Straight advice for Asia’s LGBT Community is the strapline and LGBT Wealth is the first wealth management outfit to focus on the LGBT (lesbian, gay, bisexual and transgender community) in Asia.

Profiled last week in the FT, Paul Thompson, LGBT Captial’s founder, said that “it’s very clear that the LGBT market needs advice from people who understand their specific needs”.

The FT estimated that the LGBT population in Asia could number more than 200 million people who jointly command spending power of US$800bn.  Worldwide the spending power rockets to $3tn.

So why, asks the FT, are financial providers dragging their heels when it comes to targeting this segment?

The article goes on to share some interesting thoughts on why wealth managers are slow to target LGBT clients – read the article in full here – but actually, this is just one example of an industry wide reticence when it comes to putting client insight, and particularly HNW insight, to good use.

The Scorpio Partnership coined the phrase “codifying the client experience” which is starting to gain traction, most recently in a recent report from Wealth Briefing on which we collaborated, The New Normal: Codifying Superior Client Experience in Wealth Management.

It’s a catchy phrase, but it refers to a much bigger and more urgent need to change the way that information – and that could be client behavior, HNW insight discovered through quantitative and qualitative research or ‘big data’ – is used to inform and direct service offerings throughout the wealth management sector.

Whilst some firms already segment clients and research their detailed needs with a view to UHNW engagement, too many don’t.  Others carry out HNW research, but then tuck it away in a drawer once the PR and marketing teams have done their bit.

After all, the behavioural profile of HNW clients influences every part of their relationship from the style of interaction they crave to the products that suit them.

Cath Tillotson, managing partner here at the Scorpio Partnership, pointed out that different things in the customer journey are important to different types of UHNW people.

Understanding those differences – and understanding how to explore them methodically in a way that will turn insight into actionable strategies that can attract and retain investor assets – is not easy. 

We’ve been tracking client sentiment for 15 years now and to a large extent, it’s that time series effect, our ability to really get under the skin of what’s changing in wealth management, that lets us tap quickly into client behavior.

Of course, some still think it’s a cost too far in these times of austerity but actually, insight drives business and business drives profit.

As Cath Tillotson sums up, “if you think about what segmentation actually means, segmentation is to make sure that you are taking the right products and services to the right customer more often.”

If you get that right, the clients – and assets – will follow.

We’ll be sharing more about the projects we’ve worked on whilst gathering insight and research or shaping strategy and marketing plans for the global wealth industry as this blog evolves but if you’d like a sneak preview, head straight to our financial consultancy work where you’ll find brief overviews of the type of projects we like to get our teeth into.

Wealth is nothing new. Barter-like methods of wealth exchange may date back at least 100,000 years according to Wikipedia.

Neither is wealth creation a new goal for the world’s inhabitants.

Money has made the world go round for many years and it’s not about to change anytime soon.

Wealth management, on the other hand, stands at an inflection point on the brink of huge change.

Why?

Because the world we live in – which is an increasingly digital one – is changing more quickly than ever before.  In the words of futurist David Houle, “we are living in and through one of the most transformative times in human history.  The speed of change has accelerated to the point where we live in a state of constant change.”

So we think it’s time to look ahead at what the future might hold, what might the next 20 years of wealth management look like, what do HNW and UHNW investors really want from us, and how might the channels of delivery change.

In this first part of this blog series, we’ll be exploring the challenges currently facing the private wealth market, but first, take a moment to think how fast things are actually changing.

Faster than the speed of light

It’s well known that the speed at which we are adopting new technology has rapidly accelerated.

Figure 1. Years to reach mass adoption

Source: Brett King, Bank 2.0: How customer behaviour and technology will change the future of financial services

It took 70 years before planes had been adopted by 50 million users (which is the considered benchmark for mass adoption).  Facebook amassed 500 million users in 7 years.

Most of us accept that things have changed pretty radically, but sometimes it’s harder to appreciate just how quickly things will go on changing.

