1 million to $5 mil-
lion in assets under management (AuM) and mass affluent investors as those with $100,000 to $1 million in
AuM. (In previous Global Wealth reports, we used $250,000 as the minimum threshold for an individual’s
AuM.) We define established wealthy investors as those with more than $5 million in AuM.
This year’s report is based on three main sources of information. First, we built our own global market-siz-
ing estimates for all the major wealth markets by country and by wealth segment. Second, we conducted an
extensive quantitative and qualitative survey of about 100 leading wealth managers worldwide. Third, we
drew insights from our own substantial and growing body of work for wealth managers and private bankers.
In addition, we have significantly improved the quality and reach of our market-sizing data. For example, we
collected data for non-OECD countries and for the offshore market from several sources, including banks
that are active in smaller countries.
We plan to repeat the benchmarking survey in 2005 and invite interested institutions to contact us at
GWR2005@bcg.com.
If you would like to discuss your wealth management business with The Boston Consulting Group, please
contact one of the following leaders of our global Financial Services practice:
The Americas Europe Asia-Pacific
Bruce M. Holley Christian de Juniac Andrew Dyer

BCG New York BCG London BCG Sydney
+1 212 446 2800 +44 20 7753 5353 +61 2 9323 5600
holley.bruce@bcg.com de.juniac.christian@bcg.com dyer.andrew@bcg.com
Jorge Becerra Victor Aerni Giles Brennand

BCG Buenos Aires BCG Zürich BCG Hong Kong
+54 11 4314 2228 +41 1 388 86 66 +852 2506 2111
BCG Miami aerni.victor@bcg.com brennand.giles@bcg.com
+1 305 728 6042
BCG Santiago Ludger Kübel-Sorger Steven Chai
+56 2 338 9600 BCG Frankfurt BCG Seoul
becerra.jorge@bcg.com +49 69 9 15 02 0 +822 399 2500
kuebel-sorger.ludger@bcg.com chai.steven@bcg.com
Rohit Bhagat
BCG San Francisco Huib Kurstjens Julian Durant
+1 415 732 8000 BCG Amsterdam BCG Bangkok
bhagat.rohit@bcg.com +31 35 548 6800 +66 2 667 3000
kurstjens.huib@bcg.com durant.julian@bcg.com
Willie Burnside
BCG Los Angeles Andy Maguire Craig Rice
+1 213 621 2772 BCG London BCG Melbourne
burnside.willie@bcg.com +44 20 7753 5353 +61 3 9656 2100
maguire.andy@bcg.com rice.craig@bcg.com
John Garabedian
BCG Chicago Philippe Morel Roman Scott
+1 312 993 3300 BCG Paris BCG Singapore
garabedian.john@bcg.com +33 1 40 17 10 10 +65 6429 2500
morel.philippe@bcg.com scott.roman@bcg.com
Paul Orlander
BCG Toronto Janmejaya Sinha
+1 416 955 4200 BCG Mumbai
orlander.paul@bcg.com +91 22 2283 7451
sinha.janmejaya@bcg.com
4 BCG REPORT
Acknowledgments
We would like to thank all the institutions that participated in this year’s global benchmarking survey and
helped us enrich the insights in this report. We would also like to acknowledge the following people for their
support in the preparation of this report: Gilles Ballot, Robert Borsi, Valeria Bruno, Robin Chiang, Florian-
David Frey, Stephen Hartley-Brewer, Katherine Hayward, Khamphanh Kittikhoun, Jane Loveday, Astrid
Malval-Beharry, Revital Padovitz, David Parnell, Mardian Sugandhi, Andrea Walbaum, Katherine Andrews,
Gary Callahan, Kim Friedman, and Peter Truell.
Several leaders of the Financial Services practice—including Jorge Becerra, Giles Brennand, Andy Maguire,
Francesco Morra, Craig Rice, Janmejaya Sinha, and Gustavo Wurzel—provided analysis, advice, and helpful
insights.
We would also like to give particular thanks to Jeff Whitaker, who recently left BCG’s New York office. Over
the past five years, he has done much to help build BCG’s wealth-management business, insights, and surveys.
Andrew Dyer Christian de Juniac

Vice President and Director Senior Vice President and Director
Bruce M. Holley Victor Aerni

Vice President and Director Vice President and Director

Preface
The Boston Consulting Group is committed to We are looking more closely at emerging wealthy
enhancing the understanding of the dynamics and and mass affluent investors, recognizing their grow-
economics of wealth management. When run well, ing importance to many large wealth-management
wealth management is one of the more profitable franchises and to tomorrow’s markets. This fresh
and faster-growing financial-services businesses. As look at the emerging wealthy and the mass affluent
financial institutions increasingly move toward rec- markets also dovetails with new BCG research in-
ognizing economic profit as a critical measure, to retail banking.
wealth management businesses within large inte-
grated institutions will grow in stature. We continue to present overall assets under man-
agement (AuM) and revenues in U.S. dollars. In
We began this series of reports four years ago, started addition, we have a new section on promising new
our surveys of leading competitors three years ago, markets, which examines the rapidly growing
and continue to deepen our wealth-management wealth-management markets of Greater China and
practice and expand our coverage of markets. We India, as well as Latin America and the Middle East.
remain committed to creating shared terminology
and understanding of the market and to helping The number of participants in our wealth-manage-
institutions consider and adjust to the substantial ment survey has grown to almost 100 institutions,
demographic shifts occurring as the baby boomers of with many repeat participants. (See Exhibit 1.) We
North America and Europe age and accumulate sub- continue to expand our coverage. This year, we have
stantial wealth, and as an emergent wealthy class particularly strong European participation, includ-
grows in other parts of the world—notably in Greater ing more than 25 Swiss institutions. In our bench-
China, India, and the Middle East. marking analysis, we use client assets and liabilities
(CAL) as a broad measure of client fee-earning assets
Our reports seek to provide insights into the best within an institution. This measure is the sum of a
strategies for private bankers and wealth managers. client’s deposits, brokerage assets, managed funds,
This year, for example, we examine the profound and loans outstanding—but excludes pure custody
changes now occurring in the offshore market— holdings.
that traditional destination for wealthy investors.
Growing regulatory pressure—especially from the Our global wealth-management market sizing has
European Union, which contributes more than half grown, too. It now covers 62 countries—up from
of all offshore funds and 70 percent of funds in 45 countries last year. In addition, we have contin-
Switzerland and Luxemburg—is curbing this mar- ued to build our related research in asset manage-
ket. Over the next ten years, offshore players will ment. In December, we will publish our second
need to fundamentally change their business mod- annual report examining the challenges facing asset
els or face increasing difficulties. managers.
6 BCG REPORT
EXHIBIT 1
ALMOST 100 LEADING INSTITUTIONS PARTICIPATED IN THE BENCHMARKING SURVEY
Europe
North America 56 institutions

CAL=$2.0 trillion1
29 institutions
CAL=$5.4 trillion1
Latin America
5 institutions Asia-Pacific
CAL=$51.7 billion1
9 institutions
CAL=$89.9 billion1
SOURCE : BCG wealth-manager-performance database.
N OTE : Participant data were supplemented with selected public data when comparable and appropriate.
1
Client assets and liabilities of participants in the survey. CAL = wealthy clients’ AuM, brokerage assets, deposits, and outstanding loans.

Summary of Key Findings
The importance of wealth management to banks’ • North American fee-based players saw their
economics should not be underestimated. Wealth median pretax margins substantially outpace
management could represent as much as 20 percent those of commission-based players.
of global bank revenues, nearly double the indus-
try’s investment-banking revenues. Meanwhile, we • Asia-Pacific institutions in our survey, strongly
expect growth in wealth management to continue at influenced by healthy investment markets in
4.5 to 5 percent annually in nominal terms because Australia, saw their median pretax margin leap
of long-term demographic trends and recovering from 30 percent in 2002 to 46 percent in 2003.
markets.
Growing confidence has started to have an impact
• Global bank revenues totaled approximately on asset holdings, as investors gradually increase
$1.9 trillion to $2.5 trillion in 2003. Wealth man- their allocations to equities and equity-related
agement revenues from wealthy investors—those investments, although in most geographies these
with $1 million or more in AuM—equaled about allocations have yet to reach late-1990s levels.
$252 billion. If revenues from mass affluent
• Equity and equity-related investments are becom-
investors—those with $100,000 to $1 million in
ing more popular with investors. At the end of
AuM—are added, this pushes the total up
2003, equity-related investments accounted for 36
another $290 billion to about $542 billion.
percent of global investors’ assets, up from 35
• Thanks to the recovery in global markets, there percent at the end of 2002. This reflected a shift
were 7 million households that each held more away from money market and bond funds.
than $1 million in AuM at the end of 2003. Their
• The weakening dollar has inflated views of growing
total wealth had increased by $2.8 trillion at con-
wealth. In local currency terms, global wealth actu-
stant exchange rates. This represents an increase
ally decreased 4 percent between 1999 and 2003.
of 1.24 million millionaire households around
the world, a 23.1 percent increase over 2002. Our survey of wealth management institutions showed
Meanwhile, the world’s mass-affluent households that all the main business models in private banking
increased by 13.1 percent, or 10 million house- can be profitable, but there are very substantial dif-
holds, in 2003. ferences in competitors’ performance, which cannot
be explained by model, scale, or location.
• Strong equity markets and currency move-
ments—notably a weakening dollar—were the
• North American fee-based wealth managers, with
primary drivers of this growth in AuM. Increased
2003 median pretax margins of 26 percent, con-
savings played a minor role.
tinued to outpace commission-based players,
• Wealth remains extremely concentrated. Seven which had margins of 12 percent.
percent of wealthy households, or 93 million of the
• Wealth managers in the Asia-Pacific region, bene-
world’s 1.25 billion households, hold 77 percent,
fiting from the area’s rapid economic growth,
or $55.3 trillion, of $71.6 trillion of global AuM.
showed a 19 percent increase in median pretax
Wealth managers’ profitability improved significantly margins; survey participants there enjoyed me-
in 2003, thanks to the recovery in equity markets and dian pretax margins of 46 percent.
better margins.
Among the world’s wealthy, emerging wealthy investors,
• European onshore wealth managers in our survey with assets of $1 million to $5 million, and mass afflu-
showed a marked improvement, increasing their ent investors, with assets of $100,000 to $1 million, are
median pretax margin to 24 percent in 2003, the dominant segments, accounting for more than
compared with a 9 percent median pretax margin two-thirds of assets and revenues. These investors
in 2002. are the largest groups of wealthy investors across
8 BCG REPORT
most geographies, although their significance is Important new markets are opening up to wealth
greatest in Asia-Pacific, where the number of mass managers with international ambitions.
affluent investors has grown rapidly in recent years.
• Greater China (China, Taiwan, and Hong Kong) is
• Emerging wealthy investors grew at 24 percent in increasingly important to the wealth management
2003 and will grow at close to 5 percent annually industry. If Japan is excluded, greater China
through 2008. These investors will provide one of accounted for $3.29 trillion of Asia’s $6.4 trillion in
the most profitable growth markets for wealth AuM from wealthy investors and just more than
managers provided they tailor their offerings half the $54.3 billion of Asian wealth-management
appropriately. revenues from wealthy investors in 2003. Japan,
however, remains Asia’s largest wealth-manage-
• Mass affluent investors won’t offer such rapid ment market with about $12.4 trillion in AuM.
growth, but some providers will succeed in realiz-
ing the promise of this vast market, whose AuM • Although Indian investors with more than
grew by almost 17 percent in 2003. $100,000 in AuM held $340 billion at the end of
2003—about one-third of what Chinese investors
Overall, onshore competitors are becoming rela- with more than $100,000 in AuM held at that
tively more profitable. Our European onshore sur- date—Indian investors’ wealth grew at a 21.4 per-
vey participants improved their median pretax mar- cent annual clip compared with 8.3 percent
gins by 6 percent between 2001 and 2003, while growth for Chinese investors.
European offshore competitors in our survey regis-
tered a mere 1 percent increase in margins. Wealth managers and private bankers have yet
to fully tap the asset-management and managed-
• The relative rise in onshore profitability threatens funds market—particularly in newer wealth-man-
to overturn conventional wisdom about the supe- agement markets outside of Europe and North
rior profitability of offshore players. Offshore America.
competitors face more volatile and uncertain
markets, and a relentless regulatory squeeze. • Asset management revenues from households
Nevertheless, best-practice players in offshore mar- with more than $100,000 in AuM accounted for
kets continue to earn handsome median pretax 38 percent, or $207 billion, of global wealth-man-
margins that can be as high as 40 percent per year. agement revenues in 2003.
• Onshore wealth managers in Europe narrowed • Wealth managers have yet to satisfy the markets’
the performance gap with offshore providers, our appetite for alternative assets that are not corre-
sur vey showed. Median pretax margins for lated with the stock markets, such as hedge funds,
onshore players measured 24.5 percent in 2003 private equity, and real estate.
compared with margins of 25.5 percent for off-
shore players. Succeeding in wealth management requires a balance
of careful revenue management and growth. Tight
The offshore market is changing as more countries, control of costs is as important as ever, and top per-
notably in Western Europe, consider or embrace tax formers have a good product and client mix, excel-
amnesties to bring offshore funds back to onshore lent relationship-manager productivity, a focused
markets. For their part, European investors seemed and engaged work force, and careful cost manage-
more willing to keep funds onshore. ment in the back office.
• The changes in the offshore market are increas- • Wealth managers’ improved cost discipline has
ing the pressure for consolidation in Swiss private stood them in good stead. The industry looks
banking. However, there were no significant mer- prepared to take full advantage of growth oppor-
ger transactions in the first ten months of 2004. tunities.
• Other offshore centers, notably Singapore and • It is critical to align relationship managers with the
Hong Kong, have benefited from the pressure on right clients and achieve the optimal scale in the
Switzerland and other European offshore centers. back office in order to improve profitability.

