Asia-Pacific wealthtech sector expected to hit $2 trillion by 2027

A recent report published by the global management consulting company McKinsey & Co. predicts that the wealthtech sector in Asia-Pacific (APAC) could potentially hit the valuation of $2 trillion by 2027.

McKinsey: APAC WealthTech to Quadruple by 2027: The wealthtech industry in Asia Pacific is on the brink of substantial expansion, following its growing economy and increasing wealth in the region. https://t.co/3ke3EG050j #McKinsey #WealthTech

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Wealthtech is gaining momentum in Asia-Pacific

The region has attracted major interest over the last several years, with multiple locations seeking to become new tech and financial hubs. The effort has paid off, and businesses from all over the world are seeking to enter the sector and either expand into it, or make it their headquarters.

McKinsey’s forecast, however, is based on the expectation that the wealthtech market will see a 25% increase each year between now and 2027, allowing it to triple, or potentially even quadruple, the current assets under management in the sector.

The report has noted that wealthtech services are rapidly gaining momentum in the APAC region, especially those that employ digital applications and tools. The reason for this is simply the greater efficiency and access that they stand to offer to the local retail investors.

By making the global financial industry more accessible, retail investors are more likely to become its participants, and in massive numbers. This is why the report expects to see the strongest growth in the direct-to-consumer wealthtech market since this is where a mix of pure digital and hybrid advisory models can be found.

Apart from technological advancements, however, the sector is also expected to gain from changing consumer behavior and favorable demographics, according to McKinsey.

The company noted that wealthtech is still in its early stages but also that it is rapidly gaining momentum around the globe since more wealth management companies are recognizing its potential benefits.

At the same time, the sector allows for increased accessibility of wealth solutions, which is especially beneficial for users in untapped and underserved regions. This is why Asia-Pacific stands to become a massively important region in global wealth management.

A shift in focus of wealth managers is necessary

The firm remarked that historically, wealth management services have mostly focused on high-net-worth individual (HNWI) segment.

However, “The affluent segment share is increasing, projected to be 34 percent of onshore PFA by 2027, with a projected CAGR growth of 8 percent from 2022 to 2027.4 This is a notably untapped and underserved segment, with a low wealth management penetration of 15 to 20 percent, as of publication.”

Co-founder, chairman, and Chief Investment Officer at Endowus, Samuel Rhee, commented that the advice in the Asia-Pacific region is massively misaligned, as banks are not being paid by the clients to do what is in their best interest. Instead, they are paid by product manufacturers to push their funds.

He added that the demand is also a part of the problem, since people are not financially literate, which prevents them from learning that this misalignment is even happening.