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Wednesday, July 28, 2021

Prosperity Report: ‘Lockdown curbs hit GDP, but fail to dent financial wealth’

Growth in prosperity and wealth likely to expand in five years, a BCG report said.

By: ENS Economic Bureau | New Delhi |
June 16, 2021 3:41:11 am
The rise in wealth is despite India’s GDP contracting 7.3 per cent in FY2021 due to lockdown and fall in demand in the country.

Despite the Covid pandemic roiling the economy, financial wealth in India rose by 11 per cent per annum to $ 3.4 trillion, according to a Boston Consulting Group (BCG) report.

In line with the emerging economic recovery, the growth in prosperity and wealth was 11 per cent per annum since 2015 and is likely to expand in the next five years, it said. “India is expected to lead percentage growth of fortunes worth $100 million in 2025,” BCG said.

The rise in wealth is despite India’s GDP contracting 7.3 per cent in FY2021 due to lockdown and fall in demand in the country.

According to BCG, India represents 6.5 per cent of the region’s financial wealth in 2020. “13.7 per cent were the region’s real assets in 2020 which grew from 2015 to 2020 by 12.1 per cent p.a. to $ 12.4 trillion. Liabilities grew by 13.3 per cent p.a. to $ 0.9 trillion and liabilities are expected to grow by 9.4 per cent to $ 1.3 trillion by 2025,” it said.

It said bonds are expected to grow the fastest with 15.1 per cent. Life insurance and pensions will be the third largest asset class in the future.

Ashish Garg, a member of BCG’s Center for Digital Government, said, “The next five years have the potential to usher in a wave of prosperity for individuals and wealth managers alike. They now have a chance to put that perspective into practice in their own work and pursue a client agenda.”

According to the report, North America, Asia (excluding Japan), and Western Europe will be the leading generators of financial wealth globally, accounting for 87 per cent of new financial wealth growth worldwide between now and 2025.

“Many wealth management clients in 2020 embraced alternative investments in their quest for higher returns, shifting away from low-yield debt securities,” BCG said. As part of this trend, real assets, led primarily by real estate ownership, reached an all-time high of $235 trillion. Nevertheless, Asia, which has the largest concentration of wealth in real assets ($84 trillion, 64 per cent of the regional total) will see financial asset growth exceed real asset growth (7.9 per cent versus 6.7 per cent) in coming years.

BCG has identified two attractive markets for wealth managers. One consists of individuals with simple investment needs and financial wealth between $100,000 and $3 million. This “simple-needs segment” comprises 331 million individuals worldwide, holds $59 trillion in investable wealth, and has the potential to contribute $118 billion to the global wealth revenue pool, it said.

Anna Zakrzewski, a BCG managing director and partner, said, “Wealth managers often underserve those in the simple-needs segment with a standardized set of products, and the result is a poor client experience with no “wow” factor. This is essentially a missed opportunity.”

“To better serve this key segment, wealth managers must embrace a new approach that lets them reach a larger audience in a cost-effective and scalable way, but with a highly personalized offering,” she said.

Retirees, one of the world’s fastest-growing demographics, are another appealing market. Many are underserved and adversely impacted by the “advisory gap” that prevails during the retirement phase of life. Today, individuals over 65 own $29.3 trillion in financial assets accessible to wealth managers. That figure will grow at a CAGR of close to 7 per cent over the next five years, enabling wealth managers globally to target nearly $41.1 trillion in financial wealth by 2025.

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