The UK wealth management sector has become less concentrated because smaller firms have grown proportionally faster than the largest firms, according to a survey into the structure and profitability of the UK private wealth management market by strategy consultants Market-Dynamics Research & Consulting. MDRC found that 80 per cent of high net worth discretionary assets are now managed by 22 per cent of firms, up from 17 per cent in 2004 when it carried out a similar study. In terms of numbers, the percentage equates to 34 of the 148 firms currently active in the UK market, an increase on the 28 firms out of the 151 active in 2004. Larger firms have become less successful at capturing client “wallet share” than their smaller competitors, which MDRC blamed on the increase in staff turnover at the larger firms compared to their smaller counterparts. The study found that “wallet share” was consistently higher for relationship staff that had been managing client relationships for over three years. There is little difference between the profitability of firms by size. Where differences were found, these were driven largely by differences in business strategy and management focus. MDRC estimated that the average new business gross margin generated by the largest 34 firms is about 185 basis points, compared to 170 basis points from the rest of the market. But relatively inefficient structures and processes largely eroded this advantage. The best of the wealth management firms were reporting cost/income ratios below 60 per cent, against an average of 78 per cent across the UK wealth management sector. This indicated, said MDRC, that the industry as a whole has potential for profit improvement. One noticeable change since the study in 2004 is that smaller firms have made significant investments in IT, permitting them to grow without increasing the operational overheads associated with more clients. "Market concentration is decreasing in the UK because wealth management firms of all sizes are able to offer clients or potential clients a wide range of investment solutions, and the IT systems available to all firms provide powerful portfolio management and reporting tools,” said Richard Williams, managing director of MDRC. “This means that firms have to be far more focused in the way they present themselves and marketing has become a key driver of business success in wealth management.”