WASHINGTON -- Are we heading into a golden age for wealth management?
Wealth management is poised to benefit significantly from an aging global population, but the industry may not be prepared fully for what's may come, according to a new report from Bank of America Merrill Lynch.
Sarbjit Nahal, director of thematic investing at BofA Merrill Lynch Global Research and the author of the report, "The Silver Dollar," looks ahead to a U.N. projection that the number of people 60 years or older worldwide will more than double to over 2 billion by 2050.
That trend, paired with longer life expectancies and declining birth rates in both developed and developing nations, will strain the financial safety nets in place to shepherd workers through their retirement years, and likely drive up the demand for financial advice, Nahal writes.
"Aging populations are becoming a virtually universal phenomenon," he says. "It will be one of the most significant challenges facing retirement systems over the next 50 years, with global annuity and pension-related exposure estimated to be as high as U.S. $15-$25 trillion."
'GREAT TRANSFER'
But the greying of the global population creates investment opportunities in areas such as health care and pharmaceuticals, financials and the consumer sector that advisors might consider when looking for growth sectors.
And, indeed, advisors happen to work in one of those sectors. Nahal identifies what he calls "the great transfer" where some $12 trillion is expected to pass from U.S. investors born in the 1920s and 1930s to the baby boomers, and another $30 trillion from boomers to their beneficiaries over the next 30 to 40 years.
"Global aging and longevity trends should create significant opportunities for asset managers, and especially wealth managers off the back of the looming shift of wealth to and from boomers," Nahal says. "There is considerable room for growth given that only four out of 10 U.S. retirees currently use a financial advisor."
The United States remains the country with the largest single population of high-net-worth individuals and households. But ahead of what Nahal suggests could be "the biggest transfer of wealth in history," Accenture reports that just 6% of households are receiving estate planning services from their primary advisor.
INDUSTRY UNPREPARED?
"The wealth management world needs to get ready for this shift -- with much evidence suggesting that they are unprepared," Nahal writes.
Those changing demographics could also presage a broad shift in investors' tolerance for risk, in aggregate. Nahal anticipates a sharp decline over the next decade in the number of investors between the ages of 40 and 65, which he identifies as "the group which is viewed typically as the biggest net investors and takers of risk in investment products."
"We expect risk appetite to wane with core equity mandates likely to come under increasing pressure, while incremental demand for diversification and risk-controlled assets looks set to rise," he writes. "We see this providing further impetus for wealth management, retirement-focused savings and investment, and the secular move towards more risk-controlled investment."
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