In pursuit of wealthy and wealth Private Banks – A global perspective Kuala Lumpur October, 2014 © Scorpio Partnership 2014 | 1 World’s Leading Wealth Insights Firm Winner 2007-10 – Global Wealth Insights Firm – Wealth Briefing; Winner of 2013 Thought Leadership Award Asia – Wealth Briefing Runner-up 2010-2012 – Agency of the Year – Financial Services Forum, Runner-up 2014 Thought Leadership in North America – Wealth Briefing Currently shortlisted for 2014 Thought Leadership in Switzerland, 2014 Thought Leadership in the United Kingdom, 2014 Thought Leadership in Asia © Scorpio Partnership 2014 | 2 Triangulating the value proposition for private banks McLagan advisor productivity and compensation benchmarking Advisor insight Scorpio Partnership market research and employee surveys B 2 Ongoing strategic insight, calibration and practical implementation Scorpio Partnership global private banking KPI benchmark Business model insight McLagan financial institutions KPI benchmarking analysis © Scorpio Partnership 2014 | 3 2 B 2 Scorpio Partnership global HNW/UHNW client journey surveys C HNW/UHNW Client insight Scorpio Partnership market entry strategic research and consulting 1. The state of the global private banking industry © Scorpio Partnership 2014 | 4 Banks are shifting capital away from risky institutional businesses to wealth management but challenges remain Global Private Banks Brokers Independent Advisors Boutique Private Banks © Scorpio Partnership 2014 | 5 Regional Banks UBS has refocused on WM which accounts for 65% of attributed Equity and 80% of profit Attributed Equity to Business Divisions ~35% ~65% ~65% Expected Pre-tax Profit Contribution ~20% ~80% ~35% 3Q12 2013 WM business, R&C, Global AM Investment Bank CHF 3.4 – 4.5 billion reduction in Investment Bank expense base by 2015 © Scorpio Partnership 2014 | 6 Private Banking Share of RWA at Credit Suisse Up 9% Points to 38% and Expected to Grow to 50% Contribution to Basel 3 Risk-Weighted Assets 29% 15% 56% 3Q11 36% 38% Private Banking & Wealth Management 26% Equities Advisory, Underwriting 26% 38% 36% 4Q12 4Q13 © Scorpio Partnership 2014 | 7 Fixed Income Moving business mix towards 50/50% split by gradually growing capital allocation in PB&WM Investment Banking Consistent earnings capacity of business model to generate substantial levels of excess capital Morgan Stanley Has Reshaped Its Business So That Wealth Is Now The Largest Component Full Year 2006 Net Revenues Asset Management Asset Management Other Global Wealth Management Equity Sales Fixed Income and Commodities (ex-DVA) © Scorpio Partnership 2014 | 8 Full Year 2013 Net Revenues Other Equity Sales Fixed Income and Commodities (ex-DVA) Global Wealth Management Bankable assets have grown at twice the rate of captured wealth since crisis CAGR: 4.8% 60 CAGR: 2.6% 52.6 Assets in USD trillions 46.2 39.7 40 35.0 30.8 30 26.7 26.4 20.3 20 10 17.8 18.5 17.4 8.0 0 2002 Total PB market size (USD) © Scorpio Partnership 2014 | 9 2007 2012 Bankable assets market size (USD) 2013 Total HNW financial assets (USD) Source: Scorpio Partnership Private Banking KPI Benchmark 2014 50 NNM is positive but slowing down Average diversified NNM Average pure player NNM Average overall NNM 5.87 6 4.43 4 3.74 3.39 3.62 3.04 3.02 2.07 2.74 2 0.73 0.86 0 -2 2.74 0.95 1.02 1.06 2011 2012 2013 -0.07 -1.24 -1.16 2008 2009 © Scorpio Partnership 2014 | 10 2010 Source: Scorpio Partnership Private Banking KPI Benchmark 2014 Average NNM (USD billions) 8 …while cost-income ratios are growing Pure player 160 Diversified Global Financial Crisis Overall 138 140 Gross margin in bps 127 119 100 120 117 120 113 110 107 104 102 2011 2012 2013 98.5 112 102 98.2 80 60 2007 2008 2009 Diversified 2010 Pure player Overall 100% 88% 87% 85.6% 86.1% 75.1% 75.0% 74.6% 75.4% 2009 2010 2011 2012 81% 88.3% CIR 80% 66% 60% 70.6% 78.3% 61.9% 40% 2007 2008 *Gross margin is defined as operating income divided by AuM Source: Scorpio Partnership Private Banking Benchmark 2014 © Scorpio Partnership 2014 | 11 2013 Sustained increase of costincome ratios and flattening gross margins form a challenging environment for both type of PB and WM firms. Key highlights Global Banks have realized the importance of focusing on Wealth Management as a sustainable and less riskier business Growth in wealth and high % of untapped wealth provides good impetus for PBs to consider it as a future oriented business High cost business model compared to institutional business means that scale & breadth is needed for success © Scorpio Partnership 2014 | 12 2. Looking at Asia through the Global Lens © Scorpio Partnership 2014 | 13 The rising APAC HNW + wealth world 2012 Total HNW Wealth 2015 Forecast Total HNW Wealth Total HNW Wealth (USD trillion) 20 15.9 16 15 13.1 12 12.7 12 APAC will dominate global wealth by 2020 based on forecasts. 