Participants in our Accenture-Orbium Wealth Management C-Level survey identified six megatrends they predict could reshape the wealth management industry over the next five years. We think these trends could open the door for wealth managers to expand their business models to capture untapped potential—including non-bankable assets (NBAs) that represent a significant and growing part of an individual’s total wealth today. Over the next few years, we believe that the ability to derive value from these assets will become more important to clients and a key differentiator for the firms that manage their clients’ wealth holistically.
For ultra-high-net-worth (UHNW) individuals globally, more than 50% of all assets are non-bankable and equate to approximately $30 trillion. Half of this is in property, with the remainder being in direct business equity and other passion assets. Even outside the rarefied atmosphere of UHNWs, those assets are a vital component of wealth. Of the UK’s total wealth of £14 trillion, 45% is held in NBAs, with property accounting for 33% and physical wealth for 12%.
On a global scale we estimate the size of non-bankable assets to be around $78 trillion today. So, what constitutes a non-bankable asset? And what is their value to both industry and clients?
Understanding non-bankable assets—and why they matter
Non-bankable assets are often tangible assets that have an emotional, social and intrinsic value. Examples include passion assets such as fine wine, rare books and other collectables, real estate, art or direct equity in a privately owned business. The value of such assets is often defined by scarcity, desirability or history, but that value may not be immediately accessible. Value appreciation in passion investments has consistently outperformed the global equity markets over the past 15 years, growing 65% faster than the MSCI World index over that period.
Historically it has been difficult to exploit the embedded value of non-bankable assets outside their traditional markets, limiting their role as collateral. The lack of consistent documentation, low trust and pricing transparency as well as their high transactional costs and illiquidity have all tempered the interest of financial firms to include them as portfolio assets. However, distributed ledger technologies, such as blockchain, could enable the tokenization of these assets—making them a much more compelling proposition to both clients and the industry.
The tokenization of assets is expanding rapidly. Currently, there are an estimated $1 trillion in blockchain tokenized assets (100% financial instruments). This is predicted to grow to $24 trillion (10% of global GDP) by 2025-2027, with nearly 30% in NBAs.
What are the benefits for clients?
Combining financial assets and non-bankable assets provides a complete view of an individual’s wealth, enabling clients to benefit from holistic advice. NBAs improve portfolio diversification through their low correlation to more traditional financial asset classes, thereby spreading risk. Tokenization enables fractional ownership of NBAs, thus creating liquidity and an efficient, transparent and more secure market for them.
What are the benefits to the industry?
Wealth managers could profit from an enhanced product and service offering, increased wallet-share and cross-selling. Including NBAs in the portfolio management strategy of clients provides new opportunities to better manage risk and returns. Firms can also reach out to new client segments interested in investing in NBAs.
How to include non-bankable assets?
There are essentially three basic operating models available to wealth managers and family offices to enable access to the opportunity NBAs offer. The easiest to implement, but also the one with probably the lowest impact, is a valuation service consumption model, whereby third parties verify asset holdings and provide value information to be recognized in the reporting of a wealth management client.
Next in complexity and impact is building up a holistic platform solution within an existing in-house core system infrastructure. Such a platform could provide an overview of the client’s entire asset universe and the ability to provide truly holistic wealth management advice and services.
The model with the likely highest impact provides trading services based on the tokenization of assets. This plays to wealth management clients who wish to make NBAs part of their trading strategy. However, it should be noted that firms wanting to adopt this model would also need to work within an ecosystem of fintechs to provide valuation, consolidation, reporting and other services around the NBAs.
In short, non-bankable assets hold significant potential for wealth managers to extend their services and increase their revenues and likely profits as well. Wealth managers just need to decide how deep they want to go. If you are interested in discussing this and other growth opportunities for your firm, feel free to reach out to me directly.