In David Houle’s latest book, The Shift Age, he paints the following picture:

If you agree that the speed of change is 10 times faster than it was in 2012, the amount of change that humanity has experienced in the last 1,000 years will be the amount of change we experience in the next 100.

If you believe that the speed of change is 100 times faster than it was in 1012 the amount of change humanity has experienced in the last 1,000 years could be equal to the amount we experience in the next ten!

Food for thought?  We think so.

Challenges for the private wealth market

So, onto the challenges facing the industry.

To set us on our way, this week we’re looking at the state of the market as it currently stands.

$16 trillion in AUM

The private wealth industry currently has about $16 trillion in assets under management (AUM) in private banking institutions worldwide. Table 1 lists the top 20 global institutions in terms of AUM out of the 200 that we track at Scorpio.

The top 20 institutions control nearly 80% of the $16 trillion in the market, but the top 5 firms control nearly 50%. The market is actually quite congested.

Table 1. Top 20 Private Banking Institutions in AUM in 2012

Source: Scorpio Partnership

In 2011, traditional inflows were relatively flat at about $2.9 billion.

Although that figure is larger than the asset base of some institutions, as an industry average, it is quite low. Many private banking firms with AUM of less than $25 billion–$30 billion have been struggling or even losing money.

Where are the wealthy going for wealth management?

Fundamentally, new money inflows are fairly patchy in this market and have been for some time. This lack of growth is incredible given the amount of assets that are being generated by wealthy individuals across the globe. A question the industry needs to ask itself is, where are the wealthy going for wealth management?

Efficient models or broken chains?

Before discussing that issue, however, I want to talk about the efficiency of wealth management in the private banking model.

Private banking is a very tough business. The cost of regulation has led to margins that are thinner than ever. Cost-to-income ratios are declining and could return to levels not seen since 1985. Declining cost-to-income ratios put pressure on firms in the industry to generate new solutions when managing or engaging with their clients because the most expensive component of the wealth management model is the relationship model, which consumes about 60% of total costs. Regulation is also costly. The industry has gone through—and is still going through—a radical change in its understanding about what constitutes compliance and noncompliance.

This bleak outlook for wealth management is half of the equation; the other half is the wealth itself.

Table 2 shows global wealth by region in 2012. Although the growth of assets in all of these regions was relatively flat during 2012, there were significant pockets of growth in specific segments in each of these markets. To access these pockets of growth, private wealth advisers need to understand the hearts and minds of high-net-worth clients, a concept the industry is only beginning to grasp.

Globally, overall wealth is $42 trillion, but only $16 trillion is currently managed by the private wealth industry, which means $26 trillion is being managed outside the realm of private banking.

In terms of net new money, which is the best measure of whether private banking is attracting new wealth clients, the five-year period ending in 2011 was rather poor.

Today, there is an average inflow of around $2 billion a year in net new money.

“Many private banking firms have been struggling or even losing money”

Table 2. Global Wealth by Region, 2012

Source: Scorpio Partnership

So where is the rest of that wealth going?  How can the industry remain relevant to today’s wealthy?  And who will emerge strongest from the fight?

Sign up using the form opposite to stay with us as the series continues.

Dear Gatekeepers-of-Wealth,

Where has 2013 gone already?! Five months through and there are already muffled discussions of summer days of vitamin D and Pimms. Of course being the British summer, we at Scorpio are distinctly bearish on the likelihood of topping up our workers’ tans for the moment at any rate but that is only because of the sheer volume of work and news this episode of Ultra brings!

Our featured pieces this week are drawn from the seemingly increasing expanse of the world of wealth, from life post RDR for senior executives, to the murky world of tax havens, from the UK’s Asian wealthy enclave as featured in the Sunday Times to the policy paper everyone is talking about, platform service providers and cash rebates from providers to consumers.

First up and out of the gate, our latest research piece for one of our clients, Pershing. The report, entitled ‘Through the Looking Glass: An executive perspective of UK wealth management in a RDR world’, assesses the opinions of  senior professionals and demonstrates, that creating a viable business model that is valuable for clients, is top of the agenda for firms hoping to survive in the post-RDR world. Our report also looks at what is driving change in the wealth management models of the future. We take a closer look behind the data.

