Wealth Management 2011-2012: The Key Dynamics for Growth

Tuesday, 26 April 2011 11:13
The financial crisis has badly damaged the once-booming wealth management business – that of providing product, advice and service  to individuals ranging in wealth from affluent to ultra-high net worth. High margin products have been shown to be toxic, the asset base on which revenues are calculated has been devastated, but - worst of all - trust in many providers has evaporated.

Both product providers and client relationship managers, however, must recover and address a number of issues. Is wealth management still an attractive sector? If so, for which institutions among the existing or future providers? What products offer above-average attractiveness in terms of relative profit and future growth?  Will there be a significant shift in distribution channels?  Which are the case studies of success which have emerged from the crisis, and to what do they owe their success?

Based on a series of exclusive and tightly focused interviews with product providers, managers of client relationships, independent analysts, management consultants and others with in-depth as well as objective insights into the business, Wealth Management 2011-2012: The Key Dynamics for Growth provides a roadmap for success in a sector that needs to find a new strategic blueprint.

Published May 2011
ISBN 978-1-907720-16-1
100 pages
For full contents in PDF format, click here
For the FREE Executive Summary, click here
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Key findings

Wealth management is a highly profitable and attractive business, either on its own or as part of a more diversified financial enterprise. It uses relatively little capital, it does not have the tail risk of other banking businesses like dealing or lending, the base of global wealth is growing,  and it generates remarkable pre-tax margins of some 30-40% on the revenue base and perhaps 40 basis points on assets managed. Many clients are locked into the provider due to trust deeds, and an ageing population may be looking for a new home for their wealth.
  • On the other hand, there is a high degree of polarization in profitability between business segments and individual firms. A McKinsey & Co. study notes that one third of its broad sample of European firms experienced net funds outflows in the down year of 2008, while some 45% were net losers in the recovery year of 2009. Margins also differ widely between offshore and on-shore banking and between the units of global banking institutions. Finally, margins differ widely among geographic and product markets.
  • Market volatility can create violent shifts in profitability. Whether the brokerage or ad valorem fee models are used as the basis for revenue generation, swings in market prices – in particular for equities – can create substantial shifts in profitability. Thus the meltdown of markets in 2008 was followed by an almost equal upward surge in 2009.  But with virtually no new funds inflows or cost adjustment, the net impact as indicated in  McKinsey’s research produced a 47% collapse in the overall European profit pool   from the peak boom year of 2007 to the recovery in 2009.
  • Growing the pool of managed funds is a major challenge. While an estimated two thirds of the wealthy global population is prepared to pay fees for wealth management, there remains some $ 10 trillion in funds which are not. The total net new funds inflow for the sector has been nominal for the past few years. And the industry is highly concentrated, with the top 10 global providers holding an estimated 52% of the total market and the top 20 over 80%.
  • Creating and capturing product trends has become increasingly difficult. Product innovation has increasingly become a critical success factor. In Europe, for example, research by Fitch Ratings indicates that 80% of mutual fund providers have experienced zero net sales in recent years. Demand has moved massively between products, and only a handful of providers have been able to capture the bulk of this demand.
  • Improving productivity and client service both provide substantial challenges. Cost ratios have soared since 2007 as the fall in revenues has not been offset by increased productivity, and incremental costs such as new regulation directly impact the bottom line. As one of our interviewees notes,‘Private banking hasn’t been ‘industrialised’ yet like other banking businesses’.


Executive summary

Chapter 1:    Impact of the financial crisis on wealth management
Massive loss of trust in the provider
The explosion of regulation
Questioning the ultimate value added by wealth management.
Meeting customer needs
The stagnation of global AUM

Chapter 2:    The business model: winners and losers
Advice vs. product
Some problem models
Possible conflicts of interest

Chapter 3:    The client service model
The client profile
The client’s needs
Responses of wealth management providers
Evaluating potential for strategic success

Chapter 4:    The product dimension
Advice as the core product
The balance between in-house and outsourced products:
The performance challenge: rapid change in customer demand and few winners who capture it
Conflicting views on risk preference
Case study: Product selection

Chapter 5:    Reshaping the operating model
Reshaping the front office
Investment in systems: cutting costs and improving client service
Align client coverage and profitability: the segmentation issue
The cost of entering new markets

