PwC predicts a new era of banking for private banks and wealth managers where a renewed level of quality service and client relationship building are the order of the day.

Private banks and wealth managers have seen their profits plummet in the wake of unprecedented financial turmoil, investment scandals and decline in world wealth, according to a new report published today by PricewaterhouseCoopers (PwC).

Damage has been done to the critical element of trust at the heart of the relationship between high net worth clients and their wealth managers. Increasing demand for transparency around all aspects of the investment process and performance will be critical. With a growing regulatory compliance burden and the need to control costs, wealth managers face enormous challenges as they try to redefine their role and regain “trusted advisor” status. We see clients more and more turning to their trusted advisors to assist them in dealing with managing their overall assets.

The report, entitled “A New Era: Redefining the Way to Deliver Trusted Advice”, identifies significant changes affecting wealth managers. It looks at how they are responding to changes in their business and what senior private bankers and wealth managers see happening in the industry in the future as well as the impacts of the financial crisis over the first quarter 2009. The report draws on insight from a survey of nearly 240 private banks and wealth managers and is the latest instalment in a global survey that started in 1993.

Launching the report, Maeve Corr, Director, Wealth Management, PwC Ireland said:

“The survey confirms that Wealth Managers must up their game. The industry is at an historic crossroads. Quality of advice is the real differentiator. Wealth managers need to arm their CRMs with the relevant skills and training so that they can fully meet their clients’ needs.”

"Transparency is the new gold standard of wealth management. How clients are kept informed around not just performance of their assets but also the integrity, financial health and processing status from their wealth managers and underlying service providers and counterparties will be brand differentiating.”

Key findings include:

Clients have raised the bar and are now demanding more from their wealth managers, including peace of mind. More than half (53%) of high net worth clients surveyed say that their primary source of financial advice is now their own research capabilities and independent knowledge. This indicates their scepticism about the quality of the advice they actually have been getting.
Some 88% of Wealth Managers surveyed expect further consolidation in the sector in the next two years.
Client Relationship Managers (CRMs) are integral to meeting this raised bar of client demand. However, according to survey results, only 20% of CRMs admit to not fully understanding their clients’ needs. At the same time, CRMs say they are spending more time with their clients (41% of their time allocation versus 30% in 2007) but 65% of them admit this amount of time is insufficient to provide an adequate level of service.
Furthermore, only 20% of Wealth Manager CEOs consider their CRMs of high calibre in meeting the needs of clients, yet, acquisition and retention of talent has fallen from being CEOs’ number two priority in 2007 to seventh today, a concerning fall.
The survey highlights that Wealth Managers identify the three most common areas of weakness for their CRMs to be:
- An inability to adapt to change;
- A lack of client relationship skills, and
- Poor appreciation of risk.

While enabling growth is the top priority for Chief Operating Officers (COOs), short-term cost-cutting is their second-highest priority. For example, 36% of CEOs believe there is room to eliminate 10% to 20% of their costs.

Although CRMs realise they have shortcomings, identifying client relationship skills and taxation as the two areas where they would most like to receive additional training. This is a real threat in such a client-driven market and wealth managers must review and action renewed training programmes.

Maeve Corr, Director, PwC Ireland concluded:

"The winners will be high net worth clients and those firms that can provide them with performance and extraordinary levels of insight and transparency while becoming once again a trusted advisor. It is a significant challenge and will require investment in technology, talent and ruthless execution."

ENDS

Note(s) to Editor:

Highlights from the 2009 survey:

Boutiques and smaller client ratios will play a significant role.
PwC found no direct link between size and profitability in terms of cost/income ratios, making small well run boutique firms particularly well positioned to thrive. Client service and brand differentiation now trumps history and brand awareness. The days of simply pushing product alone are over, and quality of advice is now the new differentiator. The focus has shifted from client acquisition to client retention through increased interaction and better relationship building. The most profitable wealth managers were found to have significantly lower ratios of clients per client relationship manager across all wealth segments allowing them to better understand clients’ needs and increase share of wallet.

Clients demand transparency.
High net worth clients now want much more transparent product offerings, product suitability and robust due diligence with real-time customised. Private clients want their wealth managers to “…treat my money as though it were your own”. They are looking for answers about the integrity surrounding their wealth and personal data, as well as the soundness of the institutions and processing counterparties who serve them. Wealth managers face increased challenges in how they manage the cost and efficiency of different service delivery options, given the increased demand by clients for information and proactive risk analysis.

Stick to the core segment.
Nearly half (46%) of wealth managers provide services across all levels of wealth, a reflection of an opportunistic catch-all strategy of client segmentation. But profitability among the various segments of wealth varies widely. The affluent (less than $500,000), the very high net worth (over $20 million) clients and ultra high net worth (over $50 million) clients have proven less profitable in the current environment, and wealth managers seeking to operate in these segments must have the necessary scale, systems, product mix, together with appropriate CRM skills to do so profitably.

Opportunities exist to capture inter-generational (for example passing direct to grandchildren) wealth transfers.
87% of wealth managers say they regard inter-generational products and services as a priority. There is clearly room for improvement in capturing inter-generational wealth transfers, since just 38% of wealth managers surveyed are able to retain more than 50% of their clients’ assets when faced with an inter-generational transfer event. A significant factor in delivering this is improving the skills of CRMs. CRMs themselves state that inter-generational wealth transfers is the third highest area in which they would like additional training.

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