Heavy investment and the fierce battle for talent in Asia is leading to the thinnest margins on records for the region's wealth managers.

Record cost-income ratios squeezed the global wealth management industry last year, with Asian wealth managers suffering the thinnest margins, according to an exclusive survey from consultant Scorpio Partnership.

Rising cost burdens drove cost-income ratios up to 79.76 per cent compared with 78.2 per cent in 2009, according to the report. Although Scorpio did not break out the numbers by region, Seb Dovey, managing partner at Scorpio, said that Asia wealth managers had the highest margins in the world.

He said: "Private banks and wealth managers are in growth mode with their level of investment in sales capabilities. This impacts on the cost to income ratios for wealth managers in Asia. We expect that, although private banks do not report in this level of detail, the APAC region is the most expensive currently.”

This is down to a number of reasons. Firstly the average private banker salary is much higher in Asia than in Europe and the US. The average private banker in Singapore gets a basic salary of around $270,000, compared to around $190,000 in the UK, according to a City-based headhunter.

Also, many new entrants are spending money on building offices and infrastructure in the region. An heavier regulatory compliance burden is adding to costs. And Asian wealthy spend less on products, which means less fees. 

Dovey said: “On the revenue side, Asia private banks concentrate on advisory clients which has presented strong revenue inflows but with high levels of unpredictability on earnings. We expect that the regional players will adjust this business mix with newer clients that are prepared to pay for a more advice-led solution."

This year's Scorpio Partners Benchmark Report is now available toWealthBriefing 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.

The Scorpio report also reveals 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.

“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,” Dovey 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:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

20. 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 5 entries and now lists one), and firms/brands that no longer operate/report independently (such as Deutsche’s acquisition last year of Sal Oppenheim).