The PWC Global Private Banking and Wealth Management Survey 2011 reveals that the industry remains profitable in spite of considerable structural change and new regulatory burdens
THE PWC GLOBAL Private Banking and Wealth Management Survey 2011 reveals that the industry remains profitable in spite of considerable structural change and new regulatory burdens. Going forward, the 275 HNW service providers polled expect that their average gross margin on assets under management will increase from 72 basis points to 78 by 2013.
To achieve this, their top area of strategic focus will be the acquisition and retention of new and existing clients. Additional priorities include recruiting talent, retaining key staff and achieving greater operational synergies.
But the challenge should not be underestimated. For starters, only 15% of CEOs polled said that their relationship managers had gained true trusted advisor status while only 37% believed that their clients were highly satisfied and would recommend them; the problem was less everyday banking services and more the lack of value seen in many investment advice services and products.
Recruiting experienced relationship managers was seen as the best way to counter the trend as they are better positioned to offer consistently high-quality advice. This spells out in the figures – over 60% of assets are managed by advisors with over 10 years’ experience – but merely poaching teams en masse is proving harder and harder.
The reason is that HNWs are tired of following their relationship managers from one firm to another and going through repeated know-your-client and anti-money-laundering procedures. With merely 2% of relationship managers taking more than 60% of their book with them when changing jobs, it’s no wonder that AUM growth is increasingly difficult to buy.
As such, stronger profitability management is needed. PWC’s analysis shows that wealth managers are experiencing varying degrees of success in this department with fewer than a third achieving cost-income ratios below 60% (the average was 71%).
Respondents plan to tighten cost control over the next two years by focusing on improving operational efficiency, infrastructure consolidation and strategic procurement. All the time, they will be doing that while boosting their top line by expanding active investment advisory services and increasing financial planning and asset and liability management; quite the balancing act.
As ever, when walking a tightrope, risk management will be key. So if it’s not adhering to the new regulations and their implementation costs, wealth managers will be concerned with retaining high-quality relationship managers, meeting the changing needs of clients and attracting the next generation.
Participants even identified some new risks on the horizon including excessive cross border banking regulation, suitability of client advice provided, client data theft and high dependence on technology.
With such a wall of worry to climb, the prediction that Singapore will be the leading global wealth management centre in two years time looks perfectly possible.
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