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UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
UK Wealth Management Report Scorpio Partnership May 2012
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UK Wealth Management Report Scorpio Partnership May 2012

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  • 1. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and Lansons UK Wealth Management Sizing and valuing the full sector – 2012 Developing a common understanding for the industry© Scorpio Partnership 2012 | 1
  • 2. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsContents of the report Project introduction Slide 3 Ten segments of review Slide 4 Headlines and key data Slide 5 Waterfall sizing and valuations Slide 6 AUM, revenue, profits, corporate taxes, headcount Slide 7 remuneration, personal taxes Individual sector review and analysis Slide 17 Wealth Managers Slide 17 Service Providers Slide 31 Appendix Slide 52 Methodology – AUM market sizing Slide 53 Sources Slide 54 Remuneration levels Slide 55© Scorpio Partnership 2012 | 2
  • 3. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsProject introductionThe aim of this research project is to put forward a sector valuation and economic contribution of the UK wealth managementindustry to the UK economy so as to allow the sector the opportunity to create and deliver a structured message of value andinput to the relevant influencing and decision making bodies in the UK such as the regulators and politicians. This will see thesector establish what is common practice for other areas of commerce and financial services.The contents of this document and following work are therefore intended to become the backbone of the industry’s statement ofvalue which can then be utilised in its interaction with the regulatory community as well as the wider public arena. Following thisfirst valuation the sector can then build on this analysis to deliver an on-going message around its value and future contribution.In terms of the research focus sitting at the centre of this scoping project, the aim has been to provide both a quantitative sizingand assessment of the sector and its lead data points backed by a qualitative evaluation of the sector’s shape and activities.This work and its outcomes will be the first such pan-industry sponsored assessment prepared in the context of becoming theindustry’s public statement. As such UK wealth management can start to establish its voice in the manner of other financialservices industry sub-sectors such as insurance, banking and fund management.The research has been developed by the Scorpio Partnership team with the support, guidance and contribution where requiredfrom the steering committee and its stakeholders. The steering committee concept and solution has been co-developed andmanaged by event solutions specialists Owen James and public relations advisor Lansons Communications alongside ScorpioPartnership.© Scorpio Partnership 2012 | 3
  • 4. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsTen segments of product and serviceIntroduction HNW PrivateIn order to arrive at a full valuation of the UK wealth Banksmanagement sector the research divided the market into tenlines of business which can be seen as the leading wealthmanagement product and service providers to the end HNWand affluent client base. Each segment has been looked atindividually to understand its individual size, participants,activities and so on to arrive at an estimation of value. Eachvaluation then forms part of the complete UK wealthmanagement whole.Those ten segments break down into two overarching groups:Wealth Managers – the businesses that manage the assets ofthe end individual through various products and strategies.There are four providers in this group – the HNW PrivateBanks, the Mass Affluent Banks, the Private Client InvestmentManagers (PCIMs) and the Independent Financial Advisers(IFAs) PlatformsService providers – the businesses that provide specificservices whether advisory or through a product offering toboth the Wealth Managers and the end client. There are sixproviders in this group – Insurance, Platforms, Lawyers, Key The wealth managers The service providersAccountants, Trustees, and ancillary service providers such asIT, consultants, information and research and so on.© Scorpio Partnership 2012 | 4
  • 5. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsUK Wealth Management: So what?HeadlinesThe UK wealth management market is a major contributor to the UK financial services landscape and wider national economy. Intotal the sector is responsible for the employment of in excess 124,000 often highly educated staff, who collectively are paidalmost GBP8 billion in annual remuneration at an average of almost GBP63,000. The industry manages assets in excess ofGBP2 trillion for an international client base, produces over GBP30 billion in annual revenue, reports profits of almost GBP5billion, and contributes in the region of GBP7.6 billion to the exchequer through all forms of taxation.Based on this data it is clear, that this is a huge sector of the UK economy. Particularly when the data is considered incomparison to other sectors and the UK government’s