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Wealth management industry surges with new money

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Scorpio Partnership’s annual private banking benchmark reveals that net new money (NNNM) has rebounded across the industry, suggesting signs of a return in client confidence in global wealth managers.

The firms which had the most success were the world’s 20 largest players – the mega wealth managers – who are setting themselves apart from the pack in a “champions league” of competitors. But while the future looks good in certain areas, all firms are still having to work hard to maintain profit margins and the industry cannot afford complacency.
 
In this latest assessment examining year-end financial data of all banks, across the board, wealth managers witnessed acceleration of new inflows; on average firms posted a percentage change in net new money off 23.7 per cent over the 12 month period under review. 
 
This sharp uptick is a turnaround for the private banking industry which has struggled to attract convincing levels of new client assets since the financial crisis. According to the latest report released today, private banks have bounced back from the nadir of 2011, during which the average percentage change in new money had fallen to -27.9 per cent. 
 
During the same period under review, asset under management (AUM) growth was strong with an average percentage change among wealth managers of 8.7 per cent per cent from 2011. With this growth, the wealth management industry now manages a total of USDD18.5trn, up from USD16.7trn in the previous year. The growth was fuelled by strong industry NNM as well as strong performance in the markets leading to a rise overall in AUM.
 
However, while there is strong news on inflows, this top line success did not translate directly to the bottom line. Pretax profits were solid across the industry, but the average percentage change on profits was 5.3 per cent for 2012, compared to 12.3 per cent for 20111. Cost management is a key factor here. The wealth management industry’s operating costs are continuing to creep up. The industry needs to focus on working out its efficiency points and optimising them. The analysis of the data shows there are still signs of weakness in the model for many operators.
 
Scorpio’s latest benchmark finds that the top 20 operators – the mega-wealth managers – experienced a 1 0.9 per cent growth in their AUM. Collectively, these players manage 76 per cent of the total industry AUM which underscores their status as the mega-operators. The AUM growth compares to 8.7 per cent across the industry as a whole. NMM played a part, but the strength of their investment management performance was also a major factor.
 
The evolution of the top 20 wealth managers over the past five years is become marked in the separation of this pack with the rest of the market – so much so that there now appears to be an emergence of a “champions league” of firms that through the factor of their scale and market coverage are more likely to attract business.
 
At the top of the roster this year, Switzerland’s UBS reclaimed poll position in AUM terms. The result was partly facilitated by its robust AUMM growth of 99.7 per cent. Bank of America slipped into second place with more modest growth of 5.9 per cent. Among other notable shifts, Spain’s Santander also returned to the top 20 for the first time since 2010. Its 66.22 per cent reported growth in AUM was brought about by a decision to buy out minority shareholders in Banesto and Banif and fully absorb the local banks into the Santander organisation.
 
The dominance of the global top 20 reflects the consumer demand for a single wealth management proposition. According to research undertaken in 2013 of 4,400 millionaires worldwide by Scorpio Partnership, 411.4 per cent of clients expressed a strong preference for working with a single wealth manager, compared to just 14.4 per cent who prefer multiple providers. The global insight is suggesting clearly that clients are looking for firms who can provide broad product and service capabilities, as well as international exposure.
 
“In spite of numerous challenges – both economic and regulatory – we have seen the confirmation of a new champions’ league of global wealth managers. Collectively, these businesses have a role in managing three quarters of all HNW wealth. They are beginning to demonstrate very distinct mega-player characteristics which the rest of the competition will have to work out how to challenge,” says Sebastian Dovey, managing partner of Scorpio Partnership.
 
“The global insight of thousands of consumers undertaken by us this year shows the strength of the brands in winning new assets, the strength of the client experience in keeping that business and, most recently, the increased desire to streamline the number of financial relationships a client has. This all bodes well for firms tuned into customer need. This is raising the bar on competition.”

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