Confidence Returns
The global wealth market recovered in 2003, grow- grow 24 percent by 2008 to $89 trillion. (See Exhibit
ing by 18 percent in U.S. dollar terms and by 8.5 2.) This increase will result from demographic
percent in local currency terms. The rich are get- changes and higher savings rates in Europe and
ting richer, gradually returning to the frequently North America, where aging populations are accu-
higher, but more volatile, returns of equities, hedge mulating assets rapidly, as well as from growing
funds, and private equity. There were about 7 mil- wealth in Asian markets, notably Greater China and
lion households around the world that had more India. For wealth managers, the critical question is
than $1 million in assets under management (AuM) how best to take advantage of such opportunities in
at the beginning of 2004. order to achieve stronger growth.
The improvement in global stock markets over the Our 2004 benchmarking showed that almost all pri-
past 18 months has helped the wealth management vate-banking models can be quite profitable. But
business restore its returns after some lean years huge differences in profitability continue to exist—
and has reduced some of the overcapacity in the differences that cannot be explained by model,
market. Nevertheless, investors remain cautious scale, or region. Leading players show that focusing
and have yet to make a substantial shift from cash on revenues and costs determines success. Product
investments to equities. Investors are gradually and client mix, relationship-manager productivity,
returning to equities and equity-related products, and back-office cost management are especially
signifying growing confidence in the economy. critical to success. Regulatory and government pres-
sure, particularly on offshore investors, will con-
But equity holdings still remain below the levels of tinue to increase, but it can sometimes offer oppor-
the late 1990s, when the market peaked. In 2003, tunities.
for the first time in four years, investor holdings of
equity and equity-related investments actually rose to
36.2 percent of their assets, up from 34.6 percent in A Welcome Recovery
2002. This is still far below the 47.1 percent of these
investors’ holdings invested in equity and equity- Global wealth rebounded substantially in 2003 after
related products at the end of 1999. the lean years of 1999 through 2002. (See Exhibit
3.) In U.S. dollar terms, the increase in asset values
Wealth management is a highly attractive business was particularly dramatic in Europe (25.4 percent)
for those competitors that understand and choose and other markets outside the United States
their markets carefully. In 2003, for example, the because of the depreciation of the U.S. dollar. If
narrowly defined wealth-management industr y, this increase is expressed in local currency terms,
excluding mass affluent investors, generated rev- that average drops to 8.5 percent. In local currency
enues of more than $250 billion, accounting for terms, wealth has yet to regain the heights of the
more than 15 percent of financial-services-industry late 1990s.
revenues. If financial services for wealthy retail cus-
tomers are included in the definition, those rev- Thanks mainly to the recovery of the equity mar-
enue estimates rise substantially. The global rev- kets, there were more than 11 million wealthy
enue pool for wealth managers has increased across households at the end of 2003, and their wealth
the world, growing by more than 20 percent in 2003 grew by $8.7 trillion. (See Exhibit 4.) But, as mar-
from $232.3 billion in 2002 to $281.1 billion. The kets have improved, so have client demands.
United States, the largest single market, accounted Investors are more concerned about capital protec-
for one-third of revenues and 60 percent of world- tion—and capital destruction—after the downturn
wide profits. of recent years. The interest in capital protection has
driven investment in fixed income and real estate.
The long-term prospects for this critical banking And tougher markets have also made investors more
business are good, too. Global wealth is projected to price sensitive and more willing to switch to lower-
10 BCG REPORT
EXHIBIT 2
GLOBAL WEALTH IS PROJECTED TO GROW 24 PERCENT BY 2008
CAGR CAGR
2003–2004 2003–2008 Growth Drivers
(%) (%)
AuM ($trillions) 89.0 6.4 4.5
• Improving market conditions
76.2 21.7 7.1 5.4
71.6 • Growth across all wealth segments
Established wealthy investors 17.9

16.7 • Strong appreciation against the
(AuM >$5 million) 13.5 9.2 4.9 U.S. dollar in non-U.S. countries
Emerging wealthy investors 11.7
10.7 • Higher savings because of aging
(AuM $1 milllion–$5 million)
populations
34.8 6.3 4.5
Mass affluent investors 29.7 • Rapid growth in some large Asian
27.9
(AuM $100,000–$1 million) markets
Nonwealthy investors 19.0

16.3 16.9 4.0 3.1
(AuM <$100,000)
2003 2004 2008
SOURCE : BCG wealth market-sizing database.
EXHIBIT 3
THE GLOBAL WEALTH MARKET RECOVERED DRAMATICALLY IN 2003
CAGR CAGR
1999– 2002 2002– 2003
(%) (%)
AuM ($trillions) 71.6 – 2.2 18.1
67.8 2.0
64.0 – 3.2 16.2
The Middle East and Africa 2.0 1.8 – 3.4 14.0
59.4 60.6
Latin America 1.9 1.9
1.9 1.7 1.7
1.6 18.7 – 3.2 16.1
1.8
Asia-Pacific 18.9
17.0
15.2 16.1
26.1 – 0.7 25.2

Europe 21.5 20.5
18.9 20.8
North America 23.5 22.7 21.8 23.0 – 2.8 13.0

20.4
1999 2000 2001 2002 2003

EXHIBIT 4
GLOBAL WEALTH INCREASED BY NEARLY $9 TRILLION IN 2003, CREATING 11 MILLION MORE WEALTHY HOUSEHOLDS
Change in number Change in

2003 of households AuM
20021
(%) (%)
1,227 60.6 1,250 71.6 1.9 18.1
Wealthy households 82 93
(AuM >$100,000) 13.8
46.6 55.3 18.8

Nonwealthy households
1,145 1,157
(AuM <$100,000) 1.0
14.0 16.3 15.9
Number of households AuM Number of households AuM

(millions) ($trillions) (millions) ($trillions)

1
Figures from 2002 were restated to use the same number of countries and methodology as 2003 figures.
priced offers. (See Exhibit 5.) Investors are also In North America, the wealth management market
more focused on absolute returns. They do, however, grew by 13 percent in U.S. dollar terms, thanks
show a greater openness to and appetite for more mainly to the turnaround in the local equity markets.
sophisticated and innovative structured products. Despite this recovery, wealth in North America
Wealth managers have yet to satisfy such investor hasn’t grown much since 1999 because of the burst-
preferences, including greater interest in investment ing of the equity market bubble and the wealth de-
and estate strategies and advice. The tax amnesties of struction of 1999 through 2002. We project, however,
recent years—including those in Italy, Germany, that the North American wealth market will grow
Belgium, Greece, and Ireland—aimed at encourag- 28 percent by 2008 because of improving market
ing investors to repatriate money and pay their taxes conditions. The number of wealthy households
have also helped fuel investors’ search for quality increased by 2 million last year, with strong growth
advice. among affluent investors. Commission-based wealth
managers continued to underperform their fee-
Regional Differences based competitors, according to our survey. Com-
mission-based players reported median pretax mar-
Our survey of wealth managers around the world gins of 11.7 percent; meanwhile, North American
showed marked differences in profitability across fee-based competitors reported margins of 26 per-
major regions. There were particularly high levels cent. Asset management—specifically managed
of profitability—pretax margins of more than 40 funds—accounted for 51 percent of $161 billion in
percent—at leading onshore and offshore competi- regional wealth-management revenues. North
tors in Europe and Asia, and at one or two North American investors continue to hold more equity
American fee-based players. (See Exhibit 6.) All products than investors in other regions, with equity
regions and all business models can be profitable, and equity-linked products accounting for almost
but quite wide variations remain, showing how half their AuM. (See Exhibit 9.)
important good management is to success in the
wealth management business. (See Exhibit 7.) In Europe, the wealth market grew by 4.4 percent in
Providers, our survey found, can thrive or stumble euro terms, driven by stronger equities and by local
at any wealth level. (See Exhibit 8.) currency appreciation against the U.S. dollar. But
12 BCG REPORT
EXHIBIT 5
CLIENTS BECAME MORE PRICE SENSITIVE AND INCREASED THEIR SERVICE DEMANDS
2000 2004
Client Safety and discretion 1 More price sensitive

needs Trust
Error-free service
Tax optimization Safety and discretion
Trust
Open architecture
Error-free service
Tax optimization
Open architecture
Capital protection (100%)
Absolute return
Increased openness toward
sophisticated products 2
More investment/estate strategy Higher
advice service
Lower pricing demands
Services regarding tax amnesties
SOURCE : BCG wealth-management-study interviews.
EXHIBIT 6
PROFITABILITY DIFFERED SIGNIFICANTLY ACROSS MAJOR REGIONS
Europe The Americas Asia-Pacific
North American fee-based player

North American commission-based player
Onshore player Offshore player Latin American player Australian player Asian offshore player
Median=48.5
Median=48.4
Median=25.7
Median=25.5
Median=42.4
Median=24.5 Median=11.7
– 30 – 10 10 30 50 70 – 40 – 20 0 20 40 60 80 – 40 – 20 0 20 40 60 80
Pretax margin, 2003 (%) Pretax margin, 2003 (%) Pretax margin, 2003 (%)
N OTE : Selected outliers were not included.

