Scorpio Partnership’s latest edition of the highly anticipated Global Private Banking Benchmark shows a tale of two halves for the global wealth industry. The leading assessment of KPIs in wealth management highlighted that private banks successfully navigated regulatory and political upheaval in 2016, with assets under management rising by almost 4% on average.
The results, based on the publicly available information provided by over 200 wealth institutions, indicate that cost income ratios also fell below 80% for the first time since 2012, reflecting wealth managers concerted efforts to cut costs despite continued compliance pressures. Strong profitability growth masked the industry’s underlying struggle to improve revenues, with operating income rising just 0.04% on average.
“As advanced technology continues to reshape the wealth management industry, firms will be able to recognise cost savings through process optimisation,” said Caroline Burkart, Director at Scorpio Partnership. “The challenge going forward will be managing the revenue side of the profits equation. These firms are experiencing pricing pressure, driven by regulations, the trend for passive investing and the wave of lower-fee competitor models entering the market. Solving the equation will require increased focus on enhancing the proposition with advisory capabilities and improvements to the client experience,” she added.
This year the largest 25 firms in the Benchmark managed USD13.3 trillion of HNW AUM, representing a 63.2% market share. The list was lead by UBS, followed by Bank of America, Morgan Stanley, Wells Fargo and Royal Bank of Canada.
Of the top ten operators, seven had a North American focus. However, Asia’s private banks gained momentum in 2016. China Merchants Bank stands out in the ranking, having added over CNY400bn to AUM in 2016 as a result of enhanced customer acquisition efforts, as well as upgrading it’s private banking proposition. Another contender from Asia, Bank of China, entered the ranking this year, managing over CNY1 trillion on behalf of its wealth management and private banking customers.
By contrast, many of Europe’s key operators experienced negative AUM growth due to a combination of internal restructuring initiatives, decisions to scale back from non-core markets and reputational challenges.
As well as posting strong financial KPIs for 2016, wealth managers were also able to move the dial on client experience, with Scorpio's annual client engagement tracker, which focuses on the three pillars of a wealth management relationship – Service, Proposition and Relationship, indicating an improvement of 5.72%. "Our research indicates that there a relationship between client perception of the firm and the AUM growth rate." They added.
As evidenced by Figure 2, some firms faired better at converting enhanced quality of the client service into improved financial performance. North American banks are leading the ranks of wealth managers, with only one European bank among them in a top quadrant by CES vs AUM growth metrics.
“North American operators tend to have a more forensic approach to tracking, measuring and monitoring the client experience across multiple metrics. As such, we see them consistently move the dial on client engagement and, as a result, their financial results,” commented Caroline Burkart, Director at Scorpio Partnership. “The commitment to active listening to the needs of the clients will be imperative to a strong advice-led model.”
For the full report, follow this link.