Global wealth managers saw a dramatic turnaround in net new money last year, with the majority now sourced from emerging markets, according to Scorpio Partnership.
In research set to be released today, London-based Scorpio finds that on average global wealth managers saw a 23.7% rise in new inflows for 2012, compared with a decline of 27.9% in 2011.
This is a turnaround for the industry, which has struggled to attract new client assets amid a loss of client trust on the back of losses from the global financial crisis of 2008/09.
Tracking more than 200 financial institutions, the research finds average growth in assets under management of 8.7% last year, compared with just 0.7% in 2011.
By Scorpio’s calculation, the wealth management industry now has $18.5 trillion, up 10.8% from $16.7 trillion the previous year. It notes this has been driven by strong net new money inflow as well as market performance.
However, the average change in profits was +5.3% for 2012, down from 12.3% the previous year – with operating costs continuing to creep up.
Importantly, the top 20 global private banks by AUM are stretching their lead over the competition – experiencing an average 10.9% growth in AUM. Collectively these firms now manage 76% of total industry AUM.
Scorpio notes an acceleration in the separation of this pack from the rest of the market, suggesting there now appears to be a champion’s league of firms that through their scale and market coverage are more likely to attract business.
Switzerland’s UBS reclaims top spot from Bank of America-Merrill Lynch, while Spain’s Santander returns to the top 20 a reported 66% growth in AUM on the back of its decision to buy out minority shareholders in Benesto and Banif and fully absorb local banks into the Santander organisation.
Scorpio suggests that the growing dominance of the top 20 reflects consumer demand for a single wealth manager proposition, with 41% of clients whom Scorpio has interviewed previously having expressed a strong preference for working with a single wealth manager, compared to 14% who prefer multiple providers. Broad product and service capabilities and international exposure Scorpio lists as key.
“These businesses have a role in managing three quarters of all HNW wealth,” notes Sebastian Dovey, managing partner at Scorpio Partnership. “They are beginning to demonstrate very distinct mega-player characteristics.”
He points to the strength of their brands in winning new assets and an increased desire to streamline the number of financial relationships a client has. “This is raising the bar on competition,” adds Dovey.
Data from a selection of firms headquartered in Europe, North and Latin America and Asia Pacific and collectively managing $1.1 trillion shows the global breakdown of booked assets: 28% in Latin America, 21% in Asia Pacific and 2% in the Middle East and Africa. This takes total assets booked in emerging markets to 51%, compared to 49% for Europe and the US.
Scorpio notes how wealth creation and wealth management is shifting to emerging markets, and how international private banks have achieved success in re-evaluating their proposition.
“The data from these firms also highlights that re-orienting a wealth management business in order to access growth in emerging markets is a complex challenge,” says Catherine Tillotson, managing partner at Scorpio Partnership.
“International expansion is a long-term commitment and wealth managers must focus on how to translate their services to meet local needs if they wish to convert emerging market assets into a stable revenue stream," Tillotson adds.