industry saw a respectable double-digit gain in managed assets last
year. The bad? This is still not keeping pace with the level of
personal wealth creation in Britain, at least in the pre-credit
crunch period.
Investment assets controlled by wealth managers in the UK grew to
£402 billion ($747 billion) by the end of 2007, up by 10 percent on
the previous year, as buoyant first and second-quarter performance
offset the dismal last half of the year as the credit crisis
disrupted markets.
Go deeper with GlobalData
The wealth industry, ranging from private banks to execution only
brokers, generated revenues of £3.9 billion, up 16 percent, and
pre-tax profits of £1 billion, up a healthy 28 percent, according
to new analysis by wealth benchmarkers Compeer.
Asset growth was helped by new business levels, accounting for 6.5
percent of asset growth compared to 3.5 percent of underlying
performance growth among wealth managers. Private banks remain the
largest sub-sector as measured by revenue, accounting for 47
percent of the total.
In contrast with the previous two years, their relative growth rate
has slowed and is now broadly in line with investment managers and
full service stockbrokers’, Compeer found.
Worryingly, the overall growth among wealth managers has failed to
keep pace with the level of wealth creation in the UK. Since 2005,
the wealth of the top 1 percent of the population increased by an
estimated 65 percent compared to a 30 percent increase in wealth
management assets.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData“The wealth management sector, while doing nicely, continues to
miss significant opportunities with a large proportion of wealth
still unadvised,” Compeer researchers declare.
Discretionary business has continued to be the fastest growing area
with strong levels of new business inflows as well as reasonable
underlying investment performance. Discretionary assets increased
by 12 percent.
Overall, 5.2 million accounts are held with private client
stockbrokers and wealth managers, an increase of 8 percent over
2006. This compares with a 13 percent increase in accounts in 2006
compared to 2005.
The majority of individual clients will generally hold more than
one account as a result of assets being held in PEP/ISA or pension
wrappers and will also often maintain relationships with more than
one firm. In addition, a large number of execution only accounts
are open where there is very little trading activity but they
support one-off sales or holdings from de-mutualisations or
employee share schemes.
Adjusting for double counting and inactive accounts, Compeer
estimates there are approximately one million clients who have
active relationships with one or more wealth managers. This
represents a growth of 11 percent over 2006.
Where does the wealth industry go now, after the investment mood
has turned so bearish?
Following the bear market of 2000 to 2003, most wealth managers
repositioned their marketing efforts and supporting investment
propositions, focusing to a greater extent on capital protection,
risk/return and absolute return, Compeer notes.
“Current market conditions are now testing those strategies and,
while our data is only a very broad proxy for investment
performance, there is little evidence that performance has done
much more than track the markets.”
The majority of client assets continue to be held in direct
equities, albeit that there is a slow drift towards collectives and
hedge funds.
The most significant impact of the credit crunch to date has been
to boost treasury revenues, as private banks and client money firms
took advantage of favourable inter-bank rates to increase margins
on client cash. Net interest income grew by 25 percent, accounting
for just over 30 percent of the total growth in revenues.
As a result, private banks continued to grow banking revenues
strongly, with a 15 percent rise overall. Reasonable margins on
lending, structuring fees and increased margin on cash deposits
mean that overall banking products are generating 124 basis points
compared to an average of 77 basis points for discretionary assets
and 66 basis points for advisory.
Meanwhile, wealth industry costs increased by 12 percent in
total, driven largely by increased staff costs both from a 7
percent increase in staff numbers and from a continued hike in
average staff costs, Compeer found.
More than 500 new client-facing professionals joined the market,
creating significant additional capacity at a time when new
business levels are slowing. This impacted on overall productivity
and meant that in total, front-office staff costs increased at the
same rate as revenues.
“This is not a sustainable position and firms either need to find
new business to utilise capacity or further productivity
improvements, otherwise we can expect to see a drop in remuneration
levels and/or squeezed profit margins in 2008,” Compeer
warns.
Its researchers also found growing differentiation between winners
and losers among wealth management players. In 2007, the bottom 30
percent of firms grew assets by less than 2.7 percent including new
business flows: the top 20 percent of firms grew assets by nearly
23 percent.
The top performing firms are those that have grown through
acquisition of businesses and/or teams or through strong brand
promotion and marketing.
Compeer found that there is no evident correlation between new
business flows and investment performance. While growth in assets
net of new business can only ever be a very broad proxy for
investment performance, it does illustrate the lack of transparency
on performance in the private client sector.
Meanwhile, the wealth industry has continued to see significant
corporate activity with some further consolidation in the number of
firms, albeit primarily among consolidators and private banks
looking to acquire IFA businesses for their skill sets and client
bases. However, as in previous years, smaller firms continue to
thrive and again there is little evidence that scale brings
significant advantage or economies.
With the impact of the Retail Distribution Review (RDR), Compeer
expects to see further restructuring of the sector and corporate
activity “as IFA firms, often with very strong and loyal HNW client
bases, determine their future business models.” Those firms that
are dependent on IFA introductions need to think carefully about
the long-term viability of this model as the IFA sector
restructures, it adds.
Looking forward, Compeer expects the wealth management sector to
remain one of the most attractive areas of financial services.
There continue to be growth opportunities, albeit at a slower rate
than recent years, as wealth creation will probably slow on the
back of an economic downturn and less asset inflation.
At the top end of the market clients are likely to be reasonably
immune to these trends and the affluent sector continues to provide
a significant growth opportunity both from a greater share of the
wallets of existing clients, particularly the potential to access
pension assets, and from new clients.
To exploit this opportunity, Compeer believes, firms need to
continue to focus on marketing and sales strategies that will
attract new clients to the sector by recognising their investment
and service preferences.
For the poorly-performing firms, the new tighter market conditions
signal difficulties ahead, it asserts.
“We therefore anticipate that we will enter into a period of much
slower growth with greater differentiation between the winners and
losers.
“Winners will be those firms that can clearly demonstrate added
value to clients in whatever sector of the market they elect to
compete.”
