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  1. Wealth
July 18, 2012

Scorpio Private Banking Benchmark shows large firms outperform smaller in tough times

By Spear's

The Scorpio Partnership Private Banking Benchmark 2012 shows the wealth management industry performing well in spite of growing regulatory pressure and economic instability

The Scorpio Partnership Private Banking Benchmark 2012 shows the wealth management industry performing well in spite of growing regulatory pressure and economic instability


LONDON – Scorpio Partnership’s annual Private Banking Benchmark of the global wealth management industry released today shows international providers weathered the storms of 2011 more successfully than smaller players. Firms in the top half of the Benchmark performed better than lower tier wealth management firms in terms of net new money, assets under management, income and pre-tax profit growth.

However, large firms had higher expenses linked to increasing levels of global regulation and expansion into new markets. For these firms, expansion is a double-edged sword fuelling growth on the one hand but also increasing expenditure and exposing firms to the growing complexity of international regulation.

Wealth managers that lack global reach also faced difficult operating conditions. Their net new money flows more than halved and margin pressure reduced overall levels of income. Many of these firms responded with cuts in order to maintain their profitability. The smaller Swiss private banks were particularly prone to these challenges. They face the additional pressure of heightened global scrutiny on tax issues.

In spite of their different challenges, large and small wealth management firms navigated the complex economic and regulatory environment successfully, reporting solid growth in profitability. This suggests wealth managers are adapting to the structural changes taking places in the financial services industry and the rapidly evolving economic and market conditions.

Figure 1: Key performance indicators for the upper and lower tier of Benchmark wealth management firms

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These are the main findings of The Scorpio Partnership Private Banking Benchmark 2012, which is an annual assessment of the efficiency and effectiveness of wealth management as a business model servicing high-net-worth clients. This year’s analysis of the industry’s key performance indicators covers 201 wealth management entities around the world.

“Since the financial crisis began in 2008, the operating environment has been changing rapidly for wealth managers. This year’s analysis shows some firms are reacting better than others to the new reality of changing economic patterns and extensive compliance,” says Sebastian Dovey, managing partner at Scorpio Partnership.


The report finds assets under management for the sector as a whole held level. The average percentage change was up 0.61% versus the previous year. This marks a solid result given the onslaught of the Eurozone crisis, US deficit problems and sluggish growth in Asia in the latter half of the year.

However, it means there was little movement among the top 20 wealth management providers by assets under management.

Figure 2: Top 20 global private banks by assets under management (AUM in US dollars)

Citigroup has moved from 20 to 13 in the ranking as this year Citi has reported assets under management for all fee- based accounts greater than USD1 million for the first time since the joint venture deal between Smith Barney and Morgan Stanley.

In line, we have also reported results for Morgan Stanley that relate to accounts greater than USD1 million. As a result, Morgan Stanley has slipped two places down the ranking, which moves UBS back into second place from third place last year.

In this context, it is important to note that Bank of America reports for its Global Wealth & Investment Management division, which includes Merrill Lynch Global Wealth Management, US Trust, Bank of America Private Wealth Management and its Retirement Services business. Wells Fargo has also included Retirement Services within its data this year.


The comparative success of the international wealth management players reflects their reach into growth markets, particularly Asia. These markets present a significant opportunity to attract new client business. Plus, the financial services in these markets are often commission-based and therefore generate higher margins.

However, growth in these markets comes at a price and the research also highlights the growing costs associated with wealth management. Among the upper tier wealth management firms, the average percentage change in expenses was 3.47%. However, the very largest banks saw much larger increases in expenses. In fact, if we take the mean expenses for the upper tier wealth management firms we find a hike of 18% from USD1.76 billion at the end of 2010 to USD2.08 billion at the end of 2011.

This increase in costs for these firms also reflects the changing global regulatory framework for financial services. Enhanced regulation is a strong feature of the post-2008 financial services landscape. From cross-border initiatives such as FATCA, Mifid and Basel III, through to localised regulation such as Switzerland’s “too big to fail” rules, the UK’s Retail Distribution Review, or the US’s Dodd Frank reforms, all of these initiatives have implications for how firms run their wealth management operations in isolation or as part of a larger financial services group.

Smaller firms are not immune to these regulatory changes, but depending on the scope of their business they may be less affected. Some smaller firms are also looking to build scale and also reported increases in their expenditure due to these trends.

However, in the main, the challenges for smaller firms were weakening net new money flows and falling income. And, while many smaller firms sought to cut costs, the cost income ratios for large and small wealth management firms alike crept up last year.

Indeed, the market trends pose the question whether cost income ratios in the region of 78% – 85% are the new reality for wealth management in the post-2008 era.

“The wealth management model of the future will need either global scale or a high degree of specialism. With this in mind, we would expect to see consolidation, particularly among mid-tier firms. Larger firms may also examine their international books to determine if they have the right scale, reach and margin to justify the enhanced regulatory risk,” remarked Cath Tillotson, head of research and managing partner at Scorpio Partnership.

Figure 3: Cost income ratios by wealth manager type

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