‘New normal’ continues to haunt private banks

The international wealth management sector is acclimatising to a ‘new normal’. Strong growth figures are commonplace, but so too are rising costs as the recovery is accompanied by increased regulation. Some firms are also continuing the strategy of trying to grow out of the malaise resulting in higher headcount costs.

These are some of the findings of the Scorpio Partnership Private Banking Benchmark survey, now in its 13th year of providing analysis of key performance indicators across the international wealth management industry. One of the most exciting elements of the last 13 years has been seeing the way the industry has met new challenges. In that sense, 2014 is no different.

First the good news – the industry is continuing to pick up assets under management and net new money. A combination of stable economic and political factors has helped wealth creators. This is being reflected in record asset levels, while despite a slowdown from 2012, wealth managers continue to winkle more new money from their clients.

Now the bad news – unfortunately these headline figures provide scant succour to an industry still struggling with high cost-income ratios. This year, despite increases in operating income, operating expenses have outpaced income growth.

To cope with these trends, both diversified and pure player firms have employed differing tactics. Diversified firms, using their scale and ready-made retail and business banking divisions, have been thrusting into emerging markets to pick up market share and assets.

This has not always been successful. In the last year, we have seen many firms retrench to core markets suggesting that it is not enough to simply have a presence in dynamic markets unless your business proposition meets the needs of the end-client.

Pure players, meanwhile, have sought to grow out of trouble, by hiring additional advisers to increase their asset books. While this has fed through to increased assets under management and net new money figures, it has also increased personnel costs at a time when few can afford to.

The results suggest that 2013 was a year of an industry-wide strategic rethink. As 2014 continues, we anticipate further profound strategy changes to business operations and their prospects.   

James Horrax is a senior associate at wealth management think-tank Scorpio Partnership

For further information on the Scorpio Partnership Private Banking Benchmark 2014, please email  James Horrax: james@scorpiopartnership.com