other income.Employees and remuneration – the national contextWell, with 124,000 employees, looking at other areas of financial services the sector is 31% of the size of the UK retail bankingmarket (400,000 employees), 43% the size of the UK insurance market (290,000 employees), 248% of the size of the UK’s fundmanagement sector (50,000) employees. All-in the sector is 12.5% of the size of the entire UK financial services sector byheadcount. Looking outside of the pure financial services market place, the sector is 146% the size of all private practicesolicitors in the UK,And the sector’s employees are far better remunerated on average than other workers in the UK. The UK wealth managementsector average is near to GBP63,000 per year while the average worker in the UK receives between GBP25,000 and GBP30,000.Taxation – the national contextWith a total contribution to the UK government of up to GBP7.6 billion through all forms of business and personal taxation thesector contributes approximately 1.6% of all government tax receipts based on the Exchequer’s 2009/2010 income. And that isbased on some conservative estimates. A more aggressive estimate, or performance based on the removal of certain barriers tobusiness, could see the sector perform two, three or four times stronger for a far greater contribution.In comparison, the full financial services contributed GBP53 billion in taxation for 2009/2010 for 11% of all government taxreceipts. Insurance pays in the region of GBP10.4 billion or 2.1%.© Scorpio Partnership 2012 | 5
  • 6. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and Lansons Valuations© Scorpio Partnership 2012 | 6
  • 7. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe assets under management pictureAUM commentaryThe UK wealth management market, as sized by the Scorpio Partnership Wealth Distribution Model, controls assets in the regionof GBP2.195 trillion. This assets under management total is the base by which the market extracts a revenue, profit, pays taxes,employs staff and contributes to the wider economy in many and varying forms. The following results and valuations for eachsegment are ultimately extracted from products and services supplied against this asset pool.By segment the HNW Private Banks are the lead market participant by AUM with 40.4% of the whole or GBP886 billion. Themarket’s large base of IFA businesses is second with GBP591 billion for 26.9% share, followed by the mass affluent banks,mostly business lines of the large retail banks, with GBP501 billion or 22.8% of the AUM base. Lastly in this analysis come thePCIMs with GBP217 billion or 9.9% of the total AUM figure. 40.4% 22.8% 9.9% 26.9%© Scorpio Partnership 2012 | 7
  • 8. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe revenue pictureRevenue commentaryA conservative conclusion across the ten segments of product and service proposition to a HNW and mass affluent client basecreates a revenue total of just over GBP30 billion. The four Wealth Manager segments deliver 63.7% of that revenue at GBP19.1billion with, interestingly, the mass affluent banks able to extract the greatest value from their asset base. The service providerscreate a collective revenue stream of GBP10.9 billion, dominated by the insurance segment with GBP7.9 billion in revenueattributable to HNW and affluent client premiums.© Scorpio Partnership 2012 | 8
  • 9. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe pre-tax profit picturePre-tax profit commentaryThe pre-tax profit data for the segments reveal a mixed bag of performance both within and between segments. This tells a storyof cost pressures, particularly around employee costs, technology requirements and regulation. With these mostly conservativeconclusions, the sector collectively is performing below 50% of its potential. However, across the ten segments here wecalculate a collective pre-tax profit total in excess of GBP4.9 billion. The Wealth Managers contribute 73% of that total profit poolwith, again, the mass affluent banks leading. Among the service providers insurance and ancillary produce the largest profit pool.© Scorpio Partnership 2012 | 9
  • 10. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe corporate tax and employer NIC pictureCorporate tax and employer NIC commentaryTranslating the pre-tax profit pool into corporate tax paid to the government, the effective tax rate jumps about and is extremelyhard to calculate across firms and segments. Therefore, the date below is reflective most often of a 15% corporate tax estimationbased on limited data. This is true for all segments.This analysis is again a conservative valuation yet still presents a collective contribution on the corporation tax side of GBP730million. Interestingly, due to the high salaries of many of the professionals in the ten segments, employer national insurance isoften greater in value than the corporate tax, particularly when estimated at 15%. In fact employer NIC totals GBP942 million.© Scorpio Partnership 2012 | 10
