Whatever the future holds for the world economy over the next 12 months, life will not calm down for wealth management. Analysts say that more mergers and acquisitions will happen, but few dramatic potential marriages are likely; some new entrants will be born. Analysts expect to see greater use of technology as firms try to square the need for improved client service and fresh sales with the costs of rising regulation. 

And Asia will continue to be the hottest game in town in terms of growth.

Clients generally crave stability. It will be crucial for the wealth management sector to try and deliver it. Abrupt tax changes, crackdowns on offshore centres and government strong-arm tactics to obtain private bank details are alarming, to say the least. A key challenge for the coming 12 months for banks will be in trying to reassure high net worth individuals that the industry offers a stable, calm place for people to entrust their money.

The past year has been one of recovery and transition. Take the case of UBS, which is recovering after having suffered terrible credit losses in 2008 and a legal wrangle over tax in the US in 2009 (to view its results, click here). After months of negative numbers, this Swiss giant is, however, fighting back. Figures published in the autumn of 2010 showed the firm started to log inflows again; UBS has also started to splash out on marketing and advertising. Other firms, meanwhile, saw a general level of improvement in terms of inflows last year, although the rate of progress was fairly slow. Business margins, however, have been squeezed, with regulation and some adverse market movements taking a toll. A number of wealth management firms remain part of state-owned banking groups, such as Royal Bank of Scotland – owner of Coutts – in the UK. Sooner or later, if markets improve, the hope must be that these businesses will return to the market.

The past year has been a good one for technology addicts and this year should be more of the same: clients of private banks can now start to scan their accounts and investments via things such as iPhone Apps. (To view an example of the trend, click here.) The internet revolution continues. In a less eye-catching way, wealth technology firms will urge firms to embrace their services to manage costs, outsource non-core activities and give clients quick access to their affairs.

Staying with technology, firms are likely to make greater use of platforms and other channels to distribute products. There are, as analysts at firms such as Scorpio Consulting point out, trillions of dollars of untapped assets that individuals are not entrusting to wealth management, but managing themselves. The question is whether this industry has yet done enough to restore trust that it can make deeper inroads into the market.

With regulations and tax burdens rising or at least not coming down soon, private bankers and private client lawyers will be busy this year, such as coping with the complex web of US tax compliance rules coming in under legislation such as 2010’s FATCA law, part of the US HIRE Act. The new Basel bank capital adequacy rules may yet force more firms to raise fresh capital, constraining some of their freedom for manoeuvre. In Europe, the financial and funds industry must adapt to new rules on hedge funds and private equity funds, and in the US there is new legislation affecting the role of institutions such as family offices and financial advisors. Few places in the world have escaped the regulatory wave.

Then there is Asia. Although clichés about an “Asian century” might be premature – there is always plenty that could go wrong – the wealth management business is likely to see more hiring of people and more business formation in this region. The past year has seen several top-bracket firms such as HSBC focus attention of top staff on the region, basing CEOs permanently in Asia and stressing their Asian business pedigree. Western firms such as Credit Suisse, Julius Baer and Citi are building teams across the region, with Singapore rising ever more in importance. This trend is likely to continue. In 2009, Europe lost the lead to North America in terms of deca-millonaires – people with assets of $10 million or more – following a drop of 11 per cent that year. Asia Pacific is set to overtake both regions in the near future, according to a recent report by Ledbury Research.

Elsewhere, recent months have seen continued interest in Latin America; in India, as one of the BRICS, it continues to be a strong growth story, with firms such as Morgan Stanley gearing up for more recruitment, and Russia, despite uncertainties about protection for shareholders, is also seeing selective growth. In the Middle East, there is some sign that worries stemming from the debt problems of Dubai have waned somewhat; the region’s vast oil wealth is likely to be a lure for wealth managers for some time to come.

In Switzerland, the banking industry has been under relentless pressure from without but as the improving figures of UBS show and those of its rivals attest, rumours of the demise of the Alpine State's sector are greatly exaggerated. Some of its firms have been on the leading edge of prospecting for new business in emerging markets. This is likely to continue.

Here are a selection of viewpoints:

Jeremy Jensen, partner and EMEA leader, and Ian Woodhouse, director, PwC EMEA private banking and wealth management practice

“In the traditional markets, demand for wealth management will remain under pressure and increased regulation will create a tougher environment in which to generate revenue growth and margin. In the emerging markets, the growth prospects will be significant, but the challenge of attracting, developing and retaining scarce talent will be a constraining factor,” they said.

