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Emerging-market wealth surging, but U.S. will stay on top E-mail

China, Brazil are spawning many new millionaires. But as the wealth pie grows, the U.S. will keep its share  
May 6, 2011
By Bill Streeter, editor-in-chief
The good news for players in the asset and wealth management market is that the world’s supply of millionaire households is growing rapidly and will continue to do so through 2020. The bad news is…. Well, there really isn’t any bad news in a just-released report from the Deloitte Center for Financial Services.

While emerging markets—notably China, Brazil, Russia—will be the driving force in the growth of millionaire wealth, the developed countries will continue to dominate for the foreseeable future. “The United States and Europe will continue to have the greatest concentrations of wealth,” the report notes, adding that “even as emerging markets narrow the gap, and numerous opportunities for growth in local markets around the U.S. remain.”

In 2020, 43% of the world’s wealth held by millionaire households is predicted to be in the U.S., which would be just a slight increase from the current 42%. But that statistic masks the fact that the overall pie is very large and getting larger. The actual wealth represented by 43% could more than double from $39 trillion in 2011 to $87 trillion in 2020, thanks to an increase in millionaire households from 10.5 million to 20.6 million over that same period.
(Click here to download a PDF of this chart.)
“It’s the law of compounding, starting from a large base,” observed Andrew Freeman, executive director of the Center for Financial Services, and one of the study’s co-authors, along with Val Srinivas, head of research. Addressing U.S. wealth management executives Freeman says, “Don’t forget your own backyard; there is a huge supply of management fees” to be tapped over the next decade.

The study was conducted with Oxford Economics, which has developed global, macroeconomic forecasting models. “Wealth” in this study includes financial assets (stocks, bonds, and other investments) and nonfinancial assets including primary residence, durables, business ownership, and other assets. The study focused on households with wealth of U.S. $1 million and above, divided into three segments for some statistics.

Among other key findings cited in the Deloitte summary:
• Among emerging markets, China will continue to be the driving force in the growth of millionaire wealth, followed by Brazil and Russia. Of the 25 countries examined in the study, China and South Korea will join the top ten countries in terms of the total number of millionaires by 2020.

• While Switzerland may have the highest per capita wealth overall of the countries studied at $4.2 million in 2011, Singapore may rank No. 1 in 2015 and 2020 with $4.5 million and $5.4 million, respectively, in per capita wealth.

• Australia may make an entry into the top ten in 2020 with millionaire households numbering 1.6 million; the country is also projected to experience the fastest growth rate of the developed economies. (Freeman notes that the primary driver here is commodities—specifically iron ore, coal, and bauxite, the latter used in making aluminum.)

• Among the forecasts for each of the U.S. states, California is expected to remain the state with the wealthiest households, while New Jersey will continue to have the greatest density of millionaire households. The East Coast could see the highest growth rates; New York (Wall Street, entertainment, real estate) and Florida (migrating Baby Boomers) will together add 1.5 million new millionaire households by 2020.
(Click here to download a PDF of this chart.)
In the summary, Freeman states: “Which countries may offer the most promising future and how wealth managers can potentially increase profitability in the next decade are important questions for a wide range of financial institutions. These days it’s about a lot more than just a few private banks.”

In an interview, he added that the wealthy tend to hold their wealth across a mix of assets, and that, compared to 20 years ago, hedge funds and private equity have grown while private banks' share has declined. In emerging markets, he says, private banks and private wealth managers may still be favored, whereas in developed countries the mix of players is more varied. In the U.S., for example, family offices in various forms have become more predominant.

“It’s one thing to say where the millionaires will emerge, and quite another to say where their money will be managed,” says Freeman. In China, for example, new wealth could find its way out—if allowed—to global financial markets, he explains. Or a new domestic wealth management market could develop in that country.

Read more in Deloitte’s 47-page executive summary.
[This article was posted on May 6, 2011, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2011 by the American Bankers Association.] 
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