AuM have yet to reach 1999 levels. The fastest-grow- The wealth market in Asia-Pacific grew by 14.6 per-
ing market in wealth management is that made up cent in U.S. dollar terms during 2003. Rebounding
of the emerging wealthy, which grew 12.4 percent equity markets and favorable exchange rates fueled
last year. Investors have lost some of their appetite this rapid pace and helped the region’s AuM surpass
for fixed-income products, but the move away from the levels of 1999. The number of wealthy house-
equities slowed—but did not reverse—in 2003. holds increased by more than 1 million. Asset man-
Swiss and U.K. investors tend to hold larger pro- agement accounted for just 20 percent of $54.3 bil-
portions of their assets in equities than other lion in wealth management revenues. Investors in
European investors. Managed funds accounted for Australia, Hong Kong, and Taiwan were more re-
41 percent of Europe’s €223 billion in 2003 wealth- laxed about volatile securities. They held more
management revenues. We expect European wealth equity securities than other investors in the region.
to grow by 28 percent by 2008. European investors,
however, showed much greater aversion to risk than India is among the top six wealth-management mar-
U.S. investors did. During 2003, European investors kets in Asia with about half a million households
continued to move funds into lower-yielding deposits (including the mass affluent) holding sufficient
and money market funds—but at a lower rate than in wealth to be targets for wealth management ser-
previous years. In Switzerland, competition has vices. We expect this number to double over the
steadily increased, as has the pressure for consolida- next three to five years. Most wealth-management
tion; but to date, there have been no significant offerings in India focus on mutual funds, equities,
transactions during 2004. Meanwhile, private banks and insurance. Some competitors, however, offer
are pushing managed products more than before. advisory services for real estate and art investments.
EXHIBIT 7
ALL REGIONS AND BUSINESS MODELS CAN BE PROFITABLE
High
Median
% Change in median pretax margins from 2001 to 2003
Low
Pretax 100 6 1 4 3 –3 19
margin
(%)
80
60
52 49 46
40 41
27 30
24 25 22 26 22 26
20 18 21
12
9 9 8
0
– 20
– 40
– 60
– 80
2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003 2001 2002 2003
European onshore European offshore North American North American Latin American Asia-Pacific
players players fee-based players commission-based players players players
14 BCG REPORT
EXHIBIT 8
INSTITUTIONS CAN SUCCEED OR STUMBLE AT ANY WEALTH LEVEL
Median for client segments European player North American player Asia-Pacific player
Pretax margin, 90
2003 (%)
80
70
60
50
40
30
20
10
– 10
– 20
– 30
– 40
0 1 2 3 4 5 6 7 8 9 10
Average CAL1
($millions)

1
CAL = wealthy clients’ AuM, brokerage assets, deposits, and outstanding loans; selected outliers were not included.
EXHIBIT 9
NORTH AMERICANS HELD MORE EQUITIES THAN INVESTORS IN OTHER REGIONS
Wealthy investors’ asset holdings, 2003 (% of AuM)

9.1 10.5 9.1 26.4
Direct equities 20.2 2.9
18.7 3.3
15.3
Equity 15.2
1.6 5.5
Managed funds, equities 23.2 5.8 9.9
13.7 4.4
11.4 5.2 2.6
Managed funds, other1 3.5 4.3 2.8 7.7
Managed funds, bonds 8.7 5.3
16.7
Direct bonds 12.3
6.5 53.2 53.0 48.1
Fixed-income
cash investments Money market funds 14.4
31.8
Cash and deposits 17.7
North America Europe Asia-Pacific Latin America The Middle East

and Africa
N OTE : Wealthy is defined as households with AuM >$100,000.

1
Includes hybrid funds and balanced funds.

Growing Markets
As wealth managers search for growth, they are turn- It is critical, of course, to offer such services in a
ing to the largest groups of wealthy investors across cost-effective way. That means being disciplined in
the globe—emerging wealthy and mass affluent product focus and delivery. The product offering
investors—those with $1 million to $5 million in AuM can be broad, but there should not be unnecessary
and $100,000 to $1 million in AuM, respectively. The and costly product variations. In addition, it is often
emerging wealthy and the mass affluent are the dom- hard to deliver many sophisticated products in a
inant segments. (See Exhibit 10.) This dominance cost-effective way. There should, for example, be
holds true across most regions. (See Exhibit 11.) sufficiently high qualifying AuM hurdles for
investors who want to access hedge funds and struc-
These investors, especially the emerging wealthy, are tured products.
perhaps the least-tapped target markets for wealth
management services. In Europe, for instance, such
Mass Affluent Investors
investors accounted for 33 million households
that collectively had €10 trillion in AuM, creating To serve the mass affluent successfully, wealth man-
€104 billion in revenue for wealth managers. Even in agers need solid products and good service at com-
today’s recovering markets, there are surprisingly petitive prices. The challenge for banks is to
few very wealthy investors—those with more than achieve this in a cost-effective way. That means
$100 million in assets. In North America, for exam- streamlining products in order to tailor them for
ple, we estimate that there are just 1,800 households the mass market.
with more than $100 million in AuM, accounting for
just 6 percent of all the region’s AuM. For the larger wealth managers, building a broad
base by reaching into the mass affluent market can
Emerging Wealthy Investors be helpful—even critical—to building scale and
profitability. The opportunities in this segment are
It is in this segment that tomorrow’s rich are build- especially attractive for sizable and growing wealth-
ing their fortunes and where providers can often management franchises that control costs well and
find it easier to establish lasting and valuable rela- are flexible in accessing, customizing, and offering
tionships. We firmly believe that particularly good carefully chosen products from across the market-
opportunities for wealth managers exist among the place in order to keep costs down.
numerous emerging-wealthy investors with unmet
needs who are looking for guidance, advice, and Wealth managers may be attracted by the higher
better products and services. fees that usually come with smaller accounts. But
good cost management is essential if mass affluent
If wealth managers can correctly define and address and emerging wealthy investors are to be profitable
the needs of the emerging wealthy in a cost-effec- for the provider. Many competitors in these busi-
tive and disciplined way, they should be able to nesses don’t manage costs well. Often, they operate
build large and rapidly growing businesses in this too many different business models and don’t think
segment. The emerging wealthy are invariably through the costs to serve investors. Too much
pressed for time and eager to find good advice. We product variation quickly adds to complexity and
believe this segment is often the biggest missed piles up costs for the provider. That is why central
opportunity for wealth managers. We have encoun- management, such as that afforded by separate
tered private-banking and trust models that work accounts, is often the solution to ensuring good
well with such investors. profitability.
16 BCG REPORT
EXHIBIT 10
THE EMERGING WEALTHY AND THE MASS AFFLUENT WERE THE DOMINANT SEGMENTS IN 2003
93.2 55.3 544.4

0.01 1.3
3.2 23.8 AuM >$100 million
0.01 5.3 AuM $20 million– $100 million
0.8 6.6
Established
115.5 AuM $5 million– $20 million wealthy investors
12.7
41.5
107.5 AuM $1 million– $5 million Emerging
10.7 wealthy investors
20.7 214.6
Mass affluent
AuM $250,000– $1 million
45.1 investors
7.2 76.4 AuM $100,000– $250,000
Number of households AuM Revenue

(millions) ($trillions) ($billions)
EXHIBIT 11
THE EMERGING WEALTHY AND THE MASS AFFLUENT WERE THE LARGEST SEGMENTS ACROSS MOST REGIONS
% of AuM
5.0 4.5 3.1
AuM>$100 million 1.2 1.1 0.7 6.7 9.4
AuM $20 million– $100 million 1.6 2.3
Established 13.3 13.0 13.6
AuM $5 million– $20 million 27.4 14.4
wealthy investors
14.3 17.7
15.5
17.5
Emerging AuM $1 million– $5 million 13.1
wealthy investors 24.3 17.8
34.9 18.3
31.2 10.4
Mass affluent investors AuM $250,000– $1 million 11.5
9.4
13.3
AuM $100,000– $250,000 5.8 34.4
31.0 28.7
Nonwealthy investors AuM <$100,000 16.3 17.3
North America Europe Asia-Pacific Latin America The Middle East

