Industry Surveys

It's Tough Out There For Global Wealth Managers, But Lots Of Varied Fortunes - PwC

Tom Burroughes Group Editor 1 July 2013

It's Tough Out There For Global Wealth Managers, But Lots Of Varied Fortunes - PwC

Wealth managers around the world must contend with a still-tough global economy although there are wide variations in how firms fare, such as in Asia and emerging markets, says PwC in its bi-annual report.

Wealth managers struggle with a tough global economy and near-endless increases in regulations, although there are wide variations in how firms in different regions fare, PwC says in its bi-annual survey of industry trends.

Wealth managers in the Americas are more tech-savvy and target a leaner business model than is the case for their global peers. Globally, wealth creation is becoming ever more dispersed and diverse; “multi-speed geographic markets are evolving”, it said.

In Western Europe growth is slowest of all, while North America shows moderate growth, and in emerging markets growth remains relatively high but has slowed in some areas. There is also what PwC calls a further group of nascent markets which accumulate new wealth most rapidly with net new money growth forecast at 16 per cent in 2013.

The report adds to a slew of surveys from other organisations such as Boston Consulting Group, Scorpio Partnership and ClearView Financial Media – publisher of this website - showing the global sector in a state of flux. Some 74 per cent of firms are making significant changes to their business models. The 60-page study, entitled, Navigating to tomorrow: serving clients and creating value, covers 200 organisations in 51 nations. Survey participants said the industry is moving away from simply providing products towards delivering solutions and advice to clients. Trust, reputation and brand will likely all play a greater role in client propositions and clients' perception of value, the firm said.

Although – as demonstrated by recent evidence from the likes of RBC Wealth Management/Capgemini - that high net worth individuals are getting wealthier again after 2008, this is not an easy source of help. Margins are under “significant” pressure; growth in different markets is uneven, while shifting demographics and technology pose their own challenges to business models. During last year, cost/income ratios, on average, stood at 69 per cent. Globally, managers expect that rate to fall to 64 per cent by 2014.

Changing fortunes

“Switzerland is expected to not only be overtaken by Singapore, but to also face stronger competition from London. The future for Switzerland, and all international financial centres, will increasingly be about developing defined areas of expertise to differentiate as transparency and increased regulatory standards create a more level playing field between the larger IFCs than has been the case in the past,” PwC said.

Respondents said Shanghai and Dubai are fast growing centres, closely followed by Brazil, Miami and Mexico City as competition between traditional and newer IFCs and cities for the wealthy is expected to intensify


In terms of the Americas, a stand-out finding was that cost/income ratios are “significantly lower for the Americas with firms targeting 48 per cent for 2014 – way below the global average expectation. Respondents in the Americas are nearly twice as likely to use new technology to communicate with their wealth clients (43 per cent of Americas firms currently use PDAs and mobile tablets compared to 26 per cent globally).

Firms in the region are “making significant investments in core processes and technology as reflected in substantially higher operations and technology budget forecasts”, the report continued.

Specifically, PwC's survey found that the industry must confront five areas of transformative change that will define business success:

1, Markets and clients

An in-depth understanding of an increasingly diverse and disparate client base is essential to retaining a competitive edge, PwC said. “The industry should become more agile in using data analytics and other resources to pinpoint what clients really value and how much that value is worth to them,” it said.

Perhaps unsurprisingly, PwC concluded that newly emerging wealth markets are set to outpace established emerging markets while traditional sources of wealth such as North America and Western Europe will experience lower growth.

Adding to other comments about the potential of services for women, the report noted that women represent a significant but underleveraged growth opportunity. Though they currently comprise one third of the client base, only 8 per cent of firms surveyed focus on gender in their segmentation approach. 

Generation Y has unique characteristics not shared by their predecessors that must be understood and addressed to attract new and preserve existing relationships, it said.

Respondents said a decision by the next generation is the third most common reason clients leave a private bank, indicating a need to build more relevance for this segment. “This aligns with survey findings indicating that wealth managers are not confident that their talent management strategy is conducive to meeting the needs of next generation heirs and millennials,” it said.

Americas-based respondents indicated they are almost three times as confident in their ability to meet the needs of the millennial generation, it said.

"In Western Europe growth is slow, while North America shows moderate growth, and in the emerging markets growth remains relatively high but has slowed in some areas. To these markets, we can add a further group of nascent emerging markets which are accumulating new wealth most rapidly, with net new money growth forecast as 16 per cent in 2013. The multi-speed wealth management market is here to stay and wealth managers should embrace this," said Jeremy Jensen, EMEA leader, global private banking and wealth management, PwC.

"Retaining clients remains a focus for wealth managers. Changes in personal circumstances are cited as the greatest reason for clients leaving, but the fact that 'a decision by the next generation' is the third most common shows both the importance and the challenge of better managing inter-generational wealth transfer. Wealth managers should improve their understanding of clients' extended family issues to capitalise on the inter-generational opportunity,” he said.

2, Risk and regulation

Compliance replaced reputation as the top risk concern, as wealth management firms struggle to keep pace with the scale, speed and costs of current and planned regulatory change.

Client and suitability risk is the second greatest area of concern after compliance both today and two years from now.

“While the current approach to risk management centers around compliance and loss prevention initiatives, risk quantification and stakeholder value integration will assume greater priority in the next two years (this is a 28 per cent increase for risk quantification and 25 per cent increase for stakeholder value/integration, respectively),” it said.

The cost of regulation will continue to rise, with respondents forecasting that risk and regulatory compliance will account for 7 per cent of annual revenue in two years, up from 5 per cent today. Tax information exchange leads the list of specific regulatory concerns, followed by client privacy/data protection and tax amnesties.

"Compliance and risk management is here to stay; private banks should accept this as reality, and that business as usual means doing things the right way, with the right people and right skills. The ability to understand and manage the avalanche of regulatory and risk issues, such as cross border transactions, tax transparency and sales practices will likely require private banks to continue investing heavily into systems and training to ensure that they are able to do business in a profitable, but compliant way," said Justin Ong, Asia Pacific leader, global private banking and wealth management, PwC.

3, Human capital

Hiring experienced CRMs and improving overall skill levels is one of the top strategic considerations for senior leaders in the next two years.

With remuneration reported as the leading cause of attrition (70 per cent), firms are reconsidering reward and incentive structures in an effort to balance talent goals and stringent new rules around variable compensation.

Profitability by CRM and managing the cost of servicing are also expected to become substantially more important, rising from 35 per cent to 45 per cent and 26 per cent to 44 per cent, respectively.

4, Operations and technology

A “superabundance” of manual processes is the leading challenge of operations and technology infrastructure by a substantial margin. However, more than half of participants (54 per cent) are optimistic that they will achieve predominantly common processes and automation within the next two years - a threefold increase from today (17 per cent).

“In the future, wealth managers may need to accept more standard packages and service offerings, and shy away from customisation. At present customisation rates range from 30-60 per cent of standard package applications. Unless a firm enters into a joint development relationship carefully, there can be problems and unplanned expenses. Invasive customisation threatens the ability of commercial packages to be

upgradeable and can require wholesale reinstallation. Replication of the status quo in a new technology is expensive and time-consuming; moving to a better set of functions and processes with a more standard package is far better,” it said.

Products and services

Only one-third of firms plan to engage in revenue sharing and retrocessions during the next two years as compared to half today, the report said. With commission revenues falling, 71 per cent of senior wealth management executives expect that, two years from now, their business model will encompass broader financial and wealth planning solutions, up from 56 per cent.

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