There is no getting around North America and the Asia Pacific as the world moves towards the 2030s.
There is a common underlying strain of thought out there when it comes to predicting the future. It is hard. And that seems to be true whether you are a physicist, economist, writer, or coach.
Still, there is a media-consultant complex out there needing to be fed, and one that loves to lavish attention over tabulated numbers and percentages about what might be, particularly when it comes to markets, economies, and business.
No Surprises
Setting all that to one side for a minute or two, there are some benefits in trying to figure out what will happen for all of us. The mind is prepared - and the potential for unpleasant surprises is theoretically pigeonholed into small, manageable portions.
A visualization published Tuesday by Visual Capitalist is a case in point. It takes the Boston Consulting Group (BCG) wealth report data released in early July, something that finews.asia reviewed in detail at the time and managed to synthesize the ream of information into a few very easily digestible bubbles.
Goldilocks Markets
It also makes it abundantly clear that North America and Asia Pacific are must-have markets for any significantly sized wealth managers and private banks, with Western Europe being, at best, a nice-to-have.
Moreover, the two regions seem to be becoming like the goldilocks economies of 1990s central banking yore. In other words, they are large, but they also benefit from high compound annual growth rates (CAGR).
Distant Third
By 2028, a collective 6 percent CAGR will propel the North American market to $227 trillion in net wealth and Asia Pacific to $209 trillion. Western Europe, on the other hand, comes in a distant third at $121 trillion, with a growth rate that doesn’t even exceed the prevalent central banking definition of price stability – or 2 percent.
Although none of this is a great surprise, having it out there, in such glaring and convincing simplicity, should be interpreted as a clear and present inflection point for an industry that is European, and Swiss, by heritage.
Following the Script
In fact, with all that in mind, any good strategy team worth its salt is likely to recommend something akin to UBS’s recent steps move to promote Iqbal Kahn and Rob Karofsky as co-heads of the core wealth management business, something that finews.asia has extensively reported and commented on.
As if following instructions from a BCG recipe, Khan has been moved to Asia while Karofsky assumes the mantle for the US business with wealthy clients. The downside to the wider industry, however, is that not all Swiss and European wealth managers are as large or internationally diversified as UBS.
No Easy Entry
Moreover, entering the North American market, particularly that of the US, with an abundant, even profuse, thicket of broker-dealer and investment advisor regulation, is not an easy place to establish a new foothold, particularly with the industry’s troubled history and fines related to the tax evasion scandals of the 2010s.
Asia’s size, diversity, and the often stringent, similar yet different, banking regulations in different markets, including the financial centers of Singapore and Hong Kong, also make it difficult to create a sustainably profitable business, as evidenced by the recent pullout of VP bank, as finews.asia reported.
Onshore Quagmire
Much the same is true for any institution even considering an onshore business in mainland China, which is only something for the strongest-minded. It requires deep pockets, and indefatigable regulatory patience, as the history and experience of many overseas financial institutions trying to reach reasonable thresholds of sustainability and profitability can attest to.
But it might not be the only approach. That same strategy team, seeing the hurdles of tackling the world’s two largest markets for wealth, could choose instead to take an entirely different approach by keeping a focus on Western Europe as a cash cow while staking future franchises in the Middle East & Africa and Latin America.
In a Backwater
Although the two markets remain relatively small currently, at $31 trillion and $26 trillion respectively, both have the highest CAGR in the world at 8 percent.
The downside to this would be, naturally, that such institutions would be living in a kind of backwater as they were not active in the two largest wealth markets in the world over the longer term, and given it can be reasonably expected that a significant proportion of innovation in expertise, products, services, and investments would be coming from the two.
Hard Stare
The industry is clearly between a literal rock and a hard place right now. But that shouldn’t keep the executives from staring long and hard at the five simple bubbles in the visualization, or something like it.
If nothing else, they won’t be surprised by how markets are shaping by the time 2028 rolls around.