and Africa
AuM AuM ($trillions) 23.0 26.1 18.7 1.8 2.0

Achieving Growth:
Offshore Versus Onshore Markets
Tighter regulatory regimes in North America and
EXHIBIT 12
Europe are causing many wealth-management firms
to weigh their options when it comes to offshore SWITZERLAND WAS THE LARGEST OFFSHORE CENTER
FOR PRIVATE-CLIENT ASSETS IN 2003
and onshore businesses. That is not to downplay the
importance of the offshore market. We estimate that
as much as $5.7 trillion is now held offshore, with
London Nassau, Luxem- Miami Hong
more than half of that figure coming from European Switzerland 650 Cayman burg and Kong Other
countries and with Switzerland as the dominant off- Islands, New 360
shore center. (See Exhibit 12.) Channel etc. York
Singa-
Islands pore
240 80
But onshore investing is likely to grow relative to off-
Market size
1,780 890 890 650 570 440 480
shore investing, especially in Europe and North ($billions)
America, where increased supervision and oversight
are helping to dampen enthusiasm for offshore SOURCE : BCG wealth market-sizing database.
investing. Tax amnesties are having a significant and
growing effect on the amount of wealth held in off-
shore markets. We anticipate that more European chise. Large Swiss banks, for example, were particu-
countries will consider tax amnesties and other legis- larly successful at bringing onshore their offshore
lation to entice investors to repatriate offshore Italian outflows.
funds. Given that nearly $2.4 trillion of European
wealth is offshore, governments are likely to pressure Around the world, wealthy households—those with
their citizens to repatriate these funds, especially in more than $100,000 in assets—hold widely differing
times of slower growth. For example, we have esti- proportions of their money offshore. Investors in
mated that Italy’s tax amnesty resulted in the repa- Eastern Europe, Latin America, and the Middle East
triation of about $50 billion, 12 percent of the coun- and Africa typically have held half or more of their
try’s offshore money. assets offshore. Western European investors have
held somewhere between one-quarter and one-third
When offshore investors repatriate funds, those of their wealth offshore. Investors in North America,
funds tend to flow from offshore banks to onshore Switzerland, and Asia-Pacific have held less than
institutions. Often, investors may merely move 10 percent of their wealth offshore. Overall, offshore
money from offshore accounts to onshore ones wealth managers’ profits actually declined in 2003, as
within the same institution, provided that the costs rose faster than revenues, although Swiss pri-
wealth manager has an established onshore fran- vate banks managed to overcome that trend.
18 BCG REPORT
Promising New Markets
Those wealth managers with international ambitions levels, and the number of wealthy households in the
cannot afford to ignore the large and fast-growing region increased by 500,000 in 2003. Wealth man-
markets of Asia, particularly Greater China and agers clearly have good scope for expanding their
India. Although Greater China is the larger of these businesses in China and for introducing more prod-
two private-banking markets, India recently showed ucts. Managed-funds fees, for example, accounted
faster growth, with its wealthier investors increasing for only 11 percent of $31 billion in wealth man-
AuM by 21.4 percent in 2003 compared with a agement revenues, leaving room for rapid growth
growth rate of just 8.3 percent for wealthy Chinese of these products. As in so many other markets,
investors’ AuM. (See Exhibit 13.) A recent Forbes list mass affluent investors dominated the investment
of the world’s richest individuals included nine in- scene. (See Exhibit 14.) China, with a projected
vestors from the Indian subcontinent.1 compound annual average growth rate of 6.2 per-
cent, will play an increasing role in the region’s
Greater China wealth market. (See Exhibit 15.)
Overall, the wealth market in Greater China In Hong Kong, there is increasing disillusionment
(China, Hong Kong, and Taiwan) grew by 11.4 per- with the low return potential of guaranteed funds
cent in U.S. dollar terms in 2003, thanks to a par- and the lack of transparency in hedge funds.
ticularly active market for investments in China and Hence, there is substantial growth in derivative
to turnarounds in the Hong Kong and Taiwanese funds, index funds, exchange listed funds, and even
stock markets. AuM have already surpassed 1999 basic savings plans. Across China, only about 1 to 5
percent of people have more than $60,000 in invest-
1. Forbes Special Report, The World’s Richest People, March 15, 2004. ments. In metropolitan areas, this percentage rises
EXHIBIT 13
INDIA’S ASSETS UNDER MANAGEMENT GREW MUCH FASTER THAN THOSE OF CHINA
China’s wealthy investors’ AuM India’s wealthy investors’ AuM

2002– 2003 2002– 2003
Increase of 8.3%
$0.99
$0.92 trillion
trillion
Established wealthy investors 0.20
(AuM >$5 million) 0.19
Emerging wealthy investors 0.15

(AuM $1 million– $5 million) 0.14
Increase of 21.4%
$0.34
$0.27 trillion
Mass affluent investors 0.59 0.64 trillion
(AuM $100,000– $1 million) 0.22
0.18
0.01
0.01
0.08 0.11
2002 2003 2002 2003

EXHIBIT 14
MASS AFFLUENT INVESTORS DOMINATED THE WEALTH MARKET IN GREATER CHINA
% of AuM
AuM >$20 million 0.8 0.8 4.5

Established
15.5 11.2 25.3 13.8
wealthy investors AuM $5 million– $20 million
15.1
Emerging AuM $1 million– $5 million 11.6 12.5
wealthy investors
17.2
39.3 41.6 6.6 38.8

AuM $250,000– $1 million
Mass affluent investors
29.2
AuM <$100,000– $250,000 11.0 4.7 7.1

4.3
Nonwealthy investors AuM <$100,000 21.7 26.7 17.3 23.3
China Taiwan Hong Kong Greater China
AuM ($billions) 1,268 1,521 498 3,287
N OTE : Some columns may not add up to 100 because of rounding.
to about 5 percent; and in Guangdong and other

EXHIBIT 15
coastal regions, Shanghai, and Beijing, the percent-
CHINA WILL INCREASINGLY DRIVE GROWTH IN WEALTH
age is substantially higher. Significantly, about two-
thirds of these customers are under 40 years old.
The wealth managers winning in China appreciate that CAGR

there are fundamental differences across the country 2003– 2004
in terms of client needs, expectations, and investment (%)
4.2 4.8
mix, and tailor and target their strategies to specific
0.6 3.4
market segments. 3.5
AuM ($trillions) 3.3
0.5
Hong Kong 0.5
India 1.9 4.1
1.6
Taiwan 1.5
There are about 200,00 wealthy households in India
with AuM of more than $250,000. If mass affluent
investors are included, this number increases to
1.7 6.2
about 400,000 to 500,000 households. Managed 1.3 1.4
China
assets are growing steadily as a portion of wealthy
investors’ portfolios; nevertheless, real estate, bank
2003 2004 2008
deposits, and gold still dominate.
AuM for asset management companies are about SOURCE : BCG wealth market-sizing database.
$35 billion, growing at about 12 percent annually for
20 BCG REPORT
THE WEALTH MARKET IN THE MIDDLE EAST
The wealth market in Middle East grew by 16.2 percent

FIVE COUNTRIES’ WEALTHY INVESTORS DOMINATED
in U.S. dollar terms in 2003 on the back of surging local- THE MIDDLE EASTERN MARKET IN 2003
equity markets and favorable exchange rates. But levels
of AuM have yet to recover to 1999 levels. 1.8 1.2 16.3
0.36 0.24 3.20 Other1
During 2003, the number of wealthy households in the
region increased by 300,000. Asset management rev- 0.12 0.10 1.35 Kuwait
0.10 1.44
enues remained relatively low compared with other 0.11 Turkey
0.34 0.14 1.95
regions, indicating the scope to increase distribution of Israel
such popular products as managed funds and other 0.16 0.19 2.53 United Arab
Emirates
higher-margin products.
0.71 0.44 5.87 Saudi Arabia
Saudi Arabia’s wealthy investors continued to dominate
the region’s wealth market, accounting for more than
one-third of the area’s wealthy households, AuM, and Number of households AuM Revenue
revenues. High and rising oil prices are likely to increase (millions) ($trillions) ($billions)
Saudi Arabian dominance in the region’s wealth market

and to build the relative importance of the wealth man-
agement markets of the United Arab Emirates and 1
Other countries include Oman, Iran, Qatar, Egypt, Lebanon, Bahrain, Syria,
Kuwait. Yemen, and Jordan.
the past five years. Of these assets, about $12 billion significant increase in wealthy investors’ holdings of
to $14 billion are held by retail customers. Wealthier mutual funds.
investors account for as much as an estimated 70 to
80 percent of AuM of retail customers’ funds. Other markets are growing rapidly, as well. For
Government-owned companies dominated asset example, consider the wealth market in Latin
management until the mid-1990s; but since then, pri- America. It grew by 14 percent in U.S. dollar terms
vate asset-management companies, which are grow- in 2003, driven by improved local-equity markets
ing at more than 25 percent a year, have become and favorable exchange rates. However, AuM for
much more active. This activity has increased product the region’s investors have yet to recover to 1999
innovation and extended distribution. Many asset levels. Meanwhile, the number of wealthy house-
managers specifically target the wealthy with cus- holds in Latin America increased by 200,000 in
tomized offerings that include investment advisory 2003. (For a perspective on growth in the Middle
services, mutual funds, real-estate advisory services, East, see the insert “The Wealth Market in the
and insurance. This practice is expected to result in a Middle East.”)

A Management Agenda
It is imperative for players to improve performance the disciplines of superior organization pay off.
in an increasingly competitive and consolidating Managing people well can create a clear edge.
market. Competitors must ensure that their product
offerings become sufficiently broad and really differ- Next, look at costs:
entiate them from their competitors. It is not vital to
• Seek to improve operational efficiency.
be the manufacturer of the product, however.
• Manage costs across the value chain, ensuring
Too often, wealth managers are too focused
tight control of overhead and of sales and service
on scale. In fact, private banks with more than
costs, while keeping processing fund manage-
$10 billion to $15 billion in assets are not demon-
ment and product manufacturing costs low.
strably subscale. Profitability in wealth management
is a matter of creating the right product and client • Maintain effective compensation policies. The
mix, while tightly controlling costs and the margins recovering market has seen compensation costs at
that drive profitability. (See Exhibit 16.) some providers rise again, particularly in North
Relationship manager productivity in turn helps America. (See Exhibit 19.)
drive margins. (See Exhibit 17.)
• Cut the tail. Small accounts tend to stay small.
Here is an agenda that should serve as a checklist Match client revenue potential with costs to serve.
for wealth managers. First, examine revenues:
As the search for higher-yielding assets intensifies,
• Clearly differentiate your offering. many banks and brokerages are now buying into
hedge funds, funds of funds, and private-equity
• Assess product and service offerings. Create clear
management firms. If brokerages and banks can’t
customer segmentation and disciplined market
offer these critical products, they will cede these
positioning to maintain competitive advantage
lucrative asset classes to hedge fund players or to
and grow revenues.
brokers that are successful at buying and integrat-
• Employ effective pricing strategies. It is particu- ing with fund providers.
larly important to adapt pricing for clients who
chop and change often. Competitors also need to look for partners and tar-
gets to grow their businesses. The recovery in
• Improve the product mix to incorporate appro- wealth management underlines the importance of
priate high-margin products, and ensure they are growth. Although organic growth is critical, it can
of high quality and sell easily. be complemented by acquisition growth. There are
now significant pressures for consolidation, but—
• Penetrate the growing market for high-margin for the moment—very few transactions. Wealth
products. Wealth managers have enormous room management remains a sellers’ market but is un-
to grow. High-margin products—such as struc- likely to remain so forever.
tured products, hedge funds, and private equity—
on average accounted for 3 percent or less of AuM Those interested in expanding or divesting through
among our survey participants. (See Exhibit 18.) mergers should consider the following questions:
• Develop tactics to counter most damaging dis- • What is the strategic rationale for the expansion/
counting practices, such as conditional discounts takeover/divestment?
that are tied to volumes and time-limited and
cross-selling discounts. • What are the barriers to such a strategy, and how
can they be negotiated?
• Link sales force productivity to compensation.
Wealth management is a people business where • What should industry leaders be doing?
22 BCG REPORT
EXHIBIT 16
TIGHT CONTROL OF COSTS AND REVENUES DROVE MARGINS
Costs and Revenues, 2003
Revenue/CAL Cost/CAL
Europe
Onshore player Offshore player
Basis points
160
120
Median revenues = 90
80 Median costs = 67
40
The Americas
North American fee-based player North American commission-based player Latin American player
Basis points (235)

160
120
80 Median costs = 66
40
Asia-Pacific
Australian player Asian offshore player
Basis points
160
120
80
Median costs = 48
40
N OTE : CAL = wealthy clients’ AuM, brokerage assets, deposits, and outstanding loans; selected outliers were not included.

