Wealth management sector set for record growth levels in next 3 years

1. Singapore, 16 July 2007 - Wealth managers and private banks are anticipating unprecedented growth over the next three years, according to the latest findings from PricewaterhouseCoopers 2007 Global Private Banking/Wealth Management Survey. In Asia Pacific, in particular, chief executives predict that their organisations’ assets under management will grow at a staggering rate of 29% per annum –with a corresponding revenue growth rate of 26%. Singapore and Hong Kong-based private banks form the majority of the survey participants for Asia-Pacific, but a good mix of private banks in Korea, Japan and Australia provide greater depth than before.

2. The survey, which captured the views of senior executives of 265 organisations within the global private banking and wealth management industry, highlighted that markets in Asia Pacific and Eastern Europe are expanding the fastest, as organisations rush to service the new wealth creators in these regions. Almost 90% of CEOs feel that there will be at least some, if not significant, consolidation in the industry. More than 50% of CEOs in Asia plan to open operations in new markets over the next two years, primarily in India, China, Hong Kong, Singapore and Middle East, to access new clients.

3. “Our 2007 survey reveals a period of exceptional opportunities for wealth managers. Buoyed by rising global wealth, wealth managers everywhere are anticipating extremely high rates of profitable growth that have not been seen during the 14-year history of our survey, and probably at any other time. However, chief executives have some hard decisions to make in order to achieve their growth ambitions. This is a time when strategic choices have to be made and finite resources have to be focused on serving existing clients as well as supporting highly ambitious growth plans.” said Justin Ong, Leader of Wealth Management Practice at PwC Singapore.

4. In particular, strategies for growth need to be tempered with focus on a number of key areas, including the need to be more client-centric. Private banks in Asia believe they have achieved “Trusted Advisor” status with their clients, but the results of the survey indicate that this may be more an aspiration than a reality. In addition, Asian private bank strategies to access new cross-border markets are fraught with danger, due to the apparent lack of focus on jurisdictional and regulatory restrictions in certain countries, as well as the tax risk facing private banks who establish permanent establishments unknowingly. Said Mr Ong, “Success will be short-lived if private banks in Asia ignore conventional wisdom in making sure they understand the markets in which they operate”.

5. The latest findings also revealed a real commitment among wealth managers to increase ‘share of wallet’, compared to previous surveys. Share of wallet has emerged as the new key performance indicator as wealth managers seek to become trusted advisors and gain new clients. Currently under 50% of wealth managers hold more than 40% of their clients’ investable wealth but over the next three years this proportion is estimated to increase dramatically to almost 80% of wealth managers holding over 40% of a client’s wealth.

6. Observes Mr Ong, “The greater the share of wallet, the more institutionalised the client becomes, leading to increased loyalty and making it more difficult for the client to leave. More fundamentally, this is an excellent source of new assets, revenue and increased profitability. However, a surprising development is the intention of Asian private banks over the next three years to significantly increase production capabilities at the expense of an open architecture model in client servicing and products. This is indeed worrying, and begs the question as to whether this is really for the clients’ benefit or for the organisation to reap better margins.”

7. The key to wealth managers achieving their aggressive growth targets is their ability to recruit and retain quality client relationship managers (CRMs) but there are not enough quality people to support the market’s anticipated growth. Poaching still ranks high on recruitment strategies for most Asian private banks. Remuneration strategies are also still centred around the short-term goals of the private bank, and not on encouraging long-term behavioural thinking or on meeting client needs. Adds Mr Ong, “Private banks don’t seem to have grasped the notion that money isn’t everything – the survey results show that really good CRMs leave mainly because of organisational or cultural issues”.

8. Mr Ong continues, “CRMs are in short supply and often insufficiently skilled. Unless wealth managers address this shortage and sharpen their CRMs’ skills and core competencies, they will not achieve their growth expectations. CRMs have to do more to truly reach “trusted advisor” status. Understanding the client more fully and having an appreciation of their wider family issues, is critical”. CRMs also responded in the survey that they did not feel that their organisations were sufficiently committed to their training needs. The majority of CRMs wanted more training on softer skills such as client handling and marketing, but were mainly receiving product training.

9. Compared with the 2005 survey, there has been a quantum shift in the importance placed on IT efficiency to support the increased effectiveness of CRMs and the impact of branding to attract new clients. Wealth managers are investing heavily in both areas as they rapidly become a battlefield for differentiation and profitability. However, the survey suggests that more work needs to be done, with nearly 30% of chief operating officers admitting that not all their current IT systems are fit for purpose. The sums involved will be substantial and will put a strain upon profitability unless anticipated growth targets are realised.

10. “Acquisition and retention of clients and key staff, investing in branding and IT and expanding into new locations are all areas that can impact efficiency and performance. Without adequately addressing these areas, CEOs will fail to meet their clients’ needs or run foul of regulators, and their aggressive growth plans may not be realised.” concludes Mr Ong.

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Notes

1. Media contact and soft copy of survey report 2. Since its inception in 1993, PricewaterhouseCoopers Global Private Banking/Wealth Management Survey has highlighted key global market trends and analysis, and looked at the differences between the ways in which wealth managers provide services to private clients. This year’s survey, conducted in February and March 2007, captured the views of more than 265 organisations, including chief executives, heads of business, finance directors and risk officers from 43 countries. Furthermore, reflecting the growing importance of systems and people issues to private banks and wealth managers, PricewaterhouseCoopers extended the survey this year to include questions to be completed by chief operating officers, HR managers and client-facing relationship managers.

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