The Capgemini Research Institute’s World Wealth Report 2024 paints a surprising picture: despite global instability, the number of high-net-worth individuals (HNWIs) and their total wealth reached unprecedented levels in 2023.
Fueled by a rebounding global economy, HNWI wealth grew by 4.7% to a staggering $86.8 trillion, while the HNWI population increased by 5.1% to 22.8 million globally. This upward trend reverses last year’s decline and puts the HNWI market firmly back on a growth trajectory.
Regional Highlights:
- North America emerged as the global leader in HNWI recovery, with wealth and population growth exceeding 7% year-on-year. A strong economy, easing inflation, and a robust US stock market are credited for this momentum.
- Asia-Pacific and Europe experienced more modest growth, with both wealth and population expanding around 4%.
- Latin America and the Middle East saw limited HNWI growth, while Africa was the only region where wealth and population contracted due to falling commodity prices and declining foreign investment.
As HNWI wealth thrives, asset allocation strategies are evolving. Early 2024 data reveals a shift away from its preservation, with cash holdings normalizing to 25% of portfolios – a significant drop from the multi-decade high of 34% in January 2023. The report indicates that two-thirds of HNWIs plan to increase their private equity investments in 2024, seeking to exploit potential future growth opportunities.
The great wealth transfer is driving an urgent need for value-added services
Ultra-high-net-worth individuals (UHNWIs) hold a dominant position, controlling over 34% of total HNWI wealth despite representing just over 1% of the population. With an estimated $80 trillion wealth transfer expected from aging generations over the next two decades, the demand for value-added services is surging. These services encompass financial (investment management and tax planning) and non-financial (philanthropy, concierge services, passion investments) offerings, presenting a lucrative opportunity for wealth management firms.
“Clients are demanding more from their wealth managers and the stakes have never been higher. There are
active steps firms can take to engage and retain clients for a personalized, omnichannel experience as the great wealth transfer unfolds and growth of HNWIs continues,” said Nilesh Vaidya, Global Industry Head of Retail Banking and Wealth Management at Capgemini. “While the traditional way of profiling clients is ubiquitous, the application of AI-powered behavioural finance tools, using psychographics, should be considered. They can offer a competitive advantage by understanding individuals’ decision-making to deliver a greater degree of client intimacy. The creation of channels for real-time communication will be crucial to manage biases that sudden, volatile market movements might trigger.”
Majority of HNWIs want guidance to help manage their biases
The report reveals a critical finding: over 65% of HNWIs acknowledge the influence of biases on their investment decisions, particularly during significant life events. To address this concern, 79% of HNWIs seek guidance from relationship managers (RMs) to manage these “unknown biases.”
By integrating behavioral finance with artificial intelligence, wealth management firms can assess how clients react to market fluctuations and guide them towards data-driven decisions less susceptible to emotional or cognitive biases. AI-powered systems can analyze data and identify patterns invisible to humans, enabling RMs to provide proactive advice.
The report highlights a growing trend: UHNWIs are increasingly diversifying their wealth management relationships. The average UHNWI now maintains relationships with seven wealth management firms, indicating a potential lack of service depth and range within the traditional industry.
Conversely, single-family offices catering exclusively to one family have experienced a 200% growth surge in the past decade.
Wealth management firms must navigate competition and potential collaboration with family offices to effectively cater to the HNWI and UHNWI segment.
Notably, half of UHNWIs express interest in establishing a family office and seek guidance from their primary wealth management firm in this process.
Methodology:
The World Wealth Report 2024 leverages data from 71 countries, encompassing over 98% of global gross national income and 99% of world stock market capitalization. The report combines insights from three surveys:
- The Capgemini 2024 Global HNW Insights Survey: This survey questioned over 3,119 HNWIs, including 1,300+ UHNWIs, across 26 major wealth markets globally.
- The 2024 Wealth Management Executive Survey: This survey includes 75 responses from leadership figures in wealth management firms across North America, Europe, and Asia-Pacific.
- The 2024 Relationship Manager Survey: This survey gathered responses from over 750 relationship managers across ten markets.