As tax inspectors continue to look behind every sofa cushion for the odd chunk of change here or a note or two there to help remedy the desperate state of nation’s balance sheets, tax havens have been targeted remorselessly for special attention. Our report this month discovers that clients in the developed world are bringing their assets back onshore (they too must have heard about summer touching the Northern Hemisphere!). We look at whether the trend is temporary or otherwise.

The Sunday Times Rich List certainly provides huge volumes of information across every demographic you could imagine – but this month we have chosen to look East for inspiration. This year, the Sunday Times for the first time, compiled a list of the UK’s richest Asians. In doing so, they got us thinking about where they were coming from, where they were making their money and why they were coming at all. As the vast majority of Indians make up the richest Asians list, we take a closer look at some of the trends occurring there.

Our final feature piece this month, assesses the policy announcement of the FCA on platform services. This one comes hot on the heels of research carried out by Scorpio into the platform market across Europe and so being the gluttons for punishment that we are, we took a closer look at what this means for the platform space and clients.

There are also a number of other pieces which feature in our news round-up worthy of attention, including UBS’ latest profit announcements, further job losses at HSBC and Deutsche. Barclays post-Diamond has installed an interim head of wealth and investment management, while Credit Suisse has appointed a new CIO. This is to say nothing of the plethora of other tit-bits and news bites making the world of wealth turn this month.

Dear Wealth-Worriers,

It might have been the coldest March on record for much of the northern hemisphere, but the temperature gauges in wealth management were set to piping hot rather than deep freeze.

Indeed, in a month where the storm clouds gathered again over Europe, blowing – in economic terms – across the Continent from the south east, it is hard not to consider the consequences of the Cyprus tsunami on the offshore world. The Nicosia depositor shuffle (it has a ring to it…) leaves little doubt that wealth owners’ offshore assets have become fair game in the bank refinancing business; although the definition of “fair” is deeply troubling. We ask where next for international wealth holders. Notably, they ask that question too. The wonder is whether the private banks have a considered answer.

Another area of piping hot for activity was in the M&A zone. Last month also witnessed a different kind of flip-flop in London as not one, but three major wealth management names changed hands. Cazenove, Morgan Stanley EMEA and JO Hambro all switched partners – a sign of the times of the changing market forces in the UK business. Price/AUM ratios are significantly down on its 2008 peak of 4.2% and it is becoming increasingly clear that consolidation is necessary to ensure the long-term viability of the UK wealth businesses.

In fact, with UK compliance costs hitting 10% of annual wealth management revenues, the swan song from the Financial Services Authority (which this month morphs into the new Financial Conduct Authority) finds that RDR has seen the number of bank advisors fall 44% and the number of retail investment advisors and IFAs shrink by 20%. Ouch.

What is more, pronouncements from the new FCA suggest there will be no let-up. On the eve of its launch, the message from the MD of the new FCA is that when it comes to wealth management industry standards: “We’re worried”.

With all this in mind, we’re a tad worried too.

But, for every seller, there is a buyer and Schroders (as the buyer of Cazenove), Credit Suisse (as the buyer of Morgan Stanley’s EMEA business) and Bermuda National (joint-buyer of JO Hambro with the existing management team) have all tipped their hand to become notable players on the UK wealth scene. So too has Legal & General, having bought out Cofunds from its partners, its commitment to the UK platform market is clear. Towry too has confirmed its acquisition plans with private backers.

There is clearly still a great deal to play for in the UK.

Internationally, growth in Asia remains the constant refrain, with both Coutts and Julius Baer – currently a similar size with 500 staff across the region – announcing plans to double that headcount. Meanwhile, DBS and Guangdong Development Bank have stepped up their own regional activity.

And back in Europe, Bankinter is the surprise contender to buy BSI from Generali. Safra and ICBC are also said to be waiting in the wings.

We hope also that you all enjoyed the latest missive from Futurewealth. For the digerati among you, this is available on the website in the Knowledge section.