PwC Survey - Private Banking/Wealth Mgt. Industry in Transformation

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PricewaterhouseCoopers survey reveals exceptional growth, high earnings, and large profit margins are driving radical change throughout industry say CEOs of Top North American Financial Institutions.

CEOs of top financial institutions report that the private banking industry is undergoing sweeping transformation, presenting unprecedented opportunities and significant challenges, according to PricewaterhouseCoopers' first annual North American private banking/wealth management survey. Fueled by the dramatic increase in wealth in the United States, this market offers profit margins averaging 35 percent and growth projected at 12 to 15 percent compounded annually over the next five years. Yet North American financial institutions face critical challenges in harnessing new technology, attracting and retaining a talented workforce and refining their business models to service the new class of clients that represent today's wealth management market.

"To fully realize the potential of the explosive growth in this market, wealth management institutions* need to answer three key questions: Can we successfully meet the needs of today's wealthy with our current business models? Are we attracting the best talent? Are we prepared to fully integrate Internet technology into our offering?" according to Rob Gould, PricewaterhouseCoopers Management Consulting Services partner in the organization's Financial Services practice. "This sounds like common sense, but our survey provides hard data indicating that for a majority of private banks and wealth management institutions, these questions are just now being addressed. Moreover, the survey indicates that no one type of institution, let alone a single provider, has mastered the formula for success and overtaken the market."

Adapting to the changing needs of the wealth management client base is one of the main factors driving industry transformation. According to Spectrem Group, in 1994, 3.5 million U.S. households had a net worth (not including primary residence) of $1 million or more; by 2004, that number is projected to be nearly 15 million. The growth in wealth has been so exceptional that new market segments such as “mega rich” and “pentamillionaires” have entered the lexicon. Survey respondents expect that three years from now “new money” will represent more than half of their client base – up ten percentage points from the portion that “new money” represents today.

Meeting the needs of the new high-net-worth market has prompted financial institutions to alter their business models so they can better offer a complete service to the wealthy. That is one of the reasons 1999 was a watershed year in terms of mergers and acquisitions between financial institutions. Brokerage firms joined with banks; U.S. and European institutions came together to establish global offerings. According to the survey, the first institution to market a truly comprehensive service offering – either through proprietary products or by forming strategic alliances and “co-opetition” – will come out on top.

While devising an appropriate business model poses one important challenge, the survey shows that finding qualified people and making effective use of new technology represent the greatest challenges to financial institutions as they try to compete in the changing private banking industry.

Qualified personnel to service the new wealthy and manage this transforming business are in short supply. To address this problem, survey respondents indicated that chief executives should focus on developing rewarding compensation packages that are linked to the goals of the organization. Further, a commitment to training and ensuring that people are given the tools they need to work more efficiently are also critical

In responding to questions concerning the challenges posed by technology, survey participants pointed to the profound impact the Internet and other new technologies are having on the industry. The median investment that private banks are making for the Internet is about $1.4 million, and survey participants expect this investment to grow to over $4 million within the next three years. They noted that executives should not only take advantage of specific applications such as customer relationship management, but that institutions should also seek to embed technology into the organization as a core competency. Technology is also a key enabler for providing more robust management information for strategic decision-making, the CEOs said.

“The private banking community has traditionally been a “high touch” industry. The winners in our new marketplace must change that dynamic and figure out how to effectively integrate Internet technology into their service offering,” said Gould. “Those institutions that can spot technological trends and utilize them will have a competitive advantage in the market.”

*For the purposes of the survey, wealth management institutions include: traditional independent private banks/wealth managers; divisions within money center banks; money management complexes; divisions within regional retail banks; and other financial services institutions.

Key Survey Findings

Competing Business Models

  • In Europe, universal banks are the favored model while participants in North America feel that investment banks and brokerage houses are best positioned to succeed. Both groups feel that traditional private banks have strong advantages in the market as well.
  • Three years from now, respondents anticipate that “new money” will represent more than half of their client base – up ten percentage points from the portion that “new money” represents today.


Survey respondents indicate that they are offering third party products and consolidating multiple business units that serve high-net-worth clients.

  • Personal relationships and high levels of service will always be perennial success factors in this industry. Looking ahead, survey respondents indicate that successful players will be those who also develop the reputation for delivering proactive, valued financial advice.
  • Survey respondents ranked the factors most hindering change in the industry as follows: 44% believe that existing information technology is hindering change; 30% believe regulation/domestic legislation is responsible; 26% believe staff quality is responsible; 22% believe availability of skills is responsible; 17% believe management quality is responsible.

Focal Points: People and Technology

  • Survey respondents indicate that there is an industry shortage of experienced, qualified personnel.
  • Technological tools, especially for customer relationship management, are a must for those players looking to help personnel manage a greater number of accounts while still offering highly personalized service and tailored advice.
  • Throughout the survey, respondents point to the profound and fundamental impact of the Internet on the industry.
  • Survey respondents place great importance on new technologies, noting that wealth management institutions must be able to recognize nascent trends and integrate emerging technologies into their businesses quickly and effectively. They view e-business as the most critical technology trend today, but the vast majority of respondents expect “new technologies” to dominate three years from now.

Growth & Cost Control

  • Survey participants who project above average growth rates going forward generally display a flair for innovation and a willingness to confront the major trends impacting the industry head on. These participants are at the forefront of: utilizing the Internet to attract and retain clients; attracting “new” money clients; focusing on developing new distribution approaches; leading the charge towards consolidating multiple business units; providing comprehensive wealth management advice.
  • For these “aggressive growers,” the growth mentality comes directly from their chief executives who place a high priority on developing and evaluating new growth opportunities.
  • Survey participants who demonstrate above average cost control also have more robust management information systems, employ technology with an eye towards achieving cost control and are more likely to reengineer their business in order to reduce expenses. These respondents also take cues from their chief executives who are more likely to spend a significant amount of time monitoring and controlling the profit and performance of the institution.
  • Few participants, however, have been able to master both aggressive growth and strong cost control capabilities, suggesting that there is ample room for improvement.
  • Profit margins in the wealth management industry approach 35 percent – higher than most other sectors in the financial services industry.


A total of 23 institutions participated in this survey. Most of the institutions are large, as measured by the amount of assets they have under control: more than half control assets of $50 billion or more. Two out of five control assets worth $10 to $50 billion. One participant reported assets under control of $10 billion. Since the survey focuses on North America, respondents were asked to specify their assets on this continent, even though many report overseas operations.

Collectively, respondents employ well over 40,000 people worldwide with staffs ranging in size from 175 to 8,000.

The institutions surveyed comprise five types of wealth management institutions including: traditional independent private banks/wealth managers; divisions within money center banks; money management complexes; divisions within regional retail banks; and other financial services institutions.

The respondents were asked to specify the business lines they offer. All respondents indicated offering personal investment management, and almost all – more than 90 percent – reported personal trust administration and estate planning.

Also popular are retirement planning, brokerage services, retail banking and insurance, offered by 60 to 87 percent.

Around half offer family office services, institutional investment management, and institutional trust, while nearly 40 percent offer investment banking.

Thank you to PricewaterHouseCoopers for this report. To view the PwC site, click on the link below.

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