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July 17, 2014updated 04 Apr 2017 2:08pm

High cost environment the ‘new normal’ in private banking: Scorpio Partnership

Private banks experienced a 14% rise in expenses in 2013, bringing the average global cost-to-income ratio to 83%, up 3% from 2012, which wealth managers are getting acclimatised to as the ‘new normal’, according to the Global Private Banking Benchmark 2014 from Scorpio Partnership.

By Sruti Rao

Private banks experienced a 14% rise in expenses in 2013, bringing the average global cost-to-income ratio to 83%, up 3% from 2012, which wealth managers are getting acclimatised to as the ‘new normal’, according to the Global Private Banking Benchmark 2014 from Scorpio Partnership.

The Global Private Banking Benchmark 2014 states, however, that strong growth figures are becoming commonplace despite rising costs.

It has been a reasonable growth year for wealth managers, with a 19.7% rise in assets under management (AUM) and strong Net New Money (NNM) inflows.

The annual study, now in its 13th year, analysed the key performance indicators of 209 financial, which held a total AUM of $20.3trn up from $18.5trn in 2012. Indicators measured included business model analysis, AUM, market share, net new money and cost-income ratios.

Though NNM dropped by 13.6% year-on-year (YoY) in 2013, the Global Private Banking Benchmark 2014 study attributes this fall to a correction from the excessive client confidence seen in 2012 among the Eurozone recovery.

The study revealed that the top 25 banks held 78% of industry AUM in 2013, and NNM from these top 25 benchmarked banks saw a healthy average inflow of $1.8bn. Strong investor sentiment was also reflected in the study, with a rise in YoY income growth from 2.3% in 2012 to approximately 11% in 2013.

Seb Dovey, managing partner at Scorpio Partnership, assesses that despite persistent inefficiencies in managing rising costs, there are "encouraging signs of client experience innovation around the relationship models and propositions in the sector which is drawing in new clients and may lead to improved results in the next assessment".

Swiss giant UBS kept the top spot, with a 15.4% rise in AUM, bringing it to a sizeable $1.97trn, according to the study. BNP Paribas and Deutsche bank stepped up to sixth and seventh ranks respectively, recording an AUMs of $395.1bn and $384.1bn.

Julius Baer saw the most significant improvement with a whopping 40.7% asset growth, in light of the bank’s recent acquisition of Bank of America Merrill Lynch’s (Merrill Lynch) international operations. In effect, the bank moved up by three ranks to 12th largest globally, with assets recorded at $282.5bn according to the study.

Despite Merrill Lynch’s retreat to a complete domestic focus, it still remains the largest private bank in the US and a close second to UBS globally, with assets of $1.87trn – attributed mainly to its extensive brokerage network.

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