“Competition for top talent will be a theme in all markets and will be fierce for chief operating officers and risk and compliance specialists, as dealing with the increasingly complex operational and systems implications of the regulatory agenda such as FATCA, will be complex, challenging and expensive,” they said, referring to FATCA legislation passed in 2010 by the US Congress.

Jensen and Woodhouse argue that “many institutions will struggle and a new line up of winners and losers will start to emerge in 2011”.

“To be successful in the future, tomorrow’s leading private banks and wealth managers will need to upgrade and develop new capabilities in several areas such as stronger advice propositions. They will also need to undertake improved client risk appetite assessments and maintain enhanced control environments, particularly around client facing processes and supporting clients’ transition from offshore to onshore. Moreover, communication with clients will need to become more proactive and frequent, using a combination of high personal service combined with multi-channel and digital offerings.”

Both men argue there will be more industry consolidation this year but they do not think all M&A deals will succeed. “The track record of successful mergers in the industry has not always been good due to the challenges of integrating different client relationship management approaches with operations and systems platforms from disparate systems and operational processes,” they said.

The PwC men also argue that 2011 should see more fresh entrants to the business, with disillusioned clients tempted to join new businesses and give up on their older firms.

Sebastian Dovey, managing partner, Scorpio Partnership

"The industry zeitgeist in 2011 is around optimisation of the sales force and the platforms to support them. After at least two years of no new net money [for the industry in general], the sales force needs to start delivering. The sales guys will say, 'Give us more tools'. Management's response will be 'You need to be focused on the right type of client'".

"The platform industry is due for a major reorganisation and this is going to transform the wealth landscape," according to Dovey. In the US, the use of such services is far more advanced than in Europe, where this part of the industry has yet to hit "critical mass", he said.

"The role of centralised marketing and the identity of individual wealth managers is going to be top of the agenda at the banks that plan to win market share in 2011," Dovey continued. There will need to be more careful thought about branding and marketing over the next few years. "It is going to be a big feature not just of next year, but the decade. It is the 12th man on the team," he said.

He also argues that there will be greater concentration of assets among the top 10 and top 20 global firms. The 20 largest firms between them oversee 82 per cent of the $10 trillion market.

Finally, Dovey said firms may struggle to push cost-income ratios significantly below around 70 per cent in what is a top-heavy, labour-intensive business. That still means that firms can earn a margin of say, around 20 per cent, which for a luxury service such as private banking is respectable.

Simon Miles, director, head of EMEA portfolio management, Merrill Lynch Portfolio Managers.

The breadth of Merrill Lynch’s service offerings (both advisory and discretionary wealth management) was a strength going forward because while one service model – such as discretionary – can be hurt during a market downturn, it can be counterbalanced by the other.

“The experience of 2008 was very painful for a lot of people and in this organisation [Merrill], one of the huge advantages that we do have is that we can offer a complete service,” he said. “It is common to have clients who have both discretionary and advisory-only portfolios”.

Miles said the UK government’s regulatory overhaul of financial advice via the Retail Distribution Review reform programme was unlikely to have a big impact on Merrill’s business, although it is likely to have a significant effect on the shape of the financial advisory industry.

Philip Harris, head of UK private client wealth management, RBC Wealth Management.

“We’ve gone through the big seismic events but the fallout from this has not completed itself. I don’t see the business changing an awful lot. There could be a couple of surprises, where some businesses may decide to get out of this [wealth management] area,” he said.

He dismissed any suggestions that the days of offshore banking are numbered. “If you look at the jurisdictions on the `white lists’, then people are starting to play the game. There is a myth that 'offshore' means illicit or contraband,” he said.

“We believe very much in what we call 'compliant confidentiality'. If you look for tax neutrality, then it is a rational argument for people with international affairs.”

On the issue of discretionary versus advisory investment management, Harris said there were forces pushing back towards discretionary, even though this business model had suffered somewhat in the recent financial markets.

“We saw extreme financial markets and many houses’ discretionary models just could not cope with the changing risk appetite that private investors had.”

He said that, for example, some investors rapidly shifted from an asset allocation of 60 per cent in equities to say, zero or just 10 per cent in equities. “Some people just removed themselves from the discretionary model.”