EXHIBIT 17
REVENUES PER RELATIONSHIP MANAGER DROVE PERFORMANCE
Variations in productivity . . . . . . drive profitability
European onshore player European offshore player Asia-Pacific player

European player North American player Asia-Pacific player European onshore player European offshore player Asia-Pacific player
Revenue/relationship manager ($millions) Pretax profit margin (basis points)1

10 80
9
60
8
7 40
6
20
5
0
4
2 4 6 8
3 – 20
2
Median = $1.2 million – 40
1
0 – 60
Revenue/relationship manager ($millions)

1
Pretax profit/CAL.
EXHIBIT 18
HIGH-MARGIN PRODUCTS HAVE ROOM TO GROW
Structured products (% of AuM) Hedge funds (% of AuM) Private equity (% of AuM)
Median = 3.0 Median = 2.0 Median = 2.0
0 10 20 30 0 10 20 30 0 10 20 30
N OTE : Global sample of European, North American, and Asia-Pacific banks; includes institutions that combine private-equity and hedge-fund products and excludes institu-
tions that total structured products within other product groups.
24 BCG REPORT
EXHIBIT 19
COMPENSATION CONTINUED TO ACCOUNT FOR A HIGH PERCENTAGE OF REVENUES
High
Median
Low
Total compensation as a percentage of revenue

100
80
60 60 61
44 45
42 42
40 38 38
34 36
29 29
20
0
2002 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 2003
European onshore European offshore North American North American Latin American Asia-Pacific
players players fee-based players commission-based players players players

Methodology
In preparing this year’s report, we undertook two regulatory environments would have similar asset
key research initiatives: creating a global market-siz- and liability holding patterns.
ing database and conducting a wealth-manager
benchmarking and interview program. Relying on both publicly available data and BCG
experience, we then estimated the revenues from
the holdings and consumption of the wealthy. Our
Market-Sizing Database calculations take into account the different pricing
among regions and wealth segments.
We define wealth as assets under management
(AuM), which includes the net of listed securities,
held either directly or indirectly through managed BCG Wealth Manager Performance Survey
funds and cash deposits. This is the measure of the
The BCG Wealth Manager Performance Survey
assets of a wealth management client that a typical
aimed to achieve a better understanding of the eco-
provider can most directly monetize.
nomic and operational performance of wealth man-
agement institutions globally throughout 2003.
We calculated 2003 AuM for the larger countries
through a review of national accounts and other
Leading wealth-management institutions in the
public records. For the other countries, we calcu-
Americas, Asia-Pacific, and Europe were invited to
lated AuM as a proportion of GDP adjusted for coun-
participate in the study. We received responses from
try-specific economic factors. We calculated market
almost 100 wealth-management divisions, covering
movements as the weighted-average capital perform-
a variety of wealth-management service models,
ance of asset classes held by households in each
scales of operations, and geographic reach. The
country, factoring in both domestic and overseas
data were supplemented, when appropriate and
equity and bond holdings.
comparable, with publicly available performance
data to ensure there were representative samples in
We then distributed total wealth within each coun-
key geographies and data fields.
try using a combination of wealth distribution sta-
tistics for countries with available data. For coun- Benchmarking participants were asked to complete
tries without such data, we made estimates on the a comprehensive quantitative questionnaire captur-
basis of the wealth distribution patterns of coun- ing data on the economics and operations of their
tries with similar income distributions (Gini coeffi- businesses throughout 2002 and 2003. In addition
cients) compiled by The World Bank. to the survey, we completed interviews with senior
wealth executives at each of the institutions in
Using available national statistics, we computed the order to frame each institution’s short- and long-
full balance sheet and financial services consump- term strategic responses to changes in the competi-
tion for each customer segment and country in our tive landscape and in the behavior of clients.
database. In addition to AuM, we considered the
consumption of privately held debt (such as mort- We then analyzed results of the survey to draw out
gages, personal loans, and margin loans). We used regional differences and insights on wealth man-
available national statistics to identify different ager performance throughout 2002 and 2003, and
holding patterns for different countries and wealth to establish benchmarks for providers’ perform-
segments. When such data could not be obtained, ance on the dimensions of region, scale, target
we assumed that countries with similar cultures and client profile, product set, and business model.
26 BCG REPORT
Appendix I: Wealth Management Data
ASSETS UNDER MANAGEMENT BY COUNTRY
AuM, 2002 ($millions) AuM, 2003 ($millions) CAGR, 2002– 2003 (%)
Nonwealthy Wealthy Total Nonwealthy Wealthy Total Nonwealthy Wealthy Total
households households households households households households
(AuM<$100,000) (AuM>$100,000) (AuM<$100,000) (AuM>$100,000) (AuM<$100,000) (AuM>$100,000)
North America 3,383,082 17,006,309 20,389,391 3,764,582 19,277,662 23,042,244 11.3 13.4 13.0
United States 2,994,898 16,142,988 19,137,887 3,313,656 18,145,079 21,458,736 10.6 12.4 12.1
Canada 388,184 863,321 1,251,504 450,926 1,132,582 1,583,508 16.2 31.2 26.5
Europe 6,658,236 14,118,883 20,777,119 8,074,758 17,936,726 26,011,484 21.3 27.0 25.2
United Kingdom 1,393,915 3,533,784 4,927,699 1,644,714 4,274,495 5,919,209 18.0 21.0 20.1
Germany 1,792,982 2,239,712 4,032,693 2,294,515 2,883,875 5,178,390 28.0 28.8 28.4
Italy 820,346 1,797,611 2,617,957 981,210 2,365,550 3,346,760 19.6 31.6 27.8
France 799,627 1,756,179 2,555,807 924,485 2,320,288 3,244,773 15.6 32.1 27.0
Netherlands 323,227 907,197 1,230,424 387,625 1,136,724 1,524,348 19.9 25.3 23.9
Spain 405,924 704,424 1,110,348 514,669 918,206 1,432,875 26.8 30.3 29.0
Switzerland 116,566 987,862 1,104,428 136,129 1,188,322 1,324,451 16.8 20.3 19.9
Belgium 199,983 609,556 809,540 242,467 789,759 1,032,226 21.2 29.6 27.5
Sweden 69,220 257,703 326,924 80,269 360,863 441,133 16.0 40.0 34.9
Austria 75,709 251,884 327,593 93,633 318,390 412,023 23.7 26.4 25.8
Denmark 99,580 204,274 303,854 114,501 267,828 382,329 15.0 31.1 25.8
Russia 59,980 245,520 305,500 69,596 291,767 361,363 16.0 18.8 18.3
Greece 88,424 140,065 228,488 102,930 182,271 285,201 16.4 30.1 24.8
Ireland 62,310 130,558 192,868 78,205 170,942 249,146 25.5 30.9 29.2
Portugal 75,745 110,543 186,287 94,088 152,273 246,361 24.2 37.8 32.2
Norway 76,256 109,509 185,765 81,916 137,189 219,104 7.4 25.3 17.9
Finland 64,671 53,471 118,142 74,399 68,120 142,519 15.0 27.4 20.6
Poland 61,691 21,956 83,647 72,397 26,000 98,397 17.4 18.4 17.6
Czech Republic 39,991 29,957 69,948 45,073 47,831 92,904 12.7 59.7 32.8
Hungary 23,173 17,095 40,268 30,091 22,249 52,339 29.9 30.1 30.0
Slovakia 8,917 10,023 18,940 11,846 13,785 25,631 32.8 37.5 35.3
Asia-Pacific 3,002,113 13,126,611 16,128,724 3,239,354 15,491,660 18,731,013 7.9 18.0 16.1
Japan 1,340,569 9,232,738 10,573,306 1,394,957 10,969,848 12,364,804 4.1 18.8 16.9
Taiwan 360,373 977,759 1,338,132 406,555 1,114,798 1,521,352 12.8 14.0 13.7
China 263,497 916,945 1,180,442 274,698 993,416 1,268,113 4.3 8.3 7.4
Australia 235,492 463,174 698,666 294,105 642,619 936,725 24.9 38.7 34.1
South Korea 392,466 411,973 804,439 411,785 437,053 848,839 4.9 6.1 5.5
Hong Kong 82,111 350,261 432,373 86,103 411,780 497,883 4.9 17.6 15.2
India 113,724 276,626 390,351 120,612 335,714 456,326 6.1 21.4 16.9
Singapore 35,832 202,253 238,085 40,006 227,614 267,620 11.6 12.5 12.4
Indonesia 30,875 94,210 125,086 35,482 113,099 148,581 14.9 20.0 18.8
Thailand 47,395 56,000 103,396 61,275 72,537 133,812 29.3 29.5 29.4
Malaysia 31,450 48,560 80,011 34,423 58,374 92,796 9.5 20.2 16.0
New Zealand 38,189 32,149 70,338 45,685 41,877 87,562 19.6 30.3 24.5
Philippines 15,758 31,997 47,756 17,992 36,953 54,944 14.2 15.5 15.1
Pakistan 14,380 31,964 46,345 15,676 35,979 51,655 9.0 12.6 11.5
Latin America 552,881 1,053,746 1,606,627 627,583 1,203,197 1,830,781 13.5 14.2 14.0
Mexico 194,373 440,084 634,457 201,835 459,808 661,643 3.8 4.5 4.3
Brazil 165,731 292,157 457,887 206,901 369,346 576,247 24.8 26.4 25.8
Venezuela 60,262 148,866 209,128 65,710 165,482 231,191 9.0 11.2 10.6
Argentina 76,055 86,074 162,129 89,200 102,918 192,118 17.3 19.6 18.5
Chile 26,848 51,802 78,650 30,624 65,971 96,595 14.1 27.4 22.8
Peru 24,539 29,174 53,713 27,789 33,514 61,303 13.2 14.9 14.1
Uruguay 5,073 5,589 10,663 5,524 6,159 11,683 8.9 10.2 9.6
The Middle East and Africa 489,552 1,196,111 1,685,663 564,811 1,394,004 1,958,815 15.4 16.5 16.2
Saudi Arabia 105,927 389,868 495,794 118,209 443,257 561,466 11.6 13.7 13.2
Israel 56,258 117,428 173,686 68,045 144,749 212,795 21.0 23.3 22.5
United Arab Emirates 23,238 164,445 187,684 26,204 186,124 212,328 12.8 13.2 13.1
Turkey 76,422 98,269 174,692 87,380 114,087 201,467 14.3 16.1 15.3
South Africa 69,327 77,386 146,713 88,490 107,626 196,117 27.6 39.1 33.7
Kuwait 13,152 86,287 99,439 15,167 101,030 116,197 15.3 17.1 16.9
Iran 37,183 42,222 79,404 41,162 47,370 88,532 10.7 12.2 11.5
Egypt 35,171 41,189 76,360 36,544 43,067 79,611 3.9 4.6 4.3
Oman 8,621 42,489 51,110 9,286 48,929 58,214 7.7 15.2 13.9
Qatar 5,652 40,397 46,049 6,415 46,101 52,516 13.5 14.1 14.0
Algeria 17,948 20,253 38,201 21,043 24,157 45,200 17.2 19.3 18.3
Morocco 13,819 15,627 29,446 16,559 19,120 35,679 19.8 22.4 21.2
Lebanon 4,431 20,013 24,444 4,733 22,128 26,861 6.8 10.6 9.9
Bahrain 2,952 17,781 20,734 3,217 19,944 23,161 9.0 12.2 11.7
Tunisia 7,388 8,333 15,721 8,699 9,984 18,682 17.7 19.8 18.8
Syria 4,712 6,656 11,367 5,403 7,839 13,242 14.7 17.8 16.5
Yemen 4,205 3,904 8,109 4,743 4,455 9,198 12.8 14.1 13.4
Jordan 3,146 3,565 6,711 3,513 4,036 7,550 11.7 13.2 12.5
Global 14,047,590 46,539,934 60,587,524 16,271,326 55,303,012 71,574,337 15.8 18.8 18.1
Source: BCG wealth market-sizing database.
NOTE: Throughout Appendix I, some numbers may not add up to totals shown because of rounding. U.S. dollar figures were calculated using the relevant year’s exchange rates.

