The UK wealth
management sector appears to be in good shape despite the gloomy
fallout from the eurozone, according to ComPeer’s UK Wealth
Management Industry Report. Ian Orton takes a
look
Facts have an endearing
ability to confound received wisdom. The wisdom is that the global
banking financial services sector has experienced five years of
misery following the onset of crisis conditions in 2007.
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Not only have profits and
margins collapsed but also well-known banking names have either
disappeared (Lehman Brothers), acquired new owners (Bear Stearns,
Merrill Lynch, Smith Barney and Wachovia) or been wholly or
partially nationalised (ABN Amro, Lloyds Banking Group and Royal
Bank of Scotland).
But according to new data
released by ComPeer, a London-based research firm, as part of its
annual UK Wealth Management Industry Report, the
experience of the UK wealth management sector appears to have
confounded this state of affairs.
According to ComPeer,
both revenues and assets under management (AuM) ended 2011 at highs
of £4.82bn ($7.48bn) and £480.21bn at respectively.
This is close to other
industry estimates. Research provider WealthInsight estimates the
total UK wealth market manages about $780bn in private client
assets.
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By GlobalDataAverage pre-tax profit
margins also remain extremely healthy at more than 20%. Pre-tax
margins at private banks have fallen from 29.5% in 2008 to 20.9% in
2011 and are slightly lower at investment managers (26.1% to
24.4%), two of the four sub-sectors covered by the ComPeer
report.
But they have increased
substantially since 2008 at full-service stockbrokers (13.8% to
20.8%) and execution-only stockbrokers (32.1% to 39.6%), the two
other sub-sectors covered by ComPeer.
Moreover, the UK wealth
management sector continues to recruit more staff, especially in
the front office.
The ComPeer report
surveyed 148 firms active in the sector with a minimum of £50m of
client AuM or administration.
This sample, which
probably accounts for around 90% of total assets managed by the
sector, consisted of 27 private banking firms, 56 specialist
investment management firms, 46 full-service stockbrokers and 20
execution-only (XO) stockbroking firms.
Some segments appear to
have had very good ‘crises’. Private client investment managers
increased AuM from £107.5bn in 2007 to £144.16bn in 2011, or by
just under a third.
Indeed, the growth in
assets from the end of 2008, or the nadir of the current crisis, to
the end of 2011 is even more impressive at over 45%. Granted, the
recovery in asset values will almost certainly have played a
significant role.
But the sector has also
continued to attract new money.
Net new money
hits £23bn
Overall, the UK wealth
management sector attracted £23bn of net new money during 2011, or
5.1% of the £474.7bn under management and administration at the end
of 2010.
Execution-only brokers have
also experienced substantial growth in AuM, (or perhaps more
appropriately ‘administration’).
These have grown from
£47.97bn in 2007 to £76.3bn at the end of 2011, or 63%. The growth
rate between 2008 and 2011 is even more impressive at more than
100%.
Private banks have not
fared quite as well, with AuM falling from £156.4bn in 2007 to
£141.42bn. But even here AuM have grown each year since 2008, when
AuM fell to £129.1bn.
Revenue growth has not
been quite so pronounced during the cycle, and especially since
2008. But it has grown to record levels nonetheless.
Last year was a
challenging year for the UK wealth management sector, especially
given the precipitous fall in asset values that occurred in
August.
Yet this still didn’t
appear to derail the sector. AuM (and administration), revenues,
profit margins and manpower all increased.
Assets under management
managed to grow by just 1.2% on a year-to-year basis, although
investment managers recorded a slightly less anaemic growth rate of
3.4%.
But all segments
generated revenue growth. Investment managers and execution-only
stockbrokers grew revenues by 10% and 8% respectively, private
banks by 5%, helped primarily by bigger lending margins and
spreads, and full-service brokers by 1%.
Increased revenues appear
to have been the direct result of an increase in front office
personnel.
ComPeer notes that the
wealth management sector is still continuing to hire, especially in
the front office, with investment/portfolio managers, sales staff
and front office staff all experiencing increased demand for their
services.
A corollary of this state
of affairs is that the increased costs associated with hires and
new IT matched most of the revenue increases. This left overall
pre-tax profit margins more or less unchanged.
ComPeer’s evidence
suggests that unlike the XO stockbroking sector, the UK private
client investment sector doesn’t appear to be scalable, a state of
affairs that probably holds at both the private banking and
full-service stockbroker segments.
All this seems to confirm
that, with the exception of the XO stockbrokers, the sector is
incapable of generating scale economies, which would diminish the
chances of significant future consolidation.
Nor does the ComPeer data
confirm that everything in the UK wealth management sector’s garden
is rosy. Increased regulation remains an issue, especially given
the impending implementation of the Financial Services Authority’s
retail distribution review and European and US regulatory
initiatives that could have a significant impact.
For the moment, however,
the UK wealth management sector appears to be in good health, with
further progress during the first quarter of this year, according
to ComPeer:
AuM increased by 5.5%,
with fees for wealth managers hitting a high. <
