WM Market Reports

WHAT THE CONSULTANTS SAY: McKinsey Looks At Global Wealth Management Landscape

McKinsey & Co, March 19, 2014

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This publication has approached a raft of consultants operating in the wealth management sector to give their views about a range of challenges and opportunities for the industry in different parts of the world. A number of articles will be released in these pages in the coming weeks and we hope readers find them stimulating.

This publication has approached a raft of consultants operating in the wealth management sector to give their views about a range of challenges and opportunities for the industry in different parts of the world. A number of articles will be released in these pages in the coming weeks and we hope readers find them stimulating. The articles have been sought by this publication and also by Bruce Weatherill, of Weatherill Consulting, and also chairman of ClearView Financial Media, publisher of this news service.

The global consultancy, Mckinsey, issued its Global Private Banking Survey 2013 last year – the next report is due later this year. The organization’s report, “Capturing the new generation of clients,” looks at the varied fortunes and opportunities in different regions. Interestingly, in light of this week’s agreement by Societe Generale to sell its Asia private bank to Singapore-headquartered DBS, McKinsey noted that private banking in Asia will be profitable but only for some players. Here is the summary of the full 45-page report and excerpts of important facts. This publication is grateful to McKinsey for authority to republish some of these comments.

Over many years private banking has been one of the most attractive segments within the financial services industry. Private banks have combined strong asset growth and rising profitability with low capital requirements and ample liquidity.

Since 2008, however, the industry has faced a series of challenges related to the sharp increase in the volatility of capital markets, the low-rates environment and the increasing scope of regulation in the US, Europe and elsewhere.

The impact of these factors means that the profitability of most private banks worldwide is far below the levels before the financial crisis. What some industry observers were describing as cyclical changes have now become structural, hence requiring significant changes to traditional business models.

In 2012, for a fourth consecutive year, many private banks have faced substantial challenges, regardless of where they are based or their business model. Despite capital market performance driving attractive growth in assets under management, top-line revenue growth remains subdued. This has caused players to focus their attention on actively managing their cost base to maintain - or improve - profitability.

Private banks, regardless of where they operate across the globe, also face similar demands emanating from a much more complex operating environment. A number of developments are shaping the future of the private banking industry. Among them are: the shift in growth and profit pools towards developing economies; the need to change the value proposition and delivery models to serve the specific needs of a new generation of clients; and the necessity to restore trust in the true ability of private banks to deliver superior investment advice.

Coupled with these demands is a rapid multiplication of local tax and regulatory requirements. Furthermore, all of this is occurring as increasing competition blurs the frontiers between onshore and offshore markets, which is pushing private banks to be more selective in their geographical coverage, client mix and services offered.

We believe that the traditional value proposition for most private banks is indeed fading. In order to succeed in capturing profitable growth in the future it is our view that private banks must define what makes them distinct from rivals and combine this with a high quality of execution.

The truth of this is clearly shown by an increasing performance gap between winners and laggards in most markets. In Western Europe, for example, one booking center in six recorded pre-tax operating losses in 2012.

Inevitably, not all banks will be able to adapt. For this reason, we believe the growing pressure on private banks will continue to fuel industry consolidation, a sign of which emerged in the rising M&A activity seen in major markets in 2012.

The McKinsey Global Private Banking Survey 2013 incorporates results from the McKinsey Wealth Sizing database and detailed performance analysis of more than 160 private bank participants globally.

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