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Global Wealth Management Industry Surfs Wave Of Prosperity

by Phillip Morton, Investors

27 June 2007

The global wealth management industry has continued to surf the wave of prosperity, delivering a 14% median increase in assets under management in base currency terms, according to the Private Banking Benchmark 2007 from consultancy, Scorpio Partnership.

This asset growth, driven by the global equity markets and net new money, has combined with improved efficiencies to fuel an impressive median growth of 24% in operating profits across the industry, the study said.

The Private Banking Benchmark 2007 is Scorpio Partnership’s sixth study of the international private banking and high net worth wealth management industry. This year it covers a record 180 private banking entities, managing a total of US$10.8 trillion of assets. The Benchmark is a unique study of both the global wealth management market and the performance and characteristics of individual wealth managers.

Sebastian Dovey, managing partner at Scorpio Partnership, stated: “The pace of growth has been sustained in 2006 in terms of both assets and profits, and for organisations of all shapes and sizes. However, this global dynamism masks a contrasting landscape within the industry. There is a feeling that there is easy money to make at the moment, but our research shows that long-term successes are only built on sensible strategies, successful hires and, most crucially, a constant focus on clients.”

Looking specifically at assets under management, the trillion-dollar league is limited to three members: UBS, Citigroup and Merrill Lynch. UBS still tops the table, despite a slowed rate of growth this year in Swiss franc terms. And once again, US-based Citigroup and Merrill Lynch secure places on the podium. Of note, Swiss partnership bank Pictet & Cie has leapt into the top 10, with an impressive growth of 30.5% in Swiss franc terms.

The Benchmark 2007 clearly illustrates how fragmented the private banking and wealth management industry is. Indeed, while the top 10 banks manage some 63% of the total assets of the Benchmark banks, they in fact manage less than 20% of the estimated high net worth assets, according to market research data. The question that remains to be addressed through the Benchmark process is what proportion of the remaining 80% of high net worth assets is within the reach of the wealth management industry.

“As transparency continues to improve, at Scorpio Partnership we have started to examine modelling the true market share distribution of private banks. Perhaps we should think the unthinkable, that the actual size of the private bank market is different to the widely stated size estimates for HNW assets. It is still a work in progress”, announced Cath Tillotson, partner at Scorpio Partnership.

There is some uncertainty about how long the party is going to last, however. “One of the long-term indicators of success for a private bank is the capacity to attract investments from new and existing clients. However, there is a strong correlation between assets under management and global market indices, and this will eventually test the stickiness of these assets. If the asset management capability of a private bank is so closely correlated to the indices, then when the markets eventually turn south, clients will not necessarily see private banks as the safest option,” cautioned Ted Wilson, consultant at Scorpio Partnership.

The Benchmark 2007 highlights that there is still a lot of room for improvement and differentiation in all segments of the industry. Wealth managers constantly face new challenges and they address them with varying degrees of success, which can be measured by certain key performance indicators (KPIs). These KPIs are developed further in the Benchmark 2007. They include the cost-income ratio, the gross margin on managed assets, the average assets per relationship, regional distribution of assets, and the number of clients per staff member. For example, cost-income ratios — with a 2006 industry median of 63% — have been improving constantly. There are, however, dramatic variations in the actual numbers, from less than 40% for the most efficient private banks, to more than 90% for the least efficient banks.

Other KPIs in the Benchmark, especially those linked to staff and clients, also vary considerably from bank to bank, and give a measure of the diversity of business models in the wealth management industry.

The Private Banking Benchmark 2007 is the most comprehensive review of key performance indicators in the global wealth management industry. The objective of the Benchmark is to provide extensive and detailed data and analysis for more than 180 reporting firms, with a focus on the quality of collected data and robustness of the analysis. Over 400 private banking entities were researched for the Benchmark 2007. This year’s Benchmark includes key performance indicators, information and analysis on assets under management, net new money, profitability and staff for individual entities, as well as aggregate data for the industry.

A comprehensive report in our Intelligence Report series examining offshore investment, offshore stock exchanges, and hedge funds is available in the Lowtax Library at and a description of the report can be seen at

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