Private banking and wealth management is currently one of the most promising segments of the global financial services sector. It is already very profitable, both in absolute terms and relative to other market segments, especially on a risk-adjusted basis. Moreover, its future prospects look very bright with growth forecast to exceed global economic growth over the short to medium term. None the less it is sometimes difficult to discern these sentiments in the reports on the sector routinely produced by the big consulting firms and other experts, especially in the wake of the near collapse of the global financial system in 2008. The private banking and wealth management sector may not yet be facing a crisis. But the prospect of increased client disaffection, a more onerous regulatory regime and ongoing uncertainties about the outlook for asset prices, could pose considerable problems in the years ahead with both margins and profits coming under increasing pressure. It will certainly cause a re-evaluation of private banking and wealth management business models with the prospect of consolidation to come.
Private Banking and Wealth Management Models – ‘No Magic Bullet’ By Ian Orton www.vrl-financial-news.com Private Banking and Wealth Management Models – ‘No Magic Bullet’ © 2010 VRL Financial News Ltd Published by VRL Financial News Ltd Registered in the UK No. 02806152 No part of this report may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copy- right holder. This report is designed to provide accurate information on the general subject matter covered. This report is provided with the understanding that the author and publisher shall have no liability for any errors, inaccuracies or omissions of this report and, by this report, the author and publisher are not engaged in rendering consulting advice or other professional services to the recipient with regard to any specific matter. In the event that consult- ing or other expert assistance is required with regard to any specific matter, the services of qualified professionals should be sought. i Private Banking and Wealth Management Models – ‘No Magic Bullet’ www.vrl-financial-news.com Table of Contents Figures iv Executive Summary v Chapter 1: Sizing the Market 1 The global wealth management market 2 Definitional differences 3 The geography of wealth 3 Future growth 4 Wealth management institutions 4 Conclusion 6 Chapter 2: Competition Issues 7 Low levels of competition 7 Monopolistic competition 7 Market penetration 8 A global estimate 8 Consolidation 9 Market concentration in the UK 10 Market concentration in Switzerland 10 Margin and return on equity 10 Non-price competition 11 Conclusion 11 Chapter 3: Size and Integrated Business Models 12 Scale 12 Scope and synergy 12 Quantitative evidence 13 Scale effects 13 Scope effects 14 Cautionary tales 14 Anecdotal evidence 14 Conclusion 15 Chapter 4: Wealth Management Business Models 16 Not mutually exclusive 16 Exclusions 16 Bank and Custodial Institutions 17 Private banks and private banking 17 Joint stock banks 18 Trust banks 18 Offshore private
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