Global wealth is on the
rise again, but the changing regulatory environment and increasing
competition for business means the performance of wealth managers
is under scrutiny. PBI looks at how re-calibrating pricing
points and developing new Asian-specific products can differentiate
wealth managers


Wealth is on the rise, but it is
not yet time to celebrate. Global wealth continued its recovery
internationally in 2010, growing by 8%, or $9trn, to $121.8trn.

However disruptive forces,
including increased regulatory oversight and changes in client
behaviour, are rewriting the rules for wealth managers.

Boston Consulting Group’s (BCG)
2011 global wealth report, Shaping a New Tomorrow: How to
Capitalize on the Momentum of Change
, notes the overall
outlook for wealth managers is promising with global wealth
forecast to grow at a compound annual growth rate (CAGR) of almost
6% to reach $162trn by 2015.

The US-based management consultancy
estimates global wealth is now $20trn above where it stood two
years ago during the depths of the financial crisis.

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Grpahic showing how the global average profit margins are up from 19 bps to 23 bps






Three trends to

BCG’s report flagged up several
trends that should push wealth managers to review their operations,
including varied pricing models, shifting offshore wealth and
rising costs.

BCG’s survey found the average
pre-tax profit margin increased by 4 basis points to 23 basis
points in 2010. Revenue margins in most regions remained lower than
they were before the crisis, while average global cost-to-income
ratios remained well above 70%.

One of its chief observations,
based on its survey of 120 wealth-management institutions
worldwide, was the tremendous variation in pricing strategies
between different wealth managers, often in similar wealth

The BCG report found relationship
managers typically have substantial discretion to use discounts
which leads to significant variation in gross margins, even within
narrow client clusters.

As an example, it noted the
variation in Switzerland between the affluent and high net worth
segments where return on assets (RoA) was on average about 137
basis points (bps) compared to the $10m to >$100m band where RoA
was on average only 66 bps (see chart).

Chart showing how significant variations in return on asset levels remain between different wealth segments



Call for defined pricing

BCG said wealth managers need to
define upper and lower pricing bands for each client segment within
which relationship managers had discretion to set prices and offer
restricted discounting on a client-by-client basis.

BCG’s research also suggests
developing price-service models geared to client needs and
interaction preferences so that client clusters should not only be
based on wealth bands but should also reflect client behaviour.

The changing nature of offshore
wealth, assets booked in a country where the resident has no legal
residence or tax domicile, is another significant change in the

Bar chart showing North American private banks had best average global return on assets

Pressure continues on
offshore centres

Increased tax transparency
pressures from developed market regulators and increased
competition between offshore centres were two key trends
highlighted by BCG.

The amount of offshore wealth
increased to $7.8trn in 2010, up from $7.5trn in 2009 but the
overall proportion of offshore assets to onshore assets

This has been driven by increasing
wealth growth in onshore markets, such as China, and the push by
regulators in many developed economies for greater transparency
around offshore wealth. The greatest growth in offshore assets will
come from Asia-Pacific, Latin American and Middle East and

BCG defines assets under management as including cash deposits,
money market funds, listed securities held directly or indirectly
through managed investments, and onshore and offshore assets.

See also –  Key opportunity: developing Asia-Pacific focused