Wealth managers around the world must contend with a still-tough global economy although there are wide variations in how firms fare, such as in Asia and emerging markets, says PwC in its bi-annual report.

Wealth managers struggle with a tough global economy and
near-endless increases in regulations, although there are wide variations in
how firms in different regions fare, PwC says in its bi-annual survey of
industry trends.

Wealth managers in the Americas are more tech-savvy and
target a leaner business model than is the case for their global peers. Globally,
wealth creation is becoming ever more dispersed and diverse; “multi-speed
geographic markets are evolving”, it said.

In Western Europe growth is slowest of all, while North America shows moderate growth, and in emerging markets
growth remains relatively high but has slowed in some areas. There is also what
PwC calls a further group of nascent markets which accumulate new wealth most
rapidly with net new money growth forecast at 16 per cent in 2013.

The report adds to a slew of surveys from other
organisations such as Boston Consulting Group, Scorpio Partnership and
ClearView Financial Media – publisher of this website - showing the global sector
in a state of flux. Some 74 per cent of firms are making significant changes to
their business models. The 60-page study, entitled, Navigating to tomorrow: serving clients and creating value, covers
200 organisations in 51 nations. Survey participants said the industry is
moving away from simply providing products towards delivering solutions and
advice to clients. Trust, reputation and brand will likely all play a greater
role in client propositions and clients' perception of value, the firm said.

Although – as demonstrated by recent evidence from the likes
of RBC Wealth Management/Capgemini - that high net worth individuals are
getting wealthier again after 2008, this is not an easy source of help. Margins
are under “significant” pressure; growth in different markets is uneven, while
shifting demographics and technology pose their own challenges to business models.
During last year, cost/income ratios, on average, stood at 69 per cent. Globally,
managers expect that rate to fall to 64 per cent by 2014.

Changing fortunes

“Switzerland
is expected to not only be overtaken by Singapore, but to also face
stronger competition from London. The future for Switzerland,
and all international financial centres, will increasingly be about
developing
defined areas of expertise to differentiate as transparency and
increased regulatory
standards create a more level playing field between the larger IFCs than
has been the case
in the past,” PwC said.

Respondents said Shanghai and
Dubai are fast growing centres, closely followed
by Brazil, Miami
and Mexico City
as competition between traditional and newer IFCs and cities for the wealthy is
expected to intensify

Americas

In terms of the Americas,
a stand-out finding was that cost/income ratios are “significantly lower for
the Americas
with firms targeting 48 per cent for 2014 – way below the global average
expectation. Respondents in the Americas
are nearly twice as likely to use new technology to communicate with their
wealth clients (43 per cent of Americas
firms currently use PDAs and mobile tablets compared to 26 per cent globally).

Firms in the region are “making significant investments in
core processes and technology as reflected in substantially higher operations
and technology budget forecasts”, the report continued.

Specifically, PwC's survey found that the industry must
confront five areas of transformative change that will define business success:

1, Markets and clients

An in-depth understanding of an increasingly diverse and
disparate client base is essential to retaining a competitive edge, PwC said. “The
industry should become more agile in using data analytics and other resources
to pinpoint what clients really value and how much that value is worth to them,”
it said.

Perhaps unsurprisingly, PwC concluded that newly emerging
wealth markets are set to outpace established emerging markets while
traditional sources of wealth such as North America and Western
Europe will experience lower growth.

Adding to other comments about the potential of services for
women, the report noted that women represent a significant but underleveraged
growth opportunity. Though they currently comprise one third of the client
base, only 8 per cent of firms surveyed focus on gender in their segmentation
approach. 

Generation Y has unique characteristics not shared by their
predecessors that must be understood and addressed to attract new and preserve
existing relationships, it said.

Respondents said a decision by the next generation is the
third most common reason clients leave a private bank, indicating a need to
build more relevance for this segment. “This aligns with survey findings
indicating that wealth managers are not confident that their talent management
strategy is conducive to meeting the needs of next generation heirs and
millennials,” it said.

Americas-based respondents indicated they are almost three
times as confident in their ability to meet the needs of the millennial
generation, it said.

"In Western Europe growth is slow, while North America shows moderate growth, and in the emerging
markets growth remains relatively high but has slowed in some areas. To these
markets, we can add a further group of nascent emerging markets which are
accumulating new wealth most rapidly, with net new money growth forecast as 16
per cent in 2013. The multi-speed wealth management market is here to stay and
wealth managers should embrace this," said Jeremy Jensen, EMEA leader,
global private banking and wealth management, PwC.

"Retaining clients remains a focus for wealth managers.
Changes in personal circumstances are cited as the greatest reason for clients
leaving, but the fact that 'a decision by the next generation' is the third
most common shows both the importance and the challenge of better managing
inter-generational wealth transfer. Wealth managers should improve their
understanding of clients' extended family issues to capitalise on the inter-generational
opportunity,” he said.

2, Risk and regulation

Compliance replaced reputation as the top risk concern, as
wealth management firms struggle to keep pace with the scale, speed and costs
of current and planned regulatory change.

Client and suitability risk is the second greatest area of
concern after compliance both today and two years from now.

“While the current approach to risk management centers
around compliance and loss prevention initiatives, risk quantification and
stakeholder value integration will assume greater priority in the next two
years (this is a 28 per cent increase for risk quantification and 25 per cent
increase for stakeholder value/integration, respectively),” it said.

The cost of regulation will continue to rise, with
respondents forecasting that risk and regulatory compliance will account for 7
per cent of annual revenue in two years, up from 5 per cent today. Tax
information exchange leads the list of specific regulatory concerns, followed
by client privacy/data protection and tax amnesties.

"Compliance and risk management is here to stay;
private banks should accept this as reality, and that business as usual means
doing things the right way, with the right people and right skills. The ability
to understand and manage the avalanche of regulatory and risk issues, such as
cross border transactions, tax transparency and sales practices will likely
require private banks to continue investing heavily into systems and training
to ensure that they are able to do business in a profitable, but compliant
way," said Justin Ong, Asia Pacific leader, global private banking and wealth
management, PwC.

3, Human capital

Hiring experienced CRMs and improving overall skill levels
is one of the top strategic considerations for senior leaders in the next two
years.

With remuneration reported as the leading cause of attrition
(70 per cent), firms are reconsidering reward and incentive structures in an
effort to balance talent goals and stringent new rules around variable compensation.

Profitability by CRM and managing the cost of servicing are
also expected to become substantially more important, rising from 35 per cent
to 45 per cent and 26 per cent to 44 per cent, respectively.

4, Operations and technology

A “superabundance” of manual processes is the leading
challenge of operations and technology infrastructure by a substantial margin.
However, more than half of participants (54 per cent) are optimistic that they
will achieve predominantly common processes and automation within the next two
years - a threefold increase from today (17 per cent).

“In the future, wealth managers may need to accept more
standard packages and service offerings, and shy away from customisation. At
present customisation rates range from 30-60 per cent of standard package applications.
Unless a firm enters into a joint development relationship carefully, there can
be problems and unplanned expenses. Invasive customisation threatens the ability of
commercial packages to be

upgradeable and can require wholesale reinstallation.
Replication of the status quo in a new technology is expensive and time-consuming; moving
to a better set of functions and processes with a more standard package is far
better,” it said.

Products and services

Only one-third of firms plan to engage in revenue sharing and
retrocessions during the next two years as compared to half today, the
report said. With commission revenues falling, 71 per cent of senior
wealth management executives expect that, two years from now, their
business model will encompass broader financial and wealth planning
solutions, up from 56 per cent.