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Financial inequality is a global issue that has a profound impact on individuals and society. It has recently garnered significant attention in the asset management industry. Historically, inequality in wealth distribution has been a characteristic feature of societal development, with certain groups and geographic regions accumulating significantly more assets than others.
Currently, a substantial portion of the world’s wealth is concentrated in the hands of a few. According to the recent UBS “Global Wealth Report 2024,” just 14 people in the world collectively own assets worth $2 trillion. People with assets exceeding one million dollars make up only 1.5% of the world's adult population.
The report's authors claim that global wealth is increasing – in 2023, it grew by 4.2% compared to 2022. Since the turn of the millennium, the world's population has made substantial progress in terms of wealth per adult. The percentage of adults with assets of less than $10,000 has continued to decline since 2000. Even during recessions and financial crises, many of these individuals gradually moved into a higher category – from $10,000 to $100,000. As a result, this category has grown 2.5 times, from just under 17% of the world's population to nearly 43%.
While this is a positive trend, the global situation remains largely unchanged – as global wealth increases, the rich get richer, while the poor remain poor, and the middle class struggles to move forward, lacking sufficient opportunities to accumulate and grow their capital.
Financial Inequality: A Barrier to Economic Mobility and Growth
Financial inequality perpetuates cycles of poverty and limits economic mobility. Restricted access to financial resources and services prevents individuals from investing, saving for retirement, or starting a business. This widens the wealth gap and stifles overall economic growth.
Moreover, financial inequality can lead to social and political instability. When a significant portion of the population feels excluded from the benefits of economic growth, it can result in social unrest and undermine trust in financial institutions.
Financial Inequality Since the 2008 Crisis
The United States has the highest number of millionaires globally, with nearly 22 million people, according to UBS. China is in second place with just over six million, roughly double the number in the third-largest market, the United Kingdom. Since the 2008 financial crisis, the issue of inequality has become more pronounced. In some regions, such as North America, inequality has slightly decreased, while in Latin America and Eastern Europe, it has increased significantly.
Wealth distribution has shifted. Rapidly growing markets have often witnessed rising inequality, while segments of middle-income earners have expanded in developed economies. This trend suggests that while overall wealth is increasing, the benefits are unevenly distributed. Average wealth figures can be misleading, masking the reality of stagnant middle-class wealth for the majority.
Economic growth does not always reduce inequality. In markets where average wealth growth significantly outpaces average income growth, such as Singapore, wealthier segments of society benefit more. In countries like Switzerland and Germany, income growth is more prevalent among the middle class, resulting in less pronounced financial inequality.
Rising Levels of Debt
The increase in debt levels plays a significant role in financial inequality. In the Asia-Pacific region, while overall wealth has grown, total debt has also risen substantially, raising concerns about economic stability. This debt can exacerbate inequality, as low-income individuals struggle to manage their obligations. In contrast, wealthier individuals use debt to further invest and accumulate wealth. Meanwhile, poorer segments of the population have access to credit at much higher interest rates. For instance, credit card interest rates can be five to six times higher than those for loans secured against liquid assets or securities used by wealthier citizens.
Inequality and Wealth Management
How does wealth management, an industry traditionally seen as catering exclusively to the wealthy, relate to this issue? Directly. Not everyone is destined to become an entrepreneur, secure a high-paying job, or inherit a fortune. At the same time, saving and investing money is a universal tool that allows for preserving and growing wealth, accessible to various social groups. This is especially true now, with a growing trend towards the democratisation of the investment process worldwide, thanks in part to services like Robinhood, which have opened up investment opportunities to the general public.
Initially, Robinhood targeted lower-income groups and was more focused on emotional investments. Nonetheless, the service has significantly shaken up the investment and brokerage landscape, created competition in the stagnant retail investment industry, and reduced average commissions. As a result, people have become more active in trading via mobile phones.
However, merely providing access to the investment process is not enough. It is essential for people to understand how and what to invest in and have at least a basic understanding of the principles governing the complex and often deceptive world of finance. Financial advisers and professional investment managers can help with this, but the problem is that they are unwilling to work with clients who have a net worth of less than £20,000.
This is evident from a survey conducted by Citizens Advice. The average client portfolio size for a financial adviser is £250,000, with the average client being 59 years old. According to this study, 80% of people aged 18-40 in the UK receive financial advice from social media, which often leads to financial losses for those who have little to begin with. Meanwhile, those with substantial wealth grow even richer during times of crisis and turbulence, thanks to well-structured strategies.
Financial levers and wealth growth tools are only available to those who already possess wealth. Those who do not face a metaphorical ceiling—they lack access to quality financial services and effective capital growth tools. Owners of liquid assets worth between $250,000 and $500,000 (the typical middle class in developed markets such as the US, UK, and Western Europe) cannot use the services of advisers and investment managers due to the high costs. Additionally, they often lack sufficient funds for the investment strategies offered by managers. For example, entry into a single asset could cost one million dollars or more. Another significant reason is the unwillingness of advisers to serve such clients; they are more interested in those with assets of $10 million or more.
What Could Help Reduce Financial Inequality?
Let’s set aside discussions on government programmes and policies and focus on asset management—our area of expertise—where there are also plenty of levers to influence inequality. First and foremost is promoting financial literacy, enhancing the quality of financial education, and raising awareness. Complex analytics and explanations of market processes can be made accessible and understandable, tailored to the needs and characteristics of the time. The rapid development of technology, including artificial intelligence, allows for the condensation of information from 50-page financial reports into short, engaging formats available on mobile apps. This enables people to acquire the knowledge and skills necessary to make informed financial decisions.
Today's technological solutions make financial and investment services more accessible to people with varying financial capabilities: anyone of legal age can open a brokerage account, and wealth management services no longer require multi-million dollar assets. Technology creates bridges between different categories of investors. For example, our company has traditionally worked with high-net-worth individuals. By creating a digital platform and digitising asset management processes and other financial services previously available only to the very wealthy, we can engage the middle class (those with assets of $250,000 to $500,000) in the investment process. They can step out of their conservative shells and start using Wealth-as-a-Service solutions, gaining access to services traditionally reserved for multi-millionaires. Similarly, companies that have catered to the middle class can, thanks to technology, expand their client base to include those with less wealth, with capital up to $100,000, and so on.
Peter Diamandis, co-founder of Singularity University and billionaire, says: "Technology is a force that turns scarcity into abundance." This applies to all aspects of life, and financial services are no exception.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
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