Wealth firms have good growth prospects despite market, cultural obstacles. In face of increasing market turmoil in the last half of the year, the world's privately held wealth increased 4.9% to $109.5 trillion in 2007, according to the Boston Consulting Group (BCG). Despite a sharp year-over-year decline -- total wealth increased 7.5 % to $97.9 trillion in 2006 -- and a general worsening of market and economic conditions in 2008, BCG says wealth managers can still make significant headway, especially if they can figure out how to succeed in the world's emerging markets.

But high entry costs, a scarcity of relationship managers, and increasing competition from locals and other foreigners make it hard for foreign wealth managers to thrive in emerging markets such as Asia-Pacific, Latin America, Eastern Europe, and the Middle East.

A pall

"To grow, wealth managers will need to overcome these challenges while developing products and services that suit specific markets," says Bruce Holley, a senior partner of BCG and co-author of the report, A Wealth of Opportunities in Turbulent Times: Global Wealth 2008.

North America was hit particularly hard by last year's market volatility. The region, which accounts for about a third of the world's wealth, saw personal holdings grow by 3.8% last year, down from 8.9% in 2006.

"The financial crisis continues to cast a pall over established wealth markets," says Victor Aerni, a Zurich-based partner and co-author of the report. "It has prompted many investors to move their assets to more conservative products, resulting in lower margins for some wealth managers."

And, as some clients have moved assets elsewhere or have curtailed new investment, some wealth managers in North America and western Europe -- another highly developed slow-growth zone and home to another third of the world's personal wealth -- have seen a drop in assets under management, Aerni adds.

Front office

Among the world's more promising emerging wealth markets are China and India in Asia, Brazil and Mexico in Latin America, the Persian Gulf states of the Arabian peninsula in the Middle East, and Russia, Poland and Hungary in eastern Europe, according to BCG.

In addition to accessing select markets in the developing world, managers have to address organizational challenges to support increased growth if they hope to prosper in hard times, according to A Wealth of Opportunities in Turbulent Times.

The financial crisis may have underscored the relative stability of the wealth-management business -- so far anyway -- but it has also created a new sense of urgency around how to position and structure the front office, says Aerni. "Success in wealth management always seems to boil down to a small set of client-focused capabilities that are critical to driving growth," he explains. "The front office is the common denominator of these capabilities: it's where clients are acquired and served."

BCG arrives at its "wealth" figure by tallying the local-currency value of securities (held directly or in pooled investments), cash deposits, money-market funds, and onshore and offshore assets held by all households in 62 countries (which BCG says account for 98% of gross global product) and using a "benchmark survey" of more than 100 wealth managers around the world.

Millionaires

Households with at least $100,000 in assets under management represented about 18% of all households but owned 88% of global wealth last year.

Millionaire households -- which grew 11.2% to reach 10.7 million in number -- represented 0.8% of all households but owned 35% of the world's wealth.

In their most recent World Wealth Report, Capgemini and Merrill Lynch say there were 10.1 million millionaires (up 6% from 2006) with $40.7 trillion in "financial assets" (up 9.4% from 2006) last year.

According to the BCG study, the U.S. had the greatest number of millionaire households last year, followed by Japan, the U.K., Germany and China.

"Small markets, however, had the greatest concentrations of millionaire households," says Aerni. "In Singapore, an astounding one in ten households had at least $1 million in AuM" -- and three of the five countries with the densest populations of millionaires were in the Middle East.

Despite a slowdown in global wealth creation last year, BCG sees a 26% hike in personal wealth to $138 trillion by 2012.

Here's an executive summary of the report.

Boston-based BCG, a market-research firm and business consultancy, has 66 offices around the world. -FWR

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