Rising cost burdens squeezed the global wealth manager's margins last year, with cost-income ratios averaging a record level of almost 80 per cent, while cautious clients put in less net new money into firms’ care in 2010, a new report from Scorpio Partnership shows.

The cost-income ratio of 79.76 per cent compares with a figure of 78.2 per cent in 2009. By contrast, the PricewaterhouseCoopers bi-annual survey of the global wealth management sector, released about three weeks ago, had an average cost-income ratio of 71 per cent. (Click here to view the PwC report).

Whilst the rise in cost-income ratios may at first appear a cause for concern, part of this may be driven by spending on new staff and resources to meet expected rising demand in places such as the Asia-Pacific region. In due course, however, the industry will watch closely to see if this margin compression will unwind.

This year's Scorpio Partners Benchmark Report is now available to WealthBriefing readers at a ten per cent discount on the usual price (£2,070 for a single user hard copy down from £2,300). Click here to order.

The report also shows that the industry has become more concentrated, with the 20 largest firms – Bank of America at No 1 – holding a bigger share of the market total. The top 20 firms in 2010 held 81.6 per cent ($11.075 trillion) of all assets surveyed by Scorpio, up from 77.1 per cent at the end of 2009. The top 10 managers collectively oversee $9.214 trillion of high net worth individuals’ assets, accounting for 67.9 per cent of the total assets ($17.1 trillion) covered by the survey.

As recounted by managers and various consultants’ reports in recent weeks, rising costs of hiring staff in certain regions, such as Asia, and an expanding regulatory compliance burden, are crimping margins. The figures will add to speculation – even if it proves unfounded – that the industry will see more consolidation to obtain efficiencies from greater market scale.

“The detailed analysis of nearly 200 institutions worldwide shows that for many the pistons of growth in their business model continue to misfire. If there were to be another market crisis of even a minor scale, we would be very concerned for many institutions and their future,” Sebastian Dovey, partner at Scorpio, said in the 10^th annual report.

The report issues a Key Performance Indicator benchmark for the sector, showing that total assets under management rose by 11.2 per cent in 2010 from a year before, taking total AuM to $17.1 trillion.

Average industry income rose 8.97 per cent year-on-year, and profits rose by 15.42 per cent. “The result hints at a strong base to deliver on a return to growth across its other KPIs [Key Performance Indicators],” the report said, while going on to warn that other performance indicators, such as cost/income ratios and net new money, deteriorated.

“It is clear to us from this benchmarking that many firms need to upgrade and modernise or else call time on their exposure to this client segment and this is not just among the smaller operators,” Dovey said.

While the survey highlighted the growing concentration of the market, it showed that smaller firms are still able to perform well in certain conditions. Smaller firms – those with $20 billion or less in AuM – posted an average growth rate of 12.4 per cent, ahead of 9.95 per cent for the larger firms.

The top 20:

Bank of America Merrill Lynch - $1.944 trillion (growth: 4.2 per cent);

Morgan Stanley - $1.628 trillion (growth: 7.96 per cent);

UBS - $1.559 trillion (growth: 6.6 per cent);

Wells Fargo – $1.398 trillion (growth: 14.78 per cent);

Credit Suisse - $865.06 billion (growth (11.56 per cent);

Royal Bank of Canada - $435.15 billion (growth: 14.81 per cent);

HSBC - $390 billion (growth: 6.27 per cent);

Deutsche Bank $368.55 billion (growth: 35.31 per cent);

BNP Paribas $340.41 billion (growth: 45.68 per cent);

JP Morgan $284 billion (growth: 5.19 per cent).

Pictet - $267.66 billion (growth: 10.05 per cent);

Goldman Sachs - $229 billion (decline: 0.87 per cent);

ABN Amro - $220.06 billion (growth: 23.79 per cent);

Barclays - $185.91 billion (growth: 1.92 per cent);

Julius Baer – 181.68 billion (growth: 22.46 per cent);

Crédit Agricole - $171.81 billion (growth: 4.22 per cent);

BNY Mellon - $166 billion (growth: 7.79 per cent);

Northern Trust - $154.4 billion (growth: 6.34 per cent);

Lombard Odier - $153.1 billion (growth: 7.83 per cent);

Citi Private Bank - $140.7 billion (growth: 15.42 per cent).

Scorpio’s survey covered just under 200 institutions in 2010, down from around 240 reporting entities a year before. The change in numbers is due to a significant number of firms only reporting their wealth businesses at group level this year compared previously. This is due to a number of reasons including consolidation of group structures that have now worked into the system (ie Julius Baer and ING), reorganisations (Deutsche used to list at least five entries and now lists one), and firms/brands that no longer operate/report independently (such as Deutsche’s acquisition last year of Sal Oppenheim). The rapid growth of Morgan Stanley's figures are in part driven by the JV with Citi's Smith Barney business.