  • 11. Public distribution: UK Wealth Management Steering Committee Coordinated by Owen James, Scorpio Partnership, and Lansons The headcount picture Headcount commentary The UK wealth management sector has a total headcount of approximately 124,000 according to this analysis. 83,211 of that number work within the Wealth Managers while 40,803 are counted within the Service Providers. The biggest employers by number are the HNW Private Banks, the Mass Affluent Banks and the IFAs, each with 20,000 or more in total headcount. For each segment, where relevant and possible the total headcount has also been split into client facing and non-client facing staff. Naturally, in most cases, the former will be more highly paid than the latter but the split is nevertheless relevant.* The headcount total for trusts refers to only those employed by offshore firms not double counted elsewhere in the analysis © Scorpio Partnership 2012 | 11
  • 12. Public distribution: UK Wealth Management Steering Committee Coordinated by Owen James, Scorpio Partnership, and Lansons The total headcount remuneration picture Headcount remuneration commentary Across a total headcount of 124,014 the sector pays total remuneration of GBP7,802 million for a total average remuneration across all jobs of GBP57,106 per annum. Of that full market total GBP5,042 million, or 64.6% of the total, is paid by the Wealth Managers to their 83,211 staff at an average of GBP60,666 while the GBP2.760 million paid by the Service Providers to their 40,803 staff comes in at an average of GBP67,642.* The remuneration total for trusts refers to only those employed by offshore firms not double counted elsewhere in the analysis © Scorpio Partnership 2012 | 12
  • 13. Public distribution: UK Wealth Management Steering Committee Coordinated by Owen James, Scorpio Partnership, and Lansons The personal income and NI tax picture Personal tax and employee NI commentary The personal tax paid by the UK wealth management sector is high in comparison to many other sectors of business due to the high level of remuneration received by many in the ten segments. From the total headcount of 124,014 the total tax result is GBP2,624 million of which GBP2,134 million is paid in personal income tax and GBP490 million is paid in employee NIC. In other areas of financial services, particularly retail, there is a closer relationship between the amount of income tax paid and that of employee NIC. However, as many employees in this sector are high earners the amount paid in personal income tax far exceeds that paid in Employee NIC.* The personal taxation total for trusts refers to only those employed by offshore firms not double counted elsewhere in the analysis © Scorpio Partnership 2012 | 13
  • 14. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe full taxation contribution of UK WMCommentary on the full tax contributionAccording to this analysis, the total tax contribution of the UK wealth management market, when considering corporation tax andemployer national insurance on the business side and employee PAYE and employee national insurance on the employee side,reaches to GBP4.3 billion. The employee part of that totals GBP2.624 billion while the business part totals GBP1.672 billion.On the employee side that can be seen as a realistic figure based on headcount and remuneration levels. On the business side,however, this analysis has assumed a conservative performance for the most part and an effective corporation tax contribution ofjust 15% and therefore, for that element, the real amount is very possibly far higher.However, using analysis from PWC in a report called The Total Tax Contribution of UK Financial Services from 2010 that lookedinto the full taxation contribution of financial services firms, we have sought to apply the PWC analysis to estimate the fulltaxation effect for UK wealth management market.Using that, we can see that while the total tax calculation of GBP4,296 million within this analysis is in itself a large contribution,the full effect totals GBP7.6 billion once the other forms of relevant UK taxation on business in financial services is applied. Thatis GBP3.593 billion for all business taxes and GBP4.028 billion for all employee taxes.While a full analysis of the elements that form the tax payments of the UK wealth management market is not possible here, andno doubt some elements of the PWC analysis would not be relevant for all of the segments included here, the above resultnevertheless reveals a sizeable contribution to the UK government’s coffers. Even if it were discounted by 10% or 20%.In terms of the application of PWC analysis, for both business and employee tax we have based the comparison on the main tax,corporation tax for business, and PAYE for employees. For business tax, therefore, we have assumed the UK wealthmanagement total of GBP730 million equals 16.6% (see charts on next slide). For both we also retain the UK wealthmanagement market employer national insurance total rather than using the PWC percentage.© Scorpio Partnership 2012 | 14
