Globe and money

Global wealth managers surge with buoyant AUM and profitability, says Scorpio

The Global Private Banking Benchmark 2014 from Scorpio Partnership has revealed buoyant growth across the top 25 wealth management firms worldwide, with an average percentage change of 11.3 per cent in assets under management (AUM) in 2013.

Together, this league of wealth titans now collectively manages more than 78 per cent of industry AUM, a one per cent increase from last year.
 
UBS still leads the pack of global wealth managers based on year-end results for 2013, following a reported growth in assets under management (AUM) of 15.4 per cent for UBBS during the year in US dollar terms. The asset base of the Swiss giant is now just shy of the USD2 trillion mark at USD1,966.9 billion. The milestone marks a transition in the scale of global wealth management. At current growth rates the bank could reach this landmark before the year end.
 
Tracking more than 200 financial institutions for 13 years, the Global Private Banking Benchmark analyses key performance indicators across the private banking business model. 
 
This year’s worldwide ranking saw a number of notable changes. BNP Paribas and Deutsche Bank both crept up one position as HSBC slipped from sixth to eighth place. HSBC’s negative percentage change in AUM off the top 25 would appear to be due to its ongoing strategy of pulling out of non-core markets. By contrast, Julius Bär grew assets by a dramatic 40.7 per cent last year, thanks in part to its continuing acquisition of Bank of America Merrill Lynch’s international operations. 
 
The Benchmark also finds that 2013 was a healthy year of growth for wealth managers a across the industry. The average change in AUM for the over 2000 Benchmark banks was 19.7 per cent, more than double last year’s growth. This latest assessment reveals that the industry is now managing an estimated total of USD200.3 trillion in HNW assets, up from USD18.5 trillion in the previous year.
 
Good performance in the financial markets contributed to the AUM increases, as did strong net new money (NNM). NNM inflows averaged at USSD1.8 billion for the Benchmark banks. Although year-on-year NNM dropped -13.6 per cent per cent on last year’s growth rate; highlighting the extent of the buoyant growth in 2012. As the Eurozone crisis receded during 2012, returning client confidence boosted net new money to exceptional heights that year.
 
Strong NNM through 2012 and 2013 also contributed to income growth. Wealth managers saw an average percentage change of 10.9 per cent per cent in income for 2013, reflecting increasingly positive investor sentiment.
 
“This year’s results highlight major structural changes taking place in global wealth management,” says Seb Dovey, managing partner of Scorpio Partnership. “Overall, key growth indicators are positive butt efficiency ratio averages are not yet improving which is still an alarm bell to consider by many in the corridors of power. In spite of the data points, we see 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.”
 
The findings demonstrate that the international wealth management sector is acclimatising to a ‘new normal’. Strong growth figures are commonplace, but so too are rising costs as the recovery is accompanied by increased regulation. Some firms are also continuing the strategy of trying to grow out of the malaise resulting in higher headcount costs. Cost income ratios now sit at 83 per cent per cent, up three per cent from 2012.
 
In spite of this increase, strong NNM figures meant that profitability was also nudged up on average 1.7 per cent compared to last year, indicating that operators are learning to adapt to new challenges.
 
Bank of America Merrill Lynch’s decision to sell its international wealth management operations in 2012 is just one example of a trend among US firms to retrench to the domestic market. As a result, this year’s Global Private Banking Benchmark introduces a new ranking to illustrate the leading US wealth management brands.
 
There is considerable variation in the way US wealth management firms represent their assets under management. To the extent possible, the Benchmark seeks to exclude deposits, loans and client custody assets. Where firms segment results for their wealth business, the Benchmark focuses on the highest wealth segment.
 
Based on this analysis, Bank of America Merrill Lynch and Morgan Stanley, as a consequence of their significant brokerage networks, remained by far the largest wealth managers in the US in 2013, with USD1,866.6 billion and USD1,454.0 billion in AUM respectively. Growth was strong across the leading eight US wealth managers and averaged a percentage change of 11.1 per cent per cent for 2013. 

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