Chapter 6:    Risk and regulation
The financial/managerial dimension
The strategic impact of new regulation
Case study: Offshore banking

Chapter 7:    Success in international expansion
Key variables for a global strategy
Size and profile of the wealth pool
Prospects for growth in the wealth pool
Investment preferences
Patience and sustained investment
Openness to new financial relationships
An existing banking network or other non-wealth management sources of revenue

Building an international wealth management business
Case studies of international success
Future issues for international expansion

Chapter 8:  The profit profile
Wealth management’s profit potential
Polarisation of profitability among segments and individual firms
The impact of market volatility
The challenge from managed funds
Creating and capturing product trends
The challenge of improving productivity and client service

Chapter 9: Case studies of wealth management success
BNY MellonSuccessful diversification across key wealth management businesses
Business model
Wealth management strategy
Strategy evaluation
Julius Baer Group: A Swiss private bank separates advice from product management and builds a successful global network
Business model
Wealth management strategy
Strategy evaluation
Credit Suisse:  One of the two Swiss global banks gains profitable new wealth advisory business and restructures its asset management function
Business model
Wealth and asset management strategy
Strategy evaluation
HSBC:  One of the world’s leading global banks invests in improved operating systems as well as third party compliance in its wealth management arm
Business model
Wealth and asset management strategy
Strategy evaluation
JP Morgan Chase:  A leading US bank leverages its strong brand, broad product strength and diversified client base to create sustained growth in wealth management
Business model
Wealth and asset management strategy
Strategy evaluation
Schroder PLCA UK asset manager builds a highly competitive global product range and diversifies successfully out of its home market
Business model
Wealth and asset management strategy
Strategy evaluation

Chapter 10: The outlook for wealth management
The need for scale and size
Geographic focus
Client focus
The product challenge
Cost management

Chapter 11: Conclusions
The business model:
The client service model
Product profile:
The operating model
Market expansion

List of Figures
Figure 1: Collapse of European profit pool in 2009
Figure 2: Wealth management transactions 2006–2010
Figure 3: ROA varies across business models
Figure 4: Geographic distribution of high net worth individuals by region
Figure 5: Criteria for client base segmentation
Figure 6: Breakdown of global wealth management sector by wealth band
Figure 7: Proportion of time spent by a relationship manager
Figure 8: Asset allocation 2004–2010
Figure 9: Differentials in frontline
Figure 10: Risk officer priorities: current and in two years’ time
Figure 11: Sources and destinations of offshore funds
Figure 12: Number and proportion of millionaire households
Figure 13: Interface between BNY Mellon’s asset and wealth management functions with other group units
Figure 14: Julius Baer’s global network
Figure 15: UHNWI sector in Credit Suisse combines superior growth and net profitability
Figure 16: Synergies between JPMorgan’s asset management function and other group units
Figure 17: Schroders regional net flow of investment


"A fascinating analysis of the current state of the wealth management industry - offers valuable insights and a thorough overview of current issues and opportunities."
Yves Robert-Charrue, Member of the Executive Board, Head Investment Solutions Group, Bank Julius Baer & Co Ltd.


Steven I Davis has spent his career in the banking and financial services sector as a senior executive, strategy consultant, author, analyst and teacher.  He is a graduate (magna cum laude) of Amherst College and of the Harvard Business School.

His 20-year career in international banking commenced at JPMorgan, where he managed a Paris-based research and M & A unit.  For Bankers Trust Company, he ran a venture capital subsidiary in New York and later the bank’s European businesses from a London headquarters.  Subsequently he set up and managed for six years the London-based merchant banking subsidiary of First International Bancshares of Dallas, Texas.

Since establishing Davis International Banking Consultants (DIBC) in 1980, he has managed several hundred strategy assignments for commercial and investment banks, global fund managers, insurers and other financial institutions.  In 1993, he headed a DIBC team which advised the Norwegian Ministry of Finance on the restructuring of the country’s banking sector during the Nordic banking crisis.  In addition, he and his colleagues have prepared over 60 research reports on the financial sector for publication by investment banks and other clients.

Mr. Davis is also the author of 14 books and reports published on best practice in the financial services sector.