By the end of next year, the Asia/Pacific region will surpass the United States as the world's dominant wealth region, with nearly a third of the world's high net worth individuals (those with more than $1 million in investable assets) residing there, according to a new report about banking for the wealthy.
In order to thrive, private banks will have to tap into global markets for clients and conquer skepticism over traditional banking models, the report finds. Compiled by management consulting firm Booz & Co., "Private Banking after the Perfect Storm" is based on a survey of 140 wealth advisers and regulators from 15 key markets worldwide.
Private banking has long been a mainstay of financial services for the rich. But during the 18-month period of the study, the industry was battered by the global recession and the IRS crackdown on offshore asset shelters. The resulting increase in financial regulations and client scrutiny, coupled with a loss of 25 percent to 30 percent in revenue during that period, points to a need for a new business model.
The real growth opportunities aren't going to be found in the United States and Europe, the report says, but in the Middle East, India and China. That region is already making inroads among the very wealthiest individuals. According to the Forbes list of the world's billionaires, published in March, three of the top 10 billionaires are U.S. citizens, two are from India, and one each from France, Brazil, Spain, Germany and Mexico. Within the top 20, one is from Hong Kong and one hails from Saudi Arabia. Click here to view the entire list.
Going forward, clients are also expected to be financially conservative, keeping more of their assets in cash, despite the market recovery since March 2009. The report also predicts that emerging market countries will become more politically stable, encouraging clients to keep their wealth onshore rather than seek offshore shelters.
Overall, the report points to a positive future for private banks, but cautions that the industry has to adapt to these "new realities" and look for opportunities to penetrate underserved private banking markets in emerging countries.
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