Emeritus Senior Partner & Senior Advisor
Related Expertise: 金融機関, 事業戦略, デジタル/テクノロジー/データ
In order to understand how wealth managers fared in 2013, BCG benchmarked the performance of more than 130 institutions—either pure private banks or wealth management units of large universal-banking groups—from Western Europe, Eastern Europe, Asia-Pacific, North America, and Latin America. Our analysis focused on the most meaningful levers in private banking: assets under management (AuM), revenues, and costs. We also examined relationship manager (RM) performance, as well as other aspects of the industry, such as RM compensation.
AuM Growth. Wealth managers globally had another year of outstanding growth in 2013, with AuM rising by 11 percent. This performance, which followed AuM growth of 13 percent in 2012, was driven mainly by asset appreciation owing to rising equity markets. Net new assets (NNA) represented only 4 percentage points of global AuM growth.
The Asia-Pacific region accounted for the strongest growth (24 percent), with NNA of 10 percent. (See Exhibit 1.) NNA made up less than half of total AuM growth in most other regions as well, the exception being Latin America, which showed AuM growth of 13 percent based entirely on NNA growth. The trend in Latin America was attributable to double-digit declines in stock market prices across the region.
Clearly, most wealth managers sailed with favorable winds in 2013, as global equity markets rose by 20.6 percent on average. Equities made up nearly 30 percent of the average investor’s portfolio.
Revenue Growth and Return on Assets (ROA). The tailwind on the asset side also led to a global revenue increase of 8 percent for wealth managers, stronger than the 5 percent and 7 percent increases achieved in 2012 and 2011, respectively. The largest increase was in fees, which rose by 10 percent, with commissions expanding by 5 percent and net interest income falling by 7 percent. These results demonstrated a slight shift toward fee-based pricing, which is expected to gain momentum in the coming years because of regulatory imperatives.
Booming equity markets in many regions shifted AuM toward this asset class. The share of directly held equities rose by 5 percent globally, while the share of cash and deposits increased by only 3 percent and the share of directly held bonds decreased by 12 percent.
The share of discretionary mandates remained stable at 21 percent in 2013, although there was wide variation by region, indicating that not all business models enjoyed the same level of investor confidence. For example, European onshore banks increased their share of discretionary mandates from 27 percent to 30 percent. But Asia-Pacific wealth managers, on average, merely maintained their traditionally small share at 5 percent, although certain players managed to reach discretionary shares of 10 percent or higher.
Despite positive developments on the asset allocation front, most wealth managers’ ROA took a dip, owing mainly to revenue growth lagging behind the increase in AuM. Average ROA dropped by 5 basis points in Asia-Pacific and 3 basis points in Latin American markets, while other regions posted an average ROA decline of just 1 basis point. Only European onshore banks were able to increase ROA.
Costs and Efficiency. Asset growth and corresponding revenue increases have taken some pressure off the cost side for wealth managers. Nonetheless, the cost levels of private banks remained high in 2013, with only a few players able to achieve a reduction. If equity markets lose their momentum for any length of time, pressure will rise again—putting some players under duress. Globally, cost-to-income ratios decreased from 74 percent to 70 percent in 2013. Particularly in Asia-Pacific, players were able to benefit from significant asset appreciation to lower their cost-to-income ratios to an average of 67 percent, below the global average (and reversing the trend of recent years). North American brokerage houses continued to have the most cost-intensive wealth-management model, owing to their high level of compensation for RMs.
While improved cost-to-income efficiency has given many wealth managers some room to breathe, overall costs still rose by 3.5 percent on a global level. In fact, from the end of 2010 through the end of 2013, the overall rise in costs (15 percent) has been just slightly lower than the overall rise in revenues (19 percent). Not surprisingly, the largest cost increase over this period was in legal, compliance, and risk management costs (32 percent), closely followed by asset and product management costs (30 percent). (See Exhibit 2.) In absolute terms, the largest chunk of the increase came from sales and front office costs. Interestingly, costs rose in every function except marketing and communications, where they declined by nearly 20 percent. These costs currently account for only 2 percent of total costs.
Although investment in the sales and front office function increased on a global level, wealth managers in European offshore centers slashed frontline staff to help contain costs, cutting the number of RMs by 7 percent in 2013, compared with a year earlier. (See Exhibit 3.) At the same time, remuneration as a percentage of revenue fell to 13 percent for these institutions, down from 15 percent. By contrast, wealth managers in the Asia-Pacific region increased their number of RMs by 21 percent in order to handle increasing asset volumes. Still, RM remuneration of 16 percent of revenues in Asia-Pacific—the same as for European onshore institutions—remained below the global average of 25 percent.
RM Performance. RM performance can most easily be measured by the ability to acquire new clients and to generate revenues from the client book. In 2013, there were significant differences by region in both NNA per RM and revenue per RM. While the global average of NNA per RM was $7.3 million, the average RM in Latin America, the region with the strongest acquisition power, was able to gather $17.9 million. North American brokers and European onshore institutions were the lowest-performing regions with NNA of $3.6 million and $4.9 million per RM, respectively.
As for revenues, both European offshore institutions and North American banks posted the highest average per RM at $2.6 million, well above the global average of $1.7 million.
Revenue per RM is a function of client assets and liabilities (CAL) per RM as well as revenue margins. Because both measures are affected by client size, a breakdown by client wealth segments provides some interesting insights. For example, although many RMs have a mix of client segments—and while some regional variation exists—RMs managing assets solely for the affluent segment (clients with AuM of $500,000 to $1 million) can be expected to manage total CAL of between $150 million and $250 million. For HNW clients (those with AuM greater than $1 million), CAL per RM rises to between $250 million and $350 million. And for RMs managing assets solely for upper-HNW segments (clients with AuM surpassing $10 million), CAL per RM can rise to $600 million.
Globally, revenue margins in 2013 were 107 basis points for the affluent segment, 81 basis points for the HNW segment, and 44 basis points for the upper-HNW segments.
Key Recommendations. Wealth managers’ efforts toward reducing costs and raising efficiency have been commendable. But these initiatives require a continued strong focus, because the asset appreciation witnessed over the past two years is expected to slow down eventually. Indeed, despite overall improvement in cost-to-income ratios, the cost increase seen over the past few years should signal a call to action.
In addition, with new wealth continuing to be a significant factor (representing 22 percent of total wealth creation in 2013), wealth managers need to strengthen their asset-gathering capabilities. They must gear their organizations toward capturing newly created wealth, not just riding the asset-appreciation wave or attempting to gain market share from other players.
The most promising strategies continue to be the following: