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China Ranked #3 in Number of Millionaires in the World, Says Reports by The Boston Consulting Group

Global Wealth Slumped by More Than $12 Trillion in 2008 and Is Not Expected to Return to Precrisis Levels until 2013; While China Wealth Market Continues to Perform Strongly and Will be the Fastest Growing Market in the World

BEIJING, November 19, 2009—The crisis is transforming the global map of the world's wealthiest people, with Europe nudging out North America as the richest region, according to a new report by The Boston Consulting Group (BCG). The report, titled Delivering on the Client Promise: Global Wealth 2009, is being released today.

• Global wealth fell from $104.7 trillion in 2007, measured in assets under management (AuM), to $92.4 trillion in 2008—a decline of 11.7 percent. It was the first decline since 2001¹.The steepest decline was in North America, where wealth plummeted by 21.8 percent last year
• In North America, the share of wealth held in equities fell from 50 percent in 2007 to 38 percent in 2008—but the region still had the highest proportion of wealth held in equities
• Europe had $32.7 trillion in AuM, down 5.8 percent from the previous year, followed by North America, with $29.3 trillion in AuM
• Latin America was the only region where wealth increased—its AuM grew by 3 percent in 2008

The number of millionaire households worldwide fell from 11 million to about 9 million—a drop of 17.8 percent. The decline was steepest in North America and Europe, at 22 percent in both regions, although the United States continued to have the most millionaire households—nearly 4 million.

• Singapore had the highest concentration of millionaires, with 8.5 percent of the country's households owning more than $1 million
• Three of the six densest millionaire populations were in the Middle East—in Kuwait, the United Arab Emirates, and Qatar

The crisis also narrowed the gap between the wealthy and nonwealthy. Wealth owned by households with less than $100,000 in AuM increased by 2 percent in 2008. It declined in all other segments. Among households with more than $5 million in AuM, wealth fell by 21.5 percent.

"Wealth will begin a slow recovery in 2010 but may not reach its precrisis level until 2013," said Tjun Tang, a BCG Greater China based partner and a coauthor of the report. "We expect wealth to grow at an average annual rate of about 4 percent from year-end 2008 through 2013." Wealth will grow fastest in Asia-Pacific (excluding Japan) at 9.5 percent per year over the same period, he added.

Pressure Is Mounting on Offshore Wealth

Offshore wealth fell to $6.7 trillion in 2008, down from $7.3 trillion in 2007. Switzerland remained the largest offshore center. It accounted for $1.8 trillion, or 28 percent, of offshore wealth last year.

Increased regulatory scrutiny is changing the landscape of cross-border wealth management, with pressure mounting on offshore centers that have based their edge primarily on tax avoidance. "Once their tax and legal advantages evaporate, so too will their appeal," Tang said. "Being inconspicuous is a tenuous value proposition in an era of increasing oversight."

Some nontraditional offshore centers—including several outside Europe—remain poised for growth. Singapore and Hong Kong, in particular, will continue to benefit from their proximity to other Asian countries, where wealth is expected to stage a faster recovery.

Wealth Managers Were Resilient but Still Vulnerable

The wealth management industry has weathered the storm better than most other financial-services sectors, but it was hardly unscathed. Among the 124 institutions in BCG's benchmarking study, the median pretax profit margin fell to 30.0 percent in 2008, down from 36.4 percent in 2007.

Performance was dampened by client behavior. Stung by losses and scandals, clients shifted their assets to basic, low-margin investments. "Dazzling product complexity is no longer seen as a positive attribute—if it ever really was," said Bruce Holley, a BCG senior partner and a coauthor of the report. "It is unclear when—and to what extent—assets will migrate back to high-margin investments, but wealth managers cannot count on a strong resurgence of these products in the short term."

"The industry will need to do more with less," continued Holley. "Revenues and profitability are sliding, but clients want more intensive service. Wealth managers have an opportunity to gain ground while assets and relationships remain in play, but only if they define a clear value proposition—many, for example, will be able to enhance their offering by narrowing their product range. They also need a more aggressive client-acquisition strategy—one that zeroes in on 'dislocated' wealth—in order to gain share in this market."

The report also includes insights into other topics:

• The response of Swiss banks to the reallocation of assets to basic products
• Strategies for serving lower-tier clients
• Responses of U.S. wealth managers to the crisis
• The changing dynamics of Latin America's wealth market

Looking specifically at China, a November 2009 BCG report Wealth Markets in China:  Delivering the Right Value Proposition for China's Wealthy  finds that China wealth market continues to perform strongly despite the financial crisis. We expect the total household wealth in China to grow at an average annual rate of 17.2 percent between 2008 and 2013, to reach $7.6 trillion.  While the large, fast growing market provides attractive business opportunities to private banks, it is critical for banks to understand the distinct needs and behaviours of Chinese high-net-worth individuals (HNWIs) to best tailor their service offerings.

In the past couple of years, both local and foreign banks have been rapidly developing their private banking business.  However, many challenges have been faced and various approaches have been adopted in serving the wealthy individuals.  "We believe that China's wealth market offers an attractive window of opportunities for banks.  How banks should act to capture the opportunities and establish competitive position would be a key strategic issue to explore." said Frankie Leung, coauthor of the report and a BCG partner in the firm's Hong Kong office. 

"The race to build a strong wealth-management business in China is still in its early stage." said Holger Michaelis, another of the report's authors and a BCG partner in the firm's Beijing office, "The winners will be the ones that have developed a deep understanding of their customers and offer tailored and differentiated value propositions to their target customer segments."

The report goes on to outline three tightly components as critical factors to develop a winning model to successfully differentiate against competitors, and to win and better serve clients in the China market.

1. Explore the needs and behaviors of wealthy clients
2. Design a tailored and differentiated value proposition
3. Strengthen internal capabilities to deliver the value proposition

"This is a critical moment. It is possible to make money with different business models, value propositions, and targeted customer segments.  Both local and foreign banks need to ramp up their efforts to build capabilities and mobilize the organization to take advantage of this attractive opportunity," said Frankie.

To receive a copy of the report or arrange an interview with one of the authors, please contact Ms. Gu Li at +86 21 23064069 or gu.li@bcg.com.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 66 offices in 38 countries. For more information, please visit www.bcg.com or www.bcg.com.cn.

 1.The levels and changes in AuM in this release were measured in local currencies and converted into U.S. dollars using end-of-year 2008 exchange rates to exclude the effects of exchange rate fluctuations.