Report: Global Private Banking Benchmark 2014

The Scorpio Partnership Global Private Banking Benchmark 2014 is the latest industry wide key performance indicator assessment of the global wealth management sector from leading wealth management strategist, Scorpio Partnership.

The report provides detailed industry analysis based on results from 209 private banks around the world who manage a total of USD14.9 trillion of client assets. The report estimates the total number of client assets managed by the industry is USD20.3 trillion. The report is compiled by an experienced team of consultants and analysts who are constantly engaged with the international private banking market.The report itself includes analysis of more than 18,000 data points on the private banking industry's key performance indicators.

The Scorpio Partnership Global Private Banking Benchmark 2014 includes:The Private Banking Benchmark 2014 is therefore essential reading for private banking management, private banking strategy teams and financial analysts as well as service providers to the private banking market including asset managers, investment banks, trust companies and specialist professionals such as lawyers, accountants and consultants.

  • Key performance indicators based on USD14.9 trillion of assets under management
  • Performance comparison of pure play and diversified business models across a number of KPIs
  • Regional analysis of USD3.6 trillion in AUM, which equals 24% of all reported client assets
  • Comprehensive analysis of income and expenses including examination of distribution and margin date
  • Market size and market share analysis considering total HNW wealth, bankable HNW wealth, the size of the total private banking market, and the market share of the benchmark banks

Key findings from the Private Banking Benchmark 2014

The Benchmark finds that 2013 was a healthy year of growth for wealth managers across the industry. The average change in AUM for the over 200 Benchmark banks was 19.7%, more than double last year’s growth. This latest assessment reveals that the industry is now managing an estimated total of USD20.3 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 USD1.8 billion for the Benchmark banks. Although year-on-year NNM dropped -13.6% 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% 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 but 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.”

Table 2: Key performance indicators for the international wealth management industry

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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%, up 3% from 2012.

In spite of this increase, strong NNM figures meant that profitability was also nudged up on average 1.7% compared to last year, indicating that operators are learning to adapt to new challenges.

Pricing 2014

The Scorpio Partnership Global Private Banking Benchmark Report provides analysis of aggregated key performance indicators at 209 institutions worldwide. The Standard Benchmark Centre lists the top 50 institutions according to AUM, NNM, Profits and Cost Income ratios.

For further details, content inquiries or to discuss any issues with the report please contact:

Annie Catchpole            +44 207 086 5217          or

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Table of contents and graphic analysis

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Sample insight: Private banking business models

Now six years on from the financial crisis, the long-term trends in the key performance indicators for wealth managers and private banks point in one direction: this is the new normal. High-cost-income ratios and squeezed gross margins are now standard across the industry. The real question is which strategies cope best in this new environment.

Throughout the report we have separated businesses into two camps on the basis of their business model; pure player firms and diversified firms. While many of the challenges afflicting the industry affect both business models equally, their respective symptoms and potential remedies, differ markedly.

For clarity, we are defining diversified firms as those for which wealth management is a division within a wider group including corporate, investment or retail banking, or wider asset management capabilities. Pure players, by contrast, simply offer private banking and private client asset management services to wealthy clients.

Looking first at cost-income ratios, before 2008 and the financial crisis, this metric for both business models were roughly comparable (61.9% for diversified firms against 65.5% for pure player operators).  What has happened since then has reflected the changing operating environment for the wealth management industry which is that costs are growing while income has struggled to keep pace.

Figure 2: Cost-income ratio 2007-2013 – diversified firms vs. pure play firms

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For pure players, the average cost-income ratio has been 86.5% since 2008, and this year has returned to an 88.3% peak. This has meant that profitability amongst pure players has been squeezed. From trough to peak, cost-to-income ratios have increased by nearly one quarter (23%) of income.

The story for diversified firms since 2008, has been somewhat different however. Between 2008 and 2013, although costs have risen from pre-crisis levels, they have risen by about half the amount they have for pure-players. Due to the mixed business models of parent companies, diversified firms have been able to streamline costs at group level. Over the last six years, cost-income ratios for diversified firms have averaged 72.8% - although the last three years have seen a steady creep in these from 74.7% in 2011 to 77.6% today.

Regulation has been a major factor in the rising cost-income metrics. As the world’s regulators may be continuing in their pursuit of greater regulatory harmonisation, the trend in wealth management is towards greater compliance costs. As such, wealth managers will need to bank on boosting their risk management processes not just on investments, but for clients as well.

In a response to the crisis, pure players have sought to grow their income by hiring more advisors. By hoping that these advisors would bring them more clients, pure player firms had reasoned they could generate more income through more fees based on the subsequent increase of assets under management. The data suggests that while some may have been successful, many have not been and it has had the perverse consequence of increasing personnel costs of firms, right at the time when they should have been looking to cut costs.

Projecting forward if income isn’t rising fast enough, it may mean that pure player firms need to strongly consider the possibility of outsourcing non-core business competencies to reduce administrative burdens or invest more in smarter technology solutions, or the sheer scale of their cost-income crisis could sink all but the most efficient operations.

Diversified firms meanwhile will continue to benefit from their scale and operational efficiencies, but even they have to be mindful of the reputational risk which comes from failing to comply properly with regulations as well as more tightly targeting the types of client they wish to attract and serve. Many also sought to boost incomes in the post-crisis years, often chasing assets around the world, expanding into emerging markets, to capture the growth of assets that booming developing economies are creating.

Five years on, a number of diversified firms spent 2013, retrenching from emerging markets that have failed to perform and back to countries where they can efficiently operate. Diversified firms need to adjust their sights to become much more targeted in their growth strategies or the same fate of increased costs could befall them as well.

Obviously cost-income ratios are only one measure of the success a business is having, gross margins too seem to have reached a steady plateau.

Gross margins are measured by operating income (a figure which combines net interest income, net fees and commissions, trading income and any other income) divided by assets under management. It demonstrates how much revenue firms earn per dollar of assets under management.

Between 2008 - 2010 gross margins among diversified players fell by 40bps and although they have risen from their nadir in 2010, in 2013, diversified firms were only returning 110 bps on assets - still some way off the level of 2007 / 2008. Last year, we hypothesised this could be the consequence of a dash-for-market share in developing markets, where assets had been accrued but were yet to be converted from cash to investments. While this could still be the case, we are also minded to consider that in the rush for market-share, diversified firms have yet to convince newer clients of their ability to generate returns on investments, particularly in a low yield environment.

Inevitably, it takes time for a new savings and investment proposition to become established in the minds of new clients. Plus global diversified firms face the added challenge of duking it out with local firms, with whom clients may well maintain their main investment relationship with.

By contrast, the fee-based model of the pure players means they have benefitted from less volatile gross margins although they too are struggling with a squeeze on margins, delivering just 104bps on assets invested.

Figure 3: Gross margin in basis points (bps) 2007 – 2013 – diversified firms vs. pure play firms

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With sustained periods of increasing cost-income ratios and flattening gross margins in mind, we are left with one conclusion. The industry is struggling to come to terms with the new normal operating environment of the post-crisis period. However, firms who face up to these challenges with innovative and brave decisions could come out on top.


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