Smaller, more focused wealth managers operating in the $0.5
million to $20 million wealth bracket had better profitability in
2009 than their larger counterparts. The findings point to a return
to traditional, advice-led private banking with a few modern,
technological twists. William Cain

Two year business model

Boutiques were among the most profitable businesses in the
industry in 2008, proving that scale is not the be all and end all
for wealth managers.

Many independent wealth management businesses have been set up
in the past year to take advantage of clients’ disillusionment with
large wealth managers. And PricewaterhouseCoopers’ Global Wealth
Survey pointed to the emergence of a new private banking business
model, which it terms Nouveau Classic banking – a response to the
loss of trust among clients

“It is about rebuilding trust and returning to the core of putting
the client at the centre of everything you do,” said Jeremy Jensen,
lead partner at PwC’s European wealth management practice.

“What the survey tells us is size doesn’t matter, interestingly.
Smaller organisations who have not simply focused on scale and have
lower ratios of clients to advisers are actually the most
profitable, which I think is quite interesting. Scale for scale’s
sake isn’t a great business objective. On the process and systems
side, as a rule of thumb, wealth management as a sector has systems
which are poorer than other areas of financial services. They have
not been invested in. If you have grown by acquisition and have not
integrated your systems effectively, your cost base will be

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Recently, Morgan Stanley said its new Smith Barney business would
not produce any cost synergies for two years because of the time
needed to integrate its technology platforms. While some of the
largest wealth management businesses have been formed in the past
year as a result of mergers, it will take time before they are
operating efficiently as wealth management businesses. But they
have greater scope to slash costs in the medium term and enhance
future profitability.

Open architecture

Sixty percent of CEOs interviewed by PwC said they planned to have
an advice-led, fully open architecture system for externally
sourced products within the next two years, building on client
demand for transparency. That compares with 53 percent that use
that approach today. This move towards open architecture has
impacts on fee revenues, however, and 26 percent of the CEOs
interviewed said they will still leverage a combination of
producer/distributor models.

The move from transaction driven wealth management to advice is
continuing and moving down the wealth pyramid, the survey said.
This process is helped in particular by starting client
relationships with a financial plan, which has proved to generate
greater revenue with less attrition and strengthens the client

The survey also highlighted the need to differentiate by tailoring
product offerings to specific client segments. Eighty-seven percent
of CEOs surveyed said inter-generational products and services were
a priority, while 68 percent consider retirement products to be

Wealth managers are also increasingly tailoring high value products
and services to family offices and the ultra-high net worth ($50
million plus in the PwC survey) – the most popular are strategic
asset allocation and estate and tax planning.

While wealth management businesses have continued to target the
ultra wealthy in 2009, albeit with different definitions, PwC’s
survey found the most profitable wealth bracket was between $0.5
million and $20 million.

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