HOUSEHOLDS BY COUNTRY
Number of households, 2002 (millions) Number of households, 2003 (millions) CAGR, 2002– 2003 (%)
Nonwealthy Wealthy Total Nonwealthy Wealthy Total Nonwealthy Wealthy Total
households households households households households households
(AuM<$100,000) (AuM>$100,000) (AuM<$100,000) (AuM>$100,000) (AuM<$100,000) (AuM>$100,000)
North America 94,457,423 22,822,350 117,279,772 94,886,410 24,859,573 119,745,983 0.5 8.9 2.1
United States 84,257,052 21,068,874 105,325,926 84,875,659 22,658,785 107,534,444 0.7 7.5 2.1
Canada 10,200,370 1,753,476 11,953,846 10,010,751 2,200,788 12,211,538 –1.9 25.5 2.2
Europe 206,241,632 27,749,738 233,991,370 201,546,160 33,629,584 235,175,743 – 2.3 21.2 0.5
United Kingdom 19,333,124 6,732,093 26,065,217 19,318,075 6,899,316 26,217,391 –0.1 2.5 0.6
Germany 33,974,551 3,326,359 37,300,909 33,035,150 4,373,941 37,409,091 –2.8 31.5 0.3
Italy 17,957,895 5,042,105 23,000,000 16,608,477 6,591,523 23,200,000 –7.5 30.7 0.9
France 21,247,233 3,611,100 24,858,333 20,515,813 4,546,687 25,062,500 –3.4 25.9 0.8
Netherlands 5,296,335 1,651,491 6,947,826 5,298,192 1,749,634 7,047,826 0.0 5.9 1.4
Spain 11,277,833 1,711,199 12,989,032 10,901,000 2,260,290 13,161,290 –3.3 32.1 1.3
Switzerland 1,810,404 1,231,263 3,041,667 1,510,253 1,531,414 3,041,667 –16.6 24.4 0.0
Belgium 2,939,601 1,332,066 4,271,667 2,546,580 1,736,753 4,283,333 –13.4 30.4 0.3
Sweden 3,726,036 516,345 4,242,381 3,629,317 646,874 4,276,190 –2.6 25.3 0.8
Austria 2,703,370 564,630 3,268,000 2,534,988 741,012 3,276,000 –6.2 31.2 0.2
Denmark 1,756,383 566,225 2,322,609 1,621,402 726,424 2,347,826 –7.7 28.3 1.1
Russia 51,374,387 248,827 51,623,214 51,473,199 262,515 51,735,714 0.2 5.5 0.2
Greece 3,232,783 293,883 3,526,667 3,177,963 368,704 3,546,667 –1.7 25.5 0.6
Ireland 947,645 267,308 1,214,953 873,863 353,551 1,227,414 –7.8 32.3 1.0
Portugal 3,215,287 250,230 3,465,517 3,259,854 312,560 3,572,414 1.4 24.9 3.1
Norway 1,753,898 122,352 1,876,250 1,738,948 152,719 1,891,667 –0.9 24.8 0.8
Finland 2,106,057 154,812 2,260,870 2,091,266 169,603 2,260,870 –0.7 9.6 0.0
Poland 12,018,911 53,589 12,072,500 11,882,850 64,025 11,946,875 –1.1 19.5 –1.0
Czech Republic 3,484,375 39,763 3,524,138 3,440,925 93,558 3,534,483 –1.2 135.3 0.3
Hungary 4,019,465 22,935 4,042,400 4,007,900 32,100 4,040,000 –0.3 40.0 –0.1
Slovakia 2,066,059 11,161 2,077,220 2,080,144 16,381 2,096,525 0.7 46.8 0.9
Asia-Pacific 678,227,489 27,714,759 705,942,248 690,434,699 30,573,833 721,008,533 1.8 10.3 2.1
Japan 21,591,517 20,668,483 42,260,000 20,049,179 22,354,154 42,403,333 –7.1 8.2 0.3
Taiwan 4,267,658 1,619,184 5,886,842 4,104,929 1,842,440 5,947,368 –3.8 13.8 1.0
China 333,212,294 1,816,917 335,029,211 338,884,019 1,965,981 340,850,000 1.7 8.2 1.7
Australia 5,909,910 1,259,720 7,169,630 5,599,714 1,733,619 7,333,333 –5.2 37.6 2.3
South Korea 10,413,712 938,669 11,352,381 10,447,429 962,095 11,409,524 0.3 2.5 0.5
Hong Kong 1,429,670 386,006 1,815,676 1,414,233 450,632 1,864,865 –1.1 16.7 2.7
India 197,832,439 242,561 198,075,000 203,797,151 349,003 204,146,154 3.0 43.9 3.1
Singapore 704,133 227,685 931,818 718,767 238,051 956,818 2.1 4.6 2.7
Indonesia 50,120,387 153,422 50,273,810 51,290,952 185,238 51,476,190 2.3 20.7 2.4
Thailand 12,248,536 111,464 12,360,000 12,652,230 147,770 12,800,000 3.3 32.6 3.6
Malaysia 4,990,961 71,805 5,062,766 5,224,385 94,764 5,319,149 4.7 32.0 5.1
New Zealand 1,276,936 97,707 1,374,643 1,321,263 110,880 1,432,143 3.5 13.5 4.2
Philippines 14,724,934 67,923 14,792,857 15,031,449 79,265 15,110,714 2.1 16.7 2.1
Pakistan 19,504,404 53,212 19,557,616 19,898,999 59,941 19,958,940 2.0 12.6 2.1
Latin America 89,771,380 1,776,809 91,548,189 91,511,907 2,012,879 93,524,786 1.9 13.3 2.2
Mexico 17,442,325 807,312 18,249,636 17,935,992 845,826 18,781,818 2.8 4.8 2.9
Brazil 43,137,312 480,188 43,617,500 43,757,333 617,667 44,375,000 1.4 28.6 1.7
Venezuela 5,159,480 236,219 5,395,699 5,253,897 240,726 5,494,624 1.8 1.9 1.8
Argentina 13,721,027 123,417 13,844,444 14,014,181 148,782 14,162,963 2.1 20.6 2.3
Chile 3,454,037 88,820 3,542,857 3,508,541 112,887 3,621,429 1.6 27.1 2.2
Peru 5,571,494 34,250 5,605,745 5,745,446 39,660 5,785,106 3.1 15.8 3.2
Uruguay 1,285,705 6,602 1,292,308 1,296,516 7,330 1,303,846 0.8 11.0 0.9
The Middle East and Africa 76,754,299 1,759,857 78,514,156 78,911,095 2,064,031 80,975,126 2.8 17.3 3.1
Saudi Arabia 2,110,094 621,075 2,731,169 2,435,678 714,971 3,150,649 15.4 15.1 15.4
Israel 1,598,243 268,234 1,866,477 1,565,049 335,519 1,900,568 –2.1 25.1 1.8
United Arab Emirates 382,915 137,720 520,635 477,100 157,821 634,921 24.6 14.6 22.0
Turkey 17,442,460 86,219 17,528,678 17,685,117 100,419 17,785,536 1.4 16.5 1.5
South Africa 7,540,126 120,219 7,660,345 7,714,160 165,150 7,879,310 2.3 37.4 2.9
Kuwait 364,142 107,287 471,429 394,314 117,931 512,245 8.3 9.9 8.7
Iran 12,521,768 83,787 12,605,556 12,699,978 94,467 12,794,444 1.4 12.7 1.5
Egypt 12,976,532 79,237 13,055,769 13,701,641 82,975 13,784,615 5.6 4.7 5.6
Oman 408,330 66,183 474,513 410,631 76,959 487,590 0.6 16.3 2.8
Qatar 78,144 32,967 111,111 78,004 36,810 114,815 –0.2 11.7 3.3
Algeria 5,106,805 41,521 5,148,325 5,184,101 50,349 5,234,450 1.5 21.3 1.7
Morocco 5,719,727 29,795 5,749,522 5,804,474 36,826 5,841,300 1.5 23.6 1.6
Lebanon 649,390 17,277 666,667 661,404 16,374 677,778 1.9 –5.2 1.7
Bahrain 106,280 25,201 131,481 108,916 26,270 135,185 2.5 4.2 2.8
Tunisia 2,066,450 17,062 2,083,512 2,086,175 20,891 2,107,066 1.0 22.4 1.1
Syria 3,206,631 11,887 3,218,519 3,282,240 14,056 3,296,296 2.4 18.2 2.4
Yemen 3,570,875 6,902 3,577,778 3,692,069 7,931 3,700,000 3.4 14.9 3.4
Jordan 905,387 7,285 912,671 930,043 8,313 938,356 2.7 14.1 2.8
Global 1,145,416,157 81,859,579 1,227,275,736 1,157,290,296 93,139,875 1,250,430,171 1.0 13.8 1.9
28 BCG REPORT
DRIVERS OF INCREASING WEALTH BY REGION FINANCIAL SERVICES REVENUES
% Impact, North Latin The Middle East
FROM WEALTHY HOUSEHOLDS
2002–2003 America Europe Asia-Pacific America and Africa Global Revenue 2002 Revenue 2003 CAGR
Wealthy Wealthy 2002– 2003
Market 10.2 3.7 4.8 9.0 9.9 6.5
performance $billions (AuM>$100,000) (AuM>$100,000) (%)
North America 142 161 13.5
Income 1.4 3.3 1.8 1.9 2.0 2.2 United States 133 150 12.4
saved
Canada 8 11 31.2
Currency 1.2 17.0 8.9 2.7 3.8 8.7 Europe 136 172 26.9
versus US$ United Kingdom 36 43 20.7
Total 13.0 25.2 16.1 14.0 16.2 18.1 Germany 21 27 29.6
Italy 15 20 32.3
SOURCE : BCG wealth market-sizing database. France 17 22 32.1
Netherlands 8 10 24.9
Spain 7 9 31.1
Switzerland 9 11 18.7
PERFORMANCE OF ASSET CLASSES BY REGION Belgium 6 8 30.2
Sweden 3 4 40.0
% Change, North Latin The Middle East Austria 3 3 24.7
2002–2003 America Europe Asia-Pacific America and Africa Global Denmark 2 2 31.5
Russia 3 4 18.6
Equities 24.0 14.3 23.6 37.0 29.6 21.1 Greece 1 2 30.4
Ireland 1 2 31.6
Bonds –1.8 –1.1 –0.7 12.0 8.0 – 0.4 Portugal 1 1 38.2
Norway 1 1 25.7
SOURCE : BCG wealth market-sizing database. Finland 1 1 27.7
N OTE : Includes both domestic and international holdings. Poland 0 0 19.0
Czech Republic 0 1 63.3
Hungary 0 0 25.4
Slovakia 0 0 31.3
ASSET MIX FOR WEALTHY HOUSEHOLDS BY REGION
Asia-Pacific 151 177 17.5
Deposits/ Fixed Japan 104 123 18.5
% cash management income Equities Total Taiwan 10 12 14.1
China 14 15 8.4
North 2002 32 25 43 100 Australia 5 6 38.8
America 2003 32 25 43 100 South Korea 5 5 6.1
Hong Kong 3 4 17.7
Europe 2002 38 34 28 100 India 4 4 22.2
2003 38 34 28 100 Singapore 2 3 12.3
Indonesia 1 1 20.5
Asia-Pacific 2002 58 17 26 100 Thailand 1 1 30.4
2003 57 17 26 100 Malaysia 1 1 20.2
New Zealand 0 0 30.6
Latin 2002 56 32 12 100 Philippines 0 0 15.3
America 2003 56 32 12 100 Pakistan 0 0 12.8
Latin America 14 16 14.6
The Middle East 2002 54 14 32 100 Mexico 6 6 4.4
and Africa 2003 53 15 32 100 Brazil 4 5 27.3
Venezuela 2 2 11.1
SOURCE : BCG wealth market-sizing database. Argentina 1 1 20.1
Chile 1 1 27.2
Peru 0 0 15.3
Uruguay 0 0 10.2
SOURCES OF FINANCIAL SERVICES REVENUES The Middle East and Africa 16 18 15.8
FROM WEALTHY HOUSEHOLDS BY REGION Saudi Arabia 5 6 12.0
Israel 2 2 22.7
Deposits/ Fixed United Arab Emirates 2 3 12.9
$billions cash management income Equities Total Turkey 1 1 16.0
South Africa 1 1 39.5
North 2002 39 29 74 142 Kuwait 1 1 16.7
America 2003 44 33 84 161 Iran 1 1 12.5
Egypt 1 1 4.6
Europe 2002 58 34 44 136 Oman 1 1 15.0
2003 74 43 55 172 Qatar 1 1 14.0
Algeria 0 0 19.7
Asia-Pacific 2002 96 14 41 151 Morocco 0 0 22.9
2003 112 17 48 177 Lebanon 0 0 10.5
Bahrain 0 0 12.0
Latin 2002 9 3 2 14 Tunisia 0 0 20.3
America 2003 10 4 2 16 Syria 0 0 18.1
Yemen 0 0 14.5
The Middle East 2002 9 2 5 16 Jordan 0 0 13.5
and Africa 2003 10 2 6 18
Global 458 544 18.9
SOURCE : BCG wealth market-sizing database. SOURCE : BCG wealth market-sizing database.

