Emerging Markets

Foreign Firms Face Stiff Competition From Locals In Brazil Wealth Market - New Study

Eliane Chavagnon Reporter 18 January 2013

Foreign Firms Face Stiff Competition From Locals In Brazil Wealth Market - New Study

Foreign players face stiff competition in Brazil as local firms vie to strengthen their positions, a new study says.

Wealth creation, GDP growth and initial public offerings are key factors driving the Brazilian wealth management industry, while domestic players are looking to enhance their positions in the market and foreign players are seeking diversification, a new study says.  

In its report, Competitive Dynamics in Brazilian Wealth Management, Datamonitor Financial highlights that participants in the Brazilian wealth management industry operate one of three different business models: an integrated private bank, an asset manager, or a brokerage. Competitors include Bradesco Private Bank, Lerosa Investimentos, Santander Private Banking and Gestão de Patrimônio Financeiro.

“The Brazilian domestic wealth market is served by a range of players but universal banks hold the majority of the market,” the report says, despite the fact that there are more wealth management firms (than private banks). Independent brokerage firms offering direct and online trading to the retail market are also “plentiful,” it noted. 

Meanwhile, there has been little M&A activity in the sector over the past 18 months as foreign firms have encountered strong competition from local firms, and red tape has also dampened activity, Datamonitor says. Inward M&A particularly was lower than expected, and some foreign firms even retreated or remained offshore to serve Brazilian clients. 

The offshore Brazilian market is dominated by universal banks, the report says, but here, again, regional firms are keen to get a foothold.

“Organic growth in Brazil has also been muted as São Paulo and Rio de Janeiro remain the key centers for wealth management,” it added, indicating that the environment is relatively challenging for wealth management firms.

According to the findings, the majority of high net worth client assets are held in integrated private banks, while there are numerous wealth management firms focused solely on asset management. Minimum investment thresholds vary across the business models; brokerages target the mass affluent population with between $250,000 and $500,000 in minimum investments. Wealth management firms are not subject to a client minimum investment capacity classification, the report says, but “global standards apply.”

Private banks target clients with over $1.5 million in investable assets, while multi-family offices target those with at least $10 million.

Research last year from WealthInsight showed that, with an aggregate wealth of $951 billion, Brazil is home to the highest number of high net worth individuals in Latin America and the third highest among BRIC nations. Overall, the global private banking industry is estimated to have assets under management of just over $16.5 trillion - $250 billion of which stems from the Brazilian wealth management sector, making Brazil the largest Latin America country in terms of AuM, it said.

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