The world’s wealth management firms must transform their businesses to keep up with a fast-growing population of high net worth clients, a new report said, adding that simply outsourcing work is inadequate in delivering what clients want.

Unless private banks and other wealth managers change, they will struggle to exploit a growing market of wealthy individuals, according to SEI Investments, a US-based financial services and technology company.

"It is clear that transformation of the traditional models is needed, and this evolution cannot be accomplished through today’s concept of outsourcing – which is defined as the purchase of necessary products or services from an outside provider in order to increase efficiency,” Joseph Ujobai, executive vice president, private banking, SEI, said in a report on the industry.

Instead, SEI said, businesses must adopt a “co-sourcing” or partnership model that ensures that any firms which handle work for a wealth manager, such as administration or investment, have a much closer involvement with the overall strategy of the wealth manager.

“The 'co-sourcing' model that we’ve outlined in the white paper involves an unprecedented degree of collaboration, sharing and learning, not only between the wealth manager and their client, but also in the partnerships of wealth management businesses themselves,” Mr Ujobai said.

The report comes at a time when wealth managers are estimated to oversee only about a third of the total stock of investable assets held by high net worth individuals. The number of high net worth individuals - those with more than $1 million in investable wealth - grew at a rate of 8.3 per cent in 2006 to reach 9.5 million, according to latest figures from Merrill Lynch and Capgemini last year. (Figures for 2007 are due out later this month). The Boston Consulting Group estimates that global assets under management will grow to $115.8 trillion by 2010 (up from $88.3 trillion in 2005).

To improve their fortunes, wealth managers must approach clients from the viewpoint of long term business relationships and not simply in terms of an account number. Firms must also constantly gather information on clients to keep on top of what clients want, the report, called The Transformation of Wealth Management – Part 1, said.

At the same time, the report said firms that wanted to give clients a full range of services should not opt for the traditional option of outsourcing functions such as managing portfolios to outside businesses but adopt a closer, “co-sourcing” approach that is similar to a partnership business model.

The report says that while many wealth managers in principle accept the need to build trusting relationships with clients, their business models are still heavily influenced by traditional goals of selling and distributing products to customers, regardless of what their clients actually need.