Appendix II: Summary of Previous Years’ Findings
Richer Prospects in Wealth Management: cient scale. For some providers, that number is far
Global Wealth 2001 higher.
• Most institutions can’t break even in a new loca-

Who wants to be a millionaire? Mere millionaires
tion without at least $7 billion in assets under
are often not well served by financial institutions,
management.
which tend to focus on their very wealthiest clients.
They need broad product offerings and tailored, Smart institutions are using the current uncertainty
concise advice. This attractive slice of the wealth in investment markets to move boldly to build com-
market is still waiting to be served properly. petitive advantage.
• Traditional providers have served clients with • They are controlling costs—and especially rising
more than $5 million in wealth, but private-bank- IT costs—and adapting to the changing invest-
ing services are attractive to many investors with ment markets. They are selecting the customers
far less in investment assets. they wish to serve and deciding where and how
they can create the most advantage.
• Today some financial institutions are focusing
profitably on investors with up to $5 million in • Large institutions are pursuing acquisitions and
financial assets. alliances to build strong positions as powerful
forces consolidate the highly fragmented wealth-
There is a popular belief that wealth management is
management market.
a very attractive business with high returns.
It’s about wealth management, not just asset man-
• It is a large market comprising more than $40 tril-
agement.
lion in wealth and more than $500 billion in
annual revenues for financial institutions.
• Investment products account for just a part of
• With strong growth forecast for all the major financial services revenues from wealthy house-
regions, rich investors will have more than holds. Wealth managers should provide tailored
$65 trillion in wealth by 2005 and generate more insurance and credit products to improve their
than $700 billion in revenues for wealth managers. revenues and to help their clients achieve higher
after-tax returns.
But our experience with clients and our research
suggest that many competitors are not nearly as • Investors often have much of their wealth tied up
profitable as they should be. in private businesses. To offer a satisfactory serv-
ice, wealth managers should address the needs of
• Many competitors let their costs grow rapidly dur- these businesses.
ing the ten-year bull market and don’t have a
clear picture of their own economics and particu- Watch out! Here come the baby boomers.
larly of their costs to serve customers.
• The wealthiest investors are graying rapidly:
• Many wealth managers miss their marketing sweet the fastest-growing age groups are people aged 50
spot by targeting the wrong customers, focusing to 59, which will increase by 47 percent over the
on those with either too much or too little wealth next ten years, and those aged 75 and over,
to match their business models. which will increase by 37 percent during the same
period.
Wealth managers need a certain minimum size to be
profitable. • As they age, investors shift from borrowing to
saving and investing, followed by a period
• For most integrated institutions, $10 billion in of consuming wealth in the latter part of their
assets under management defines minimum effi- lives.
30 BCG REPORT
Driven by the aging boomer population and the pri- annual rate through 2006 compared with the five
vatization of pensions, offshore banking will year annual average growth rate of 9 percent pre-
decline in relative importance as onshore banking dicted just a year ago. The decline in equity mar-
and investing increase in importance. kets has had a severe impact on the profitability
of wealth managers—especially on brokerages
• But offshore banking will continue to be critical that rely on commissions.
for many of the world’s wealthy as they seek out
high returns and try to manage currency and The BCG Wealth Manager Performance Survey
political risks in their home countries. revealed very different declines in profitability
from region to region.
• Institutions are finding that it is cheaper to build
an offshore banking business that serves cus- • In the United States, profitability fell 69 percent,
tomers from many parts of the world than to cre- with commission-based brokerage firms reporting
ate individual national franchises. significant losses while fee-based wealth managers
in the survey recorded a more modest 6 percent
U.S. institutions manage wealth more cheaply than decline in profitability.
their competitors from other countries.
• In Europe, profitability declined by an average of
• There is an approximately 30 percent price dif- 34 percent as private banks in our survey saw
ferential between the cost of U.S. wealth manage- their revenues tumble by 14 percent.
ment services and comparable ones offered by
European providers. • In Asia-Pacific, profitability at the institutions we
examined—which included several top perform-
• European competitors will find it difficult to ers—grew by 15 percent.
break into the U.S. market with its lower prices
for wealth management services. At the same Most wealth managers have so far done surprisingly
time, the European market will be very attractive little to address costs, given their reduced revenues
to U.S. players. in 2001.
Open architecture is becoming more and more • Our survey indicated that, on average, costs have
important. risen. Moreover, cost reductions have usually not
matched revenue declines.
• Investors will increasingly focus on performance,
seeking the best returns, selecting among the • Some institutions that participated in our survey
offerings of many providers. were unable to provide the cost breakdowns
requested. The costs section was invariably the
• They want tailored offerings that fit their needs least complete portion of a participant’s survey.
and will pick and choose to find such offerings.
Nervous investors—particularly those with more mod-
erate holdings—are becoming more conservative.
Prospering in Uncertain Times:
Global Wealth 2002 • They are shifting to cash and money market funds
and increasing their holding times for investments,
There was worldwide destruction of private wealth
while cutting their margin debt substantially.
in 2001 as investors saw the value of their equity
holdings tumble. • U.S. equity-fund holdings dropped $550 billion in
2001 while money market holdings increased
• The declining markets cost all investors an esti- $440 billion.
mated $2.9 trillion, or 4.4 percent of the total
value of global investment assets. More than • Despite this increase in investor conservatism, alter-
2 million households slipped below our wealth native investments are growing and have a long-
threshold of $250,000 in net investment assets. term role in the wealth management industry.
• Global wealth is forecast to grow more slowly than In the United States and to a lesser degree in
previously foreseen—at an average 6.9 percent Europe, increasing regulation has precipitated a

shift to onshore investing. Nevertheless, the off- and ensuring that their offerings are sufficiently
shore market continues to grow. segmented and appropriately matched to their
core customers.
• The onshore market is growing faster than the
offshore market. Still, the offshore market • Institutions should review the effectiveness of
remains very large, totaling at least $5 trillion. their sales forces, ensuring that they match their
service models, compensation, and management
• The offshore market offers better margins than structures with their priorities.
the onshore market, but it is highly fragmented
among many different managers. • Most players will want to consider how innovative
investments—including funds of funds—fit into
Regulatory and legislative investigations have their product and service offerings.
focused attention on the importance of truly inde-
pendent research and advice. There are substantial rewards for those institutions
that get the new wealth-management agenda right.
• A series of corporate scandals in recent months
has undermined investor confidence in earnings • Today’s uncertain markets provide wealth man-
reports and in the markets in general. This agers with a rare opportunity to push through
strengthens the case for separating investment tough decisions and changes.
advice from transactions.
• Wealth managers that exploit that opportunity
• Clients, meanwhile, are demanding higher-qual- will build competitive advantage—improving
ity, broader, and more personalized investment their price-to-earnings ratios and increasing their
advice from wealth managers. market capitalization.
The new wealth management agenda demands that

