An aging population has the potential to drive a proliferation of sustainable investment opportunities in the financials sector.
The median age of the global population is rising, in part, as a result of people living for longer. Seniors are in fact now the fastest-growing demographic in the world.
A demographic shift such as this stands to be incredibly disruptive to society as a whole, especially considering the share of capital this older generation accounts for.
Buying Power
Seniors and members of the baby boomer generation control an increasingly significant proportion of global buying power. Figures show this demographic own almost three-quarters of wealth in developed countries. Over 50s in the U.S., for example, are estimated to control 70 percent of disposable income. The global ‘silver economy’ is predicted to amount to $15 trillion by 2020.
At the same time, there have been changes to the provision of pension plans. The responsibility for retirement provision has in many countries moved from the state and employer to individual pension schemes, meaning that people are more responsible for their own financial planning than before.
Greater Choice
All this amounts to a rapidly growing, increasingly wealthy generation, which is facing a potential shortfall of professional financial advice at a time when it is needed the most. The changes to retirement provision in particular have been accompanied by greater choice and complexity, emphasizing the need for face-to-face financial advice.
As people are required to take greater responsibility for their financial planning, demand for related financial services can naturally be expected to grow. The wealth management market in the U.K. alone is today worth an estimated 2.2 trillion pounds, but there is still a shortage of financial advisers capable of providing this face-to-face financial advice.
Significant Growth
Twenty years ago, there were as many as 200,000 U.K. financial advisers but, today, there are no more than 30,000. This creates a meaningful investment opportunity when it comes to a number of the existing wealth managers in the U.K.
This demographic shift is also likely to increase the demand for life insurance products. Developing markets in particular have witnessed significant growth in life insurance industry profits, which were up 12 to 15 percent in 2017, according to McKinsey.
Help People
China is now nearly as large as the United States in terms of absolute profit in the life insurance industry, following several years of strong growth. Demand for life insurance products appears healthy and this ageing population trend which is unfolding has the potential to support further growth in the future.
Financial services companies can help people save toward retirement and, once they have achieved financial security in a post-work environment, they may need further advice on other issues such as inheritance tax planning. Developing a financial plan for later life is a multi-faceted affair which can require numerous inputs over a lengthy period of time.
Good Position
At Lombard Odier Investment Managers we believe that the financials sector presents a number of opportunities in connection with this demographic shift. In the U.K., for example, we believe wealth managers such as St James’ Place are in a good position to benefit from such trends.
The wealth manager noted in its most recent annual results that 65 percent of U.K. personal wealth is in the hands of individuals aged 55 or more. This presents an opportunity for financial advisers to build long-term client relationships and manage a significant intergenerational wealth transfer.
Attractive Investment
Wealth management and life insurance companies in particular represent in Lombard Odiers Investment Managers view an attractive investment proposition since they are well placed to meet the demands of the older generation. In turn, that should stand them in good stead to generate economic value above their cost of capital and thereby grow their equity market valuation over time.
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