July 25, 2002

The recent recession has lead to major losses in private wealth around the globe according to a new report by Boston Consulting Group (BCG).

According to the survey, Prospering in Uncertain Times: Global Wealth 2002, private wealth declined by approximately $2.9 trillion or 4.4 percent of its total value during 2001. Over two million houses worldwide slipped below BCG's wealth threshold of $250,000 in net investment assets.

As a result, wealth managers' profits declined by 69 percent in the United States, and commission-based companies in North America saw revenues drop by 22 percent. Profits in Europe dropped 34 percent as well.

Commission based companies include Wall Street brokerages and discount brokers.

Many of the losses are a result of the worldwide recession. The troubled economy has made niche wealth providers such as narrow focus brokerages, online-only wealth-management services and small independent private banks weaker. Meanwhile, investors, worried about what they saw, are looking for more guidance and advice and shifted assets to less risky areas including bonds and non-residential real estate. Investors also became more conservative in investing and looked for safe, high return polices.

Because of the economic downturn, competition for wealthy clients is increasing and investors are, in many cases, willing to switch providers. For this reason, companies who want to retain clients must be able to control cost while devoting resources to necessary and profitable customers. This is not an easy task--the survey found that there are too many wealth investors who are either undeserved or over-served by private bankers. Few places know how achieve the right balance of attention.

Although many wealth management companies had substantial losses in 2001, there were still businesses with profitable returns. These businesses were efficient in several areas, according to the Bruce Holley, co-author of the report. Holley said there were three things that the most profitable companies did that made them shine. "The best performers had a better understanding of who their target customer is and what their needs were," he explained. "The second is that they really focused on cost management. They were good at achieving scale in the back office, capacity utilization and efficiencies in the middle office, and driving sales source effectiveness in the front office. The third thing was they had tracking systems in place. They were also able to align their business model with the right customer segment."

There were 61 participants in this global wealth survey, 21 from North America, 21 from Europe and 19 from Asia and the Pacific.