10.9 8.3 7.5 8 4 1.8 1.3 1.4 2.2 0 Africa Middle East Latin America Europe North America Asia Pacific Notably, regional HNW growth in APAC HNW wealth is 9.8% compares with an average of 5.5% GDP growth rate in APAC exJapan. Source: RBC Capgemini 2013 World Wealth Report © Scorpio Partnership 2014 | 14 The offshore fund flows for HNW+ assets Source of total HNW offshore wealth market, USD trillion At USD2.4trn APAC is the second largest market region for offshore business. 1.9 0.6 2.4 0.9 2.6 Destination of offshore wealth market by booking centre, USD trillion Switzerland Hong Kong and Singapore Channel Islands and Dublin Caribbean and Panama United Kingdom United States Other Luxembourg © Scorpio Partnership 2014 | 15 USD2.2trn USD1.2trn USD1.1trn USD1.1trn USD0.9trn USD0.7trn USD0.7trn USD0.6trn Equally, the growth in the regional key booking centers is significant. In sum, wealth management in Asia is not just the future, it is the now…. Source: Scorpio Partnership analysis, BCG Assets-switching velocity is impacting the attitudes APAC M&A momentum is likely to grow based on continued operating model pressures. 6yr Total – USD102.0bn 6yr Total – USD314.0bn 6yr Total - USD575.2bn 6yr Total - USD451.3bn 6yr Total - USD286.5bn 6yr Total - USD32.7bn UK Switzerland Europe exc. UK and Switzerland 6yr Total - USD11.8bn Asia Pacific Middle East and Africa Latin America Source: Scorpio Partnership Deal Tracker 2013 North America © Scorpio Partnership 2014 | 16 Private Banks in Asia experienced double-digit % asset growth Asia-Pacific AuM in 2012 (US$ Bn) UBS Citi PB Credit Suisse HSBC JP Morgan Julius Baer Morgan Stanley Deutsche DBS Bank of Singapore BNP Paribas Standard Chartered Barclays Pictet EFG ABN AMRO J. Safra Sarasin Societe Generale Coutts UOB 215 201 117 115 75 60 58 50 46 43 43 35 30 30 16 15 15 15 14 13 0 50 100 150 200 250 Private banks are growing at 16% in the region but wealth is also growing at the same pace © Scorpio Partnership 2014 | 17 Source: Private Banker International PBs in Asia are at a low point on pre-tax margins with a median cost-to-income ratio at about 70% Cost-to-income (%) 90 80 70 60 50 40 30 20 10 0 81 79 75 Profit Margins* (bps) 80 71 61 2007 2008 2009 2010 2011 2012 45 40 35 30 25 20 15 10 5 0 39 Global Financial Crisis 41 39 36 32 20 16 18 20 15 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Cost to income ratio have been running north of 70% with some boutique firms reporting CIR of 90% and above. Effect of such high CIR will be felt in the moderate to long term Compensation expense in boutique PB firms are at level of 70%+ of total compensation expenses while for bulge firms, it is at 50% levels Profit margins in Private Banking industry have continued to decline since the global financial crisis and have reached a very low level of almost 20 basis points *Profit margins are defined as (revenue-cost)/AuM Source: BCG Wealth Report; McLagan database © Scorpio Partnership 2014 | 18 Key Challenges Faced by Private Banks in Asia Internal Challenges External Challenges Organizational Setup: Demand for RMs: Lack of alignment of front, middle and back office and leadership challenges in teams and markets High demand for RMs who can move assets leading to overcompensation and reduced productivity Performance Management: Client Behavior: Weak performance management methodology and pay for performance approach High price sensitive clients who want control and have mismatched expectations on risk-return Front Support Cost: Quality of Advice: Increasing cost in front and selected middle office functions (e.g. ARM, Business Managers etc.) Ineffective advisory process of RMs with focus on sales orientation rather than advisory orientation Platform Inefficiency & Regulatory