Winning in a Challenging Market:
wealth managers address their costs. That alone,
Global Wealth 2003
however, is not sufficient for success. Leading com-
petitors also need to attract and retain the most valu- The wealth management industry—its markets and
able customers and ensure the effectiveness of their business models—finds itself at a crossroads.2 One
sales forces. Innovative, competitive products— must look back more than 70 years to see a similar
including alternative investments—are critical to confluence of events globally.
maintaining and improving the yield on client assets.
• AuM have declined by more than 14 percent
• Many competitors are still assuming unrealistic since 1999, and wealth industry revenues have
levels of growth. To create sustainable, successful fallen by around 25 percent. The revenues that
franchises, institutions must actively manage their wealth managers derive from equities have been
costs instead of focusing too narrowly on revenue hardest hit, falling by half during this period.
and asset growth. They need to understand their
cross-subsidies and transfer pricing to manage • In most major economies, markets have shifted
their costs better. decidedly to low growth, and regulatory frame-
works that helped fuel the industry are being fun-
• To gain competitive advantage, wealth managers damentally altered.
must deal with unprofitable customer groups
within their businesses by ensuring that investors • The service models forged over more than a
really do meet their standard account minimums. decade of strong market growth have been under
siege for three years and continue to struggle to
• In particular, they must align their business mod- adjust to new, sobering realities.
els to focus on their target markets, investing in
their sweet spots—where their brands, skills, and In 2002, the world’s millionaires and billionaires
costs to serve best fit their chosen customers— lost $1.9 trillion in wealth. Since January 2000,
2. We have defined a set of distinct business models that allow us to group institutions into meaningful peer groups. Institutions are classified by business
model on the basis of a combination of factors, including similar target customers, revenue sources, and cost structures.
32 BCG REPORT
declining markets have destroyed almost $5.3 tril- • In North America, wealth managers continue to
lion of these investors’ holdings in local currency cope with the aftermath of the market bubble of
terms.3 the late 1990s and the ensuing increase in regula-
tion. What is far more damaging to wealth man-
• In 2002, European and North American investors agers, however, is investors’ lingering distrust of
with more than $250,000 in liquid assets saw their the markets and of the investment industry that
wealth drop by 7 percent and more than 10 per- has resulted from the sustained fall in the mar-
cent, respectively, in local currency terms. kets. Investors’ concerns continue to keep large
amounts of money on the sidelines.
• Most major markets appear to be in a period of
low or no growth that may persist for several Wealth managers’ economics continued to deterio-
years. This has profound implications for wealth rate in 2002, raising the prospect of more lean years
managers, whose prior strategies relied on annual before the market improves. Wealth managers need
increases in market value of more than 10 percent. to be decisive, ensuring that they understand their
competitive position, business model, and what
In the established wealth markets of Europe and
more still needs to be done.
North America, customers’ preferences have shifted,
requiring wealth managers to revise strategies.
• In the United States, many wealth managers
• Investors now focus more on absolute returns reduced costs, but their cuts did not keep pace
than on relative returns, and investors are much with revenue declines. In Europe, costs rose while
more interested in risk and asset allocation. revenues fell among the institutions in our survey.
There is also distrust of the advice of sell-side ana- New ways to manage costs are required to reduce
lysts, with investors now favoring advisers that are business risk.
as free as possible from conflicts of interest.
• Meanwhile, institutions in Asia and Australia con-
• Investors are leaving large amounts of money in tinued to grow, buoyed by relatively strong finan-
cash or other liquid holdings, making it far easier cial markets and a growing but underserved class
for them to switch wealth managers. Yet there has of wealthy investors. In Latin America, offshore
been surprisingly little product innovation to institutions serving the wealthy continued to ben-
meet investors’ changed needs. Wealth managers efit from economic and political uncertainty,
should seize this opportunity to craft solutions which has driven substantial flows offshore.
that deepen relationships with customers.
In challenging times, strategic management and
European and North American wealth managers competitive advantage are more important than
face very different but equally profound threats on ever. We see wealth managers across geographies
the regulatory front. and business models thriving or failing on the basis
of their ability to respond to the needs of their best
• In Europe, national authorities are using a com- customers. Wealth managers fall into three groups,
bination of tax amnesties, intergovernmental each with a distinct competitive position and set of
agreements that impose withholding tax on strategic imperatives.
investment income of uncertain origin, and
increased transparency to target offshore • The first tier consists of the winners: institutions
accounts. This three-pronged attack threatens that have delivered margins in excess of 30 per-
offshore-banking margins in Europe, requiring cent in this challenging market. They are present
wealth managers to find funds elsewhere and in all geographies. They have carefully managed
leading to additional competition in other geog- their fortunes, acting decisively to improve their
raphies. We estimate that more than 50 percent of economics and business models while maintain-
offshore funds in Switzerland, or some $1 trillion, ing a select portfolio of businesses. These institu-
are of European origin, underscoring the scope tions have a rare opportunity to extend their
of the threat to offshore players. advantages over weaker rivals in today’s market.
3. This total increases to $5.6 trillion if investors with holdings of $250,000 to $1million are included.

• A middle tier of wealth managers also exists: insti- They can pursue new business growth, at the
tutions that have recovered from the havoc of the expense of less nimble rivals, with distinct cus-
past two years by realigning their strategies and tomer value propositions, innovative offerings,
cutting costs, thus starting down the path to and aggressive new-business development.
improved profitability. We believe that these insti- Nevertheless, they must be careful to maintain
tutions will sur vive, but they must further and refine sustainable cost structures that create
improve their operating models if they are to value and answer customers’ needs at prices cus-
become truly competitive. tomers can afford.
• A bottom tier of underperformers—some 27 per- • A particular business model is no guarantee of

cent of the institutions in our sample—deliver profitability. Stronger performers have three key
pretax margins of 10 percent or less. Saddled with factors in common: a management team able to
a business model that depends on growing asset exploit relative competitive advantage, a clear
prices, high costs, low productivity, and an indis- customer value proposition, and an effective sales
tinct client value proposition, these organizations and customer-service organization.
require radical change if they are to remain inde-
pendent. • Wealth management leaders interested in
expanding by acquisition should carefully screen
Wealth management remains an attractive, high- the markets for potential candidates that comple-
margin, high-growth business and a critical part of a ment their strategies and prepare themselves for
broad financial-services franchise. Now is the time the difficulties—and potential rewards—of such a
to act to ensure that the business is positioned to growth strategy.
weather difficult markets and prepared for the
eventual upturn. • Underperforming businesses must move aggres-
sively to control their own fates—either by with-
• Leaders in today’s market have a rare opportunity drawing from all or parts of the business or by act-
to extend their advantage and to identify and pur- ing decisively to reinvent and reinvigorate their
sue acquisitions that complement their strategies. franchises.
34 BCG REPORT
36 BCG REPORT
The Boston Consulting Group is a general management consulting firm The Boston Consulting Group publishes other reports and articles that may be of interest to senior financial executives.
that is a global leader in business strategy. BCG has helped companies Recent examples include:
in every major industry and market achieve a competitive advantage by
developing and implementing winning strategies. Founded in 1963, the
firm now operates 60 offices in 37 countries. For further information, Preparing for the Endgame: Global Payments 2004
please visit our Web site at www.bcg.com. A report by The Boston Consulting Group, October 2004
Winners in the Age of the Titans: Creating Value in Banking 2004

A report by The Boston Consulting Group, May 2004
Winning in a Challenging Market: Global Wealth 2003

July 2003
Navigating the Maze: Global Asset Management 2003

June 2003
The Payments Puzzle: Putting the Pieces Together, Global Payments 2003
A report by The Boston Consulting Group, February 2003
Prospering in Uncertain Times: Global Wealth 2002

July 2002
For a complete list of BCG publications and information about how

to obtain copies, please visit our Web site at www.bcg.com.
To receive future publications in electronic form about this topic

or others, please visit our subscription Web site at
www.bcg.com/subscribe.
Amsterdam Houston Prague
Athens Istanbul Rome
Atlanta Jakarta San Francisco
Auckland Kuala Lumpur Santiago
Bangkok Lisbon São Paulo
Barcelona London Seoul
Beijing Los Angeles Shanghai
Berlin Madrid Singapore
Boston Melbourne Stockholm
Brussels Mexico City Stuttgart
Budapest Miami Sydney
Buenos Aires Milan Taipei
Chicago Monterrey Tokyo
Cologne Moscow Toronto
Copenhagen Mumbai Vienna
Dallas Munich Warsaw
Düsseldorf Nagoya Washington
Frankfurt New Delhi Zürich
Hamburg New York
Helsinki Oslo
Hong Kong Paris
BCG
www.bcg.com BCG REPORT

The Rich Return To Richer Returns: Global Wealth 2004

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

The Rich Return To Richer Returns: Global Wealth 2004

Uploaded by

Copyright:

Available Formats

The Rich Return to Richer Returns

The Rich Return to Richer Returns

Winners in the Age of the Titans: Creating Value in Banking 2004

Winning in a Challenging Market: Global Wealth 2003

Navigating the Maze: Global Asset Management 2003

Prospering in Uncertain Times: Global Wealth 2002

For a complete list of BCG publications and information about how

To receive future publications in electronic form about this topic

For information or permission to reprint, please contact BCG at:

Note to the Reader 4

Summar y of Key Findings 8

Achieving Growth: Offshore Versus Onshore Markets 18

Promising New Markets 19

Appendix I: Wealth Management Data 27

Appendix II: Summar y of Previous Years’ Findings 30

The Rich Return to Richer Returns 3

The Americas Europe Asia-Pacific

Bruce M. Holley Christian de Juniac Andrew Dyer

Jorge Becerra Victor Aerni Giles Brennand

Andrew Dyer Christian de Juniac

Bruce M. Holley Victor Aerni

The Rich Return to Richer Returns 5

North America 56 institutions

SOURCE : BCG wealth-manager-performance database.

The Rich Return to Richer Returns 7

The Rich Return to Richer Returns 9

Established wealthy investors 17.9

Nonwealthy investors 19.0

2003 2004 2008

SOURCE : BCG wealth market-sizing database.

26.1 – 0.7 25.2

North America 23.5 22.7 21.8 23.0 – 2.8 13.0

1999 2000 2001 2002 2003

SOURCE : BCG wealth market-sizing database.

The Rich Return to Richer Returns 11

Change in number Change in

46.6 55.3 18.8

14.0 16.3 15.9

Number of households AuM Number of households AuM

SOURCE : BCG wealth market-sizing database.

Client Safety and discretion 1 More price sensitive

SOURCE : BCG wealth-management-study interviews.

Europe The Americas Asia-Pacific

North American fee-based player

SOURCE : BCG wealth-manager-performance database.

N OTE : Selected outliers were not included.

The Rich Return to Richer Returns 13

SOURCE : BCG wealth-manager-performance database.

N OTE : Selected outliers were not included.

SOURCE : BCG wealth-manager-performance database.

Wealthy investors’ asset holdings, 2003 (% of AuM)

North America Europe Asia-Pacific Latin America The Middle East

SOURCE : BCG wealth market-sizing database.

N OTE : Wealthy is defined as households with AuM >$100,000.

The Rich Return to Richer Returns 15

93.2 55.3 544.4

7.2 76.4 AuM $100,000– $250,000

Number of households AuM Revenue

SOURCE : BCG wealth market-sizing database.

N OTE : Wealthy is defined as households with AuM >$100,000.

North America Europe Asia-Pacific Latin America The Middle East

AuM AuM ($trillions) 23.0 26.1 18.7 1.8 2.0

SOURCE : BCG wealth market-sizing database.