The health of the sector is generally robust, asset growth figures suggest, but leading industry figures have gently warned about the need for regulatory expansion to be held in check.

The UK-based wealth management sector oversees around £825 billion ($1.037 billion) of assets, a figure equal to about 40 per cent of the country’s gross domestic product, a report says that highlights the industry’s importance amid anxieties over Brexit.

The British Bankers’ Association and Wealth Management Association, issuing their second Wealth of Opportunities study on the sector (the first one was produced in 2014), note that the industry works with more than 2.2 million clients, generates annual turnover of £6 billion and directly employs more than 27,000 people. The figure of £825 billion represents a surge of 57 per cent since 2011.

Productivity is rising in an industry that has come under a variety of regulatory and economic pressures in recent years. Net revenue per full-time equivalent (FTE) employee rose 6 per cent from 2014 to last year, the report said. The largest rise, of 10 per cent, occurred in investment management firms. Industry costs stand at a record of £4.59 billion, with regulation driving much of this load; costs are, however, projected to drop 3 per cent by the end of 2016 (based on expected final figures).

Investment, primarily in stocks and shares Individual Savings Accounts (ISAs), increased by 143 per cent over the past five years from £60 billion in 2011 to £146 billion in 2016. Over the same period, investments in Self Invested Personal Pensions (SIPPs) rose by 116 per cent from £37 billion to £80 billion, the report, which drew evidence from 161 firms, said. 

The report divided the wealth sector into four components: private banks, investment managers, full-service wealth managers, and execution-only stockbrokers. Across all sectors, the firms logged a compound annual growth rate in net revenues from 2011-2016 of 3.4 per cent. Private banks generated more than £1 billion of banking income, equating to more than a third of their total revenue in 2016. Private client investment managers generated £1.13 billion in investment management fees last year, while full-service wealth managers' investment management fees were 62 per cent of their total revenue in 2016. Execution-only stockbrokers' custody/administration fees were 36 per cent of their revenues in 2016, while commissions and brokerage fees were 35 per cent.

Once a relatively niche part of overall UK financial services, the profile of wealth management in the UK has risen in recent years, driven by factors such as the attraction of London as a centre for high net worth individuals from overseas and domestic economic growth. The UK’s vote in June last year to leave the European Union has caused concern in some quarters. Anthony Browne, chief executive of the BBA, recently warned that Brexit might cause some banks to quit the UK. 

Commenting on the report yesterday, Browne did not address Brexit explicitly, but fired a gentle warning at policymakers about the need to be cautious on regulation and burdens on the sector.

“The private banking and wealth management industry makes an important contribution to the UK economy, helping individuals navigate the changing savings and investments landscape to meet their long-term financial goals. Continued regulatory change and implementation deadlines can impact resource and servicing costs. A `measured’ approach to regulation, with workable timelines would allow firms adequate time to prepare for implementation and help ensure customers continue to receive maximum benefit,” he said.

Liz Field, CEO of the WMA, said: “As the impact of Brexit on the financial services industry becomes clearer, we remain committed to ensuring this success story continues. We are working with all stakeholders to ensure an orderly transition that protects clients from unintended consequences. Allowing the industry to continue to support individuals and families to better manage their savings and investments for the future remains our number one priority.

“To ensure that London remains the global centre of excellence in private banking and wealth management, senior industry leaders interviewed for the report called for a 'measured and appropriate regulatory regime' that delivers the ultimate goal of client protection, while avoiding potential negative ‘unintended consequences’," she added.