Cost: Changing Regulations: Lack of holistic platform to support increased regulatory requirements (e.g. AML, KYC, FATCA) Growing sophistication of regulators and increased scrutiny on sales process and pricing policies © Scorpio Partnership 2014 | 19 just Wealth management is not about the money all all Wealth management is about the people All working together © Scorpio Partnership 2014 | 20 3. The HNW mind © Scorpio Partnership 2014 | 21 HNW routes to wealth are forcing change Greater control / influence over investments. Selfdirecting Durability of financial suppliers and protection of assets Risk awareness Value sensitivity Delivering value for money. Rise of digital Segment complexity Offering of real-time wealth management. Age and attitudes, wealth level, type of wealth. Source: Scorpio Partnership © Scorpio Partnership 2014 | 22 The starting line is the value point – this is recalibrating Q: How would you rate the industry in terms of value for money today? ? © Scorpio Partnership 2014 | The issue of value and its variance among the demographics is possibly the single most important planning factor for the future of wealth management. 23 Source: Scorpio Partnership, Sungard Client view of the wealth managers performance Factors performance, global Factor performance, APAC 90 82 78 80 76 75 75 71 70 70 70 68 74 68 60 67 65 64 69 65 63 62 61 58 63 62 61 55 50 65 57 51 56 56 55 55 55 51 40 42 42 41 APAC respondents tend to assess performance of wealth managers 7.9% lower, on average 30 Source: Scorpio Partnership Futurewealth 2014 © Scorpio Partnership 2014 | 24 APAC HNWs hold WM to a high standard WM performance Client minimum tolerance 63.5 Asia-Pacific 59.9 61.8 Europe 65.3 Middle East & Africa 56.3 69.1 Latin America 57.4 77.9 North America 50.2 Analysis based on the following: Q: We’d now like you to imagine that you are giving your wealth manager an exam mark. Thinking about your overall relationship with your main wealth manager, what performance score would you give them ? Q: And, at what level of overall service would you consider moving your relationship to another firm? © Scorpio Partnership 2014 | 25 Source: Capgemini, RBC WM, and Scorpio Partnership Global HNW Insights Survey 2013 53.0 HNWs are searching for the core relationship Q: (on a 10-point spectrum): Please indicate your preference for working with multiple wealth management firms (who each have a specific area of expertise) vs. a single firm (that can meet your full range of needs) Single firm Global 41.4% Even in the emerging markets where the complexity of assets may be high, the trend is toward working with a single firm. Notably, in Asia, the clients most want a single firm with the ability to access multiple experts 53.1% Latin America 52.8% North America 26 14.4% 19.6% 11.8% APAC (excl. Japan) 49.2% 16.6% MENA 43.2% 21.9% Europe 35.4% 19.0% © Scorpio Partnership 2014 | Multiple firms Japan 18.1% 6.9% Source Capgemini, RBC WM, and Scorpio Partnership Global HNW Insights Survey 2013 The global HNW market is transforming in the debate around engagement. HNWs in APAC are more focused on wealth preservation than growth Emerging markets (APAC-based) HNWs are almost in the balance between preservation and creation. Crucially, global average is 26% (growth) and 33% (preservation). Compared to RoW APAC investors are more bullish on equities. Rebalancing cash is key. Source: Capgemini, RBC WM, and Scorpio Partnership Global HNW Insights Survey 2013 © Scorpio Partnership 2014 | 27 APAC HNWs have strong multi-shore tendencies Whether it is preservation or growth, emerging markets (APAC-based) HNWs are nearly twice as likely to consider they have complex needs (linked typically to offshoring and re-shoring) Perspective on financial needs APAC Global 42% 41% 40% 35% 30% 33% 26% 23% 20% 10% 0% Complex needs © Scorpio Partnership 2014 | 28 No strong preference Straightforward needs Source: Capgemini, RBC WM, and Scorpio Partnership Global HNW Insights Survey 2013 50% 4. Onwards – What next in wealth management for APAC? © Scorpio Partnership 2014 | 29 © Scorpio Partnership 2014 | Pre During Global Post Asia Pacific Source: Scorpio Partnership Futurewealth 2014, which aimed to determine globally clients’ requirements from different stages of the customer experience in order to do more business. 30 Source: Scorpio Partnership analysis Investment performance Quality of research Product innovation Frequency and quality of advisor contact Recognition of loyalty Invitations to non-financial events Invitations to financial events / seminars Fair pricing and fees Solutions and services that meet my needs Relationship manager who understands their needs Market knowledge of advisor Efficiency when executing trades International outreach High quality reporting Professional premises Brand values Products & services Online experience Advertising % importance The future is benchmarking the tangible experience Q: In your opinion which of the following factors would you rank as the most important attributes when considering a wealth management firms? APAC importance features 90% 80% 70% 60% 50% 40% 30% 20% APAC HNWs have priorities on what wealth means Having sufficient wealth to secure your own and your family’s future Having sufficient wealth to choose what you do in life Not worrying about money every day Having a disposable income (in excess of what you require for financial security) Having sufficient wealth to buy or invest in whatever you wish Being able to enjoy a luxury lifestyle % of respondents © Scorpio Partnership 2014 | 31 Other Having a level of wealth that commands political or economic influence Source: Futurepriority (Research program produced by Scorpio Partnership) The route to winning new business – not whispering Q: How were you first introduced to your primary wealth manager? Introduction reason Global APAC Referral from family or friend 24% 20% Through my own research of the market 17% 16% Through a relationship manager at the firm 12% 17% Referral from a trusted advisor (e.g. attorney, accountant) 11% 11% Other 9% 5% Through the website of the firm 8% 11% Referral from another part of the business 8% 8% In response to an advertisement 6% 6% Referral from another client at the firm 6% 6% Percentage of clients introduced through the website Independent assessment 33% Note: This increases with wealth © Scorpio Partnership 2014 | 32 <US$500,000: 8.7% US$500,000-US$2m: 8.5% US$2m-US$4m: 13.9% US$4m +: 13.2% APAC HNWs are financial shoppers – wealth managers need to constantly innovate to succeed USD4m+ Q: How many providers do you currently work with regarding your personal investments? APAC 6.6 USD2m-4m 5.1 USD500,000-2m 3.4 <USD500,000 2.6 average average 4.7 4.9 7.2 USD4m+ 5.3 USD2m-4m 3.2 USD500,000-2m 2.5 <USD500,000 4.9 USD4m+ 3.3 USD2m-4m 1.9 USD500,000-2m 1.9 <USD500,000 Rest of the world USD4m+ 4.8 USD2m-4m 3.2 USD500,000-2m 2.1 <USD500,000 2.0 © Scorpio Partnership 2014 | 33 average average 2.6 2.5 Source: Scorpio Partnership Futurewealth 2014 Q: How many other firms did you consider working with before making your selection? APAC HNWs will pay for premium service an extra 12%, on average Asia-Pacific Rest of the world 80% % of respondents who would pay extra 66% 67% 64% 61% 57% 60% 57% 60% 55% 53% 50% 50% 46% 45% 38% 40% 27% 30% 20% 20% 10% Understanding my wealth management needs © Scorpio Partnership 2014 | 34 Staff who are knowledgeable, well-trained, and professional Delivering appropriate products, services and advice Working with a firm that has a solid reputation Reporting that allows me to monitor my portfolio in detail On-going Communication account about the servicing and services and inquiry handling value they can offer to clients like me Account opening processes Source: Scorpio Partnership Global HNW Insights Survey 2013 67% 70% Premium services are not just products and prices What your clients want Consistency Credibility © Scorpio Partnership 2014 | Creativity 35 What the industry needs to build Experience Knowledge Empathy The future is based on better business intelligence Advisor insight B 2 Business model insight © Scorpio Partnership 2014 | 36 2 Wealth management has evolved in APAC almost in spite of itself. But we are now entering an industrialisation of the model where future profits are dependent on better sustained insight on all aspects of the business. A lack of intelligence would be a great loss …. Ongoing strategic insight, calibration and practical implementation B 2 C HNW/UHNW Client insight
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