  • 15. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe full corporate tax takeContributors to UK FS sector corporate taxation Applied to UKWM Total: GBP3.593 billion Source: PWC Source: PwC, Scorpio PartnershipBased on the PWC analysis of financial services corporate employed against the corporation and employer national insurancedata collated for the UK wealth management market, the potential corporate tax result equals GBP3.593 billion. Of that thelargest contributor is irrecoverable VAT at GBP1.051 billion. That is followed by the employer national insurance and corporationtax data and then business rates at GBP620 million. Stamp duties at GBP180 million and other taxes at GBP70 million completethe full market.© Scorpio Partnership 2012 | 15
  • 16. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe full employee tax takeContributors to UK FS sector employee taxation Applied to UKWM Total: GBP4.028 billion Source: PWC Source: PwC, Scorpio PartnershipFor the employee-related taxation, the potential tax result equals GBP4.028 billion. Of that the largest contributor is PAYE orpersonal income tax at GBP2.134 billion. That is followed by tax deducted at source at GBP713.9 million, employee nationalinsurance at GBP490 million, net VAT at GBP343.3 million, IPT at GBP226.3 million and SDRT at GBP120.9 million.© Scorpio Partnership 2012 | 16
  • 17. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and Lansons The Wealth Managers© Scorpio Partnership 2012 | 17
  • 18. Public distribution: UK Wealth Management Steering Committee Coordinated by Owen James, Scorpio Partnership, and Lansons Wealth Manager summaryHNW Private Banks Mass Affluent Banks IFAs PCIMs AUM – GBP886 billion AUM – GBP501 billion AUM – GBP591 billion AUM – GBP217 billion Revenue – GBP6.64 billion to Revenue – GBP6.3 billion to Revenue – GBP4.4 billion to Revenue – GBP1.85 billion to GBP8.86 billion GBP7.5 billion GBP5.9 billion GBP2.2 billion Profit – GBP664 million to Profit – GBP1.565 billion to Profit – GBP310 million to Profit – GBP723 million to GBP1.77 billion GBP2.63 billion GBP887 million GBP1.26 billion Corporation tax – GBP100 Corporation tax – GBP235 Corporation tax – GBP47 Corporation tax – GBP108 million to GBP496 million million to GBP736 million million to GBP414 million million to GBP353 million Headcount – 22,700 Headcount – 20,000 Headcount – 22,611 Headcount – 17,900 Total remuneration – Total remuneration – Total remuneration – Total remuneration – GBP1.83 billion GBP765 million GBP1.17 billion GBP1.27 billion Average remuneration Average remuneration Average remuneration Average remuneration – GBP81,000 – GBP38,000 – GBP52,000 – GBP71,000 Personal taxes Personal taxes Personal taxes Personal taxes – GBP885 million – GBP299 million – GBP506 million – GBP614 million © Scorpio Partnership 2012 | 18
  • 19. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe HNW private banksIntroduction The HNW private banks offer the broadest and most full-service proposition from the widest international orientation to the HNW and wealthier mass affluent clients. The proposition does not just cover investments but often banking, trust and fiduciary, financial planning and a whole host of other specialist services from art investing to philanthropy to business succession and so on Among the service providers in this segment are numerous historical names such as those from the old merchant banking dynasties such as Rothschild Wealth Management & Trust and Schroders and other old and entrenched names such as Coutts and Kleinwort Benson. However the segment is also deepened by the presence of numerous international providers from the universal and investment banking world such as BNP Paribas, Deutsche Bank, Merrill Lynch, Standard Chartered and UBS plus many more of their competitors Market participants target clients at varying levels of wealth from right down at GBP100,000 to GBP250,000 in investable assets through to GBP10 million and upwards.Service overview Market size and participantsThe HNW private banking market offers the deepest and widest Scorpio market sizing analysis puts the HNW private banks at theservice and product set often structured across client segments. head of the market in terms of assets under management. AmongThe offering may consist of: the 70 providers that fit into this segment of the market the AUM total sits at approximately GBP886 billion and, based on historical - Banking (deposits, standard savings products, mortgages, analysis, growing at approximately 8% per year.lending, leverage, custody, FX, letters of credit, credit cards)- Investments (discretionary and advisory portfolio management,execution only, across all asset classes) - Trust and fiduciary (estate planning, tax mitigation, companyincorporation, succession planning) - Financial planning (retirement, succession, property) - Other services such as asset allocation and risk profiling,philanthropy and charity, art and collectibles advisory, real estate,family office, family governance© Scorpio Partnership 2012 | 19
  • 20. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe HNW private banksMarket revenue Commentary on market revenue The Scorpio Partnership wealth distribution model sizes the AUM controlled by this segment at GBP886 billion or 40.4% of the GBP2.19 trillion of assets managed by 100bps revenue – all wealth managers in the UK. As such it is the largest sub-segment of the four historical benchmark wealth managers as measured by AUM In terms of the revenue the industry is able to extract from the AUM it manages, 75bps revenue – traditionally it has looked to take approximately 100bps or 1% of assets per annum. today‘s performance Achieving that performance on today’s AUM base would deliver a revenue for the segment of just under GBP8.9 billion However, current market data would suggest a performance drag due to factors such as increased regulation, pushing average revenue extraction closer to 75bps. Based on that performance the segment is extracting approximately GBP6.64 billion in annual revenue from it AUM base. Commentary on profit and corporate tax Based on the above revenue figures, Scorpio research and received industryProfit and corporate tax submissions suggests that on approximately 75bps average income the market is able to extract in the region of a 10% margin or profit. At that level the segment is therefore delivering an annual profit figure of GBP664 million That relatively low profitability is again a reflection of tightening margins and pressure on the cost base Looking more optimistically, if the market can relieve some of its cost pressures and move to a profit margin of 20%, segment profit jumps to GBP1.32 billion The corporation tax contribution of the segment is difficult to establish due to the complexity of the calculation. Therefore, for this segment and others we have taken two levels – 15%, as the data analysed suggests an effective rate for the segment around that level, and the standard rate of 28% Therefore, on revenue at 75bps and profit at 10%, the corporation tax total comes to GBP100 million at 15% and GBP186 million at 28%.© Scorpio Partnership 2012 | 20
  • 21. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe HNW private banksNumber of employees Total headcount = Commentary on employees 22,700 Based on Scorpio Partnership analysis of the data available via open sources or that was provided to us we have sized the UK HNW private banking employee pool at 22,700 staff 30.5% of that number, or 6,923, are what the sector would call client-facing such as private bankers, fund managers, financial planners and so on. The remaining 69.5%, 15,777 employees, includes management, middle and back office The Scorpio Partnership analysis of the available data achieves a ratio of staff to AUM equal to 1 staff member to every GBP39 million in AUM. Applying that ratio to the full segment AUM of GBP886 billion gives 22,700 employees for the segment Commentary on salaries, tax and NI contributions Based on Scorpio Partnership analysis of pay levels in the private banking sector and an estimation of weightings of staff across remuneration levels, total remuneration for the 22,700 segment headcount is GBP1,834 million for an averageIncome tax and NI contributions of GBP80,798 For the 6,923 client facing staff, total salary cost is GBP678 million, or an average of 531 GBP98,000. For the 15,777 other staff the total spend is GBP1,156 million for an Total tax = average of GBP73,250 GBP855 million These totals lead to a total tax contribution of GBP854.8 million – broken down at GBP531 million in income tax, GBP102.3 million in employee national insurance and GBP221.5 million in employer national insurance To arrive at that tax contribution calculation, we distributed the total headcount 221.5 across ten remuneration levels (20, 30, 40, 50, 75, 100, 150, 250, 350 and 500k) and weighted staff according to our analysis and estimations of ratios of client facing to 102.3 non-client facing staff, management to staff and so on. For instance, on the client facing side, based on our research we have estimated 2% (of the 6.923 allocation) are the high earners and on around GBP500,000 total remuneration© Scorpio Partnership 2012 | 21
  • 22. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe IFAsIntroduction The IFA market in the UK has long been seen as a provider to the mass retail market and lower end mass affluent but it is clear that a major part of the segment has a deep and entrenched penetration of both the mid-net worth and high-net worth wealth segments. The one significant difference perhaps between this segment and the HNW Private Banks or the PCIMs is the more domestic nature of the client base The product and service proposition is generally quite broad but less sophisticated than its peer group in the HNW Private Banks or PCIMs and is reliant on the coverage and sales skill of the IFA who will work often as his or her own profit and loss Significantly, the IFA community in general and a number of its individual firms have far greater geographic coverage than the vast majority of their HNW Private Banks or PCIMs peers who are far more likely to be London-based only.Service overview Market size and participantsThe IFA market has an increasingly broad offer to the HNW and Scorpio Partnership analysis of the AUM controlled by the leadingmass affluent market place. Among relevant service providers the IFA businesses in the UK, or those with a focus on the HNW andoffering may consist of: mid-net worth market, attributes GBP591 billion, or 27%, of the assets under management covered in this analysis - Banking (deposits, standard savings products, mortgages,lending, leverage, custody, FX, letters of credit, credit cards) Further Scorpio Partnership analysis of the UK IFA market puts the- Investment management (discretionary and advisory portfolio number of firms active in targeting the MNW and HNW space todaymanagement, execution only, platforms) at approximately 3,250. This equates to 8,660 active registered - Trust and fiduciary (estate planning, tax mitigation, succession individuals working within these firms and also represents 29% ofplanning) total number of IFAs working in the UK market - Tax and financial planning (income, retirement, inheritance, IHT) - Insurance (general, life, health) Again, this market is national and many of the firms operate either - Pensions (retirement plans, SIPPs, stakeholder, annuities) with national coverage or with a specific regional focus Major providers in the market include St James’s Place, Bestinvest, Hargreaves Lansdown, Towry and JM Finn.© Scorpio Partnership 2012 | 22
  • 23. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe IFAsMarket revenue Commentary on market revenue The Scorpio Partnership wealth distribution model sizes the AUM controlled by this segment at GBP591 billion or 27% of the GBP2.19 trillion of assets managed by all wealth managers in the UK In terms of the revenue the industry is able to extract from the AUM it manages, like 100bps revenue other segments, it has looked to take approximately 100bps or more from the assets managed. Achieving 100bps on the current asset base would deliver total segment revenue of approximately GBP5.9 billion 75bps revenue However, this is a segment under pressure due to the rising costs of business, compliance and regulation and therefore taking a more conservative estimate of revenue the 75bps average on assets is a fairer reflection of current performance. On that basis the sector is producing an annual revenue of GBP4.4 billion. Commentary on profit and corporate tax Research by Plimsoll puts the average the IFA profitability level as low as 7%. At that level the segment under analysis here will only produce a collective profit totalProfit and corporate tax of GBP310 million from revenue of GBP4.4 billion Scorpio Partnership analysis of the MNW to HNW segment, however, suggests a profitability closer to 15%. At that level the segment therefore delivers a total profit figure of GBP665 million, again from 75bps average revenue A more positive segment production, one based on a relief of some of the cost burdens currently experienced, would see the market move back to a revenue extraction of 100bps on AUM and a profitability of 15% which would produce total revenue of GBP5.9 billion and profit of GBP887 million In terms of the tax take from this segment at the 75bps revenue and 15% profit level, again assuming the two levels of likely corporation tax of 15% and 28%, the total contribution is GBP100 million at 15% tax and GBP186 million at 28%.© Scorpio Partnership 2012 | 23
  • 24. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe IFAsNumber of employees Total headcount = Commentary on employees 22,611 Based on Scorpio Partnership analysis of the data available via open sources or that has been provided to us by participating firms we have sized the UK IFA segment employee pool at 22,611 staff According to the 2011 Owen James Advisory Distributors Benchmark, the average client facing staff to support staff ratio for the IFA sector is 38.3%. At that ratio, the 8,660 figure for client facing figure produces a support staff number of 13,951 staff for a total segment headcount of 22,611 staff. Commentary on salaries, tax and NI contributions Based on market analysis of pay levels in the IFA space and a subsequent Scorpio Partnership estimation of weightings of staff across remuneration levels, total remuneration for the 22,611 headcount is GBP1,173 million for an average of GBP51,894 For the 8,660 client facing staff or IFAs, the total salary cost is GBP608.3 million, orIncome tax and NI contributions an average of GBP70,250, while for the support staff the total cost is GBP565 million, at an average of GBP40,500 282.1 These totals lead to a total tax contribution of GBP506.3 million – broken down at Total tax = GBP282.1 million in income tax, GBP84.3 million in employee national insurance GBP506.3 million and GBP139.9 million in employer national insurance For this segment, based on available research and salary levels, we allocated the headcount across eight remuneration levels (20, 30, 40, 50, 75, 100, 150, 250). On 139.9 the client facing side, for instance, we estimated 5% (of the 8.660 IFAs allocation) are the high earners and able to pull in a total annual remuneration of GBP250,000. 84.3 At the lower end we have allocated 20% each to remuneration of GBP30,000, GBP40,000 and GBP50,000.© Scorpio Partnership 2012 | 24
  • 25. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe mass affluent private banksIntroduction The Mass Affluent private banks are mostly familiar names in the UK retail banking space such as HSBC (Premier), Lloyds, Clydesdale and Natwest (Private Bank). This service area is typically their proposition between retail banking and full-scale private banking even if the tag lines provide confusion. While there are differences from firm to firm and client qualification is judged by income level or investable assets we view this market in terms of sizing it as GBP100,000 and above in investable assets This is a growing market as the large banks have realised the value of segmenting their affluent customers into a “benefit-led” proposition for which they can charge a monthly fee for “membership” or “access” to bundled services as well as typically high fees for packaged products such as banking, investments and insurance The growth in the market has been driven by spend on marketing and development of online and remote banking capabilities targeted at their huge retail banking client businesses and other affluent customers seeking a distinct service from standard retail banking.Service overview Market size and participantsThe Mass Affluent private banking market is a generally less The Scorpio Partnership market sizing model and analysissophisticated offering than full-scale private banking, certainly in attributes GBP501 billion in assets under management to the MAterms of specialist services, but it largely covers the same areas. banks. That gives them % of the assets under analysis in this workThe offering may consist of: In terms of providers, there are approximately 20 in the UK market - Banking (deposits, standard savings products, mortgages, including specific lines of the main retail banks but also competitionlending, multi-currency accounts, credit cards) such as the Co-operative Bank, Citibank, Nationwide and- Investments (ISAs, discretionary advisory portfolio management, Santander.share dealing, across the majority of asset classes) - Financial planning (retirement planning, tax planning, children) New providers in this space are few and far between though the - Insurance (home, life, illness, critical, travel, car, pet) specialist service lines such as HSBC Premier are relatively new but - International (moving abroad, offshore, FX, mortgages) have reportedly experienced strong and consistent growth.- Other services such online banking, dedicated RM, bundledservices (travel insurance, breakdown cover, etc.)© Scorpio Partnership 2012 | 25
  • 26. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe mass affluent private banksMarket revenue Commentary on market revenue The Scorpio Partnership wealth distribution model sizes the AUM controlled by this segment at GBP501 billion or 22.8% of the GBP2.19 trillion of assets managed by 150bps revenue all wealth managers in the UK. Making it the third largest of the four segments as measured by AUM Looking at the revenue this segment is able to extract from its AUM base it is 125bps revenue acknowledged that at this level of wealth the providers are generally able to extract a higher basis point rate than in the HNW private banking market. The charging structures for products within this proposition are testament to this point. As such we have assumed average revenue rates on AUM of 125bps and 150bps with the former the most likely for the full segment performance At those levels, based on the stated AUM, this segment is producing annual revenues of GBP6.26 billion or GBP7.5 billion with the former the most likely Commentary on profit and corporate tax Unlike some of the other segments in the market, the mass affluent banks areProfit and corporate tax perhaps experiencing greater growth rates and generally less pressure on revenues and margins as they transfer clients from huge retail base into what is commonly referred to as the premier segment. Typically a monthly charge is also added for this “premium service” adding to the revenue generation potential Given the mix of asset base, product charges, low touch service model and spend on service development, the segment looks to have achieved a higher level of profitability than the generally higher touch segments such as private banking. As such, Scorpio Partnership data analysis would suggest profitability levels of 25% and 35% Taking those profit levels the segment is producing annual profitability of GBP1.56 billion at 25% and GBP2.19 billion at 35% In terms of the corporation tax contribution of this segment on those performance figures, again, due to the complexity of the calculation, we assume both a 15% effective rate and the standard 28% rate. At 125bps in average revenue and 25% profit the segment produces GBP235 million at 15% and GBP329 million.© Scorpio Partnership 2012 | 26
  • 27. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe mass affluent private banksNumber of employees Total headcount = Commentary on employees 20,000 Scorpio Partnership analysis of the data available via open sources for this segment puts total headcount at 20,000 We have not modeled client-facing versus non-client facing for this segment due to a lack of data. However, the 20,000 headcount assumes an approximate 50% are client facing with each managing 300 clients with an average asset level of approximately GBP167,000 with the institution. Commentary on salaries, tax and NI contributions Based on Scorpio Partnership analysis of remuneration levels in financial services and our estimation of weightings of staff across remuneration levels, total remuneration for the 20,000 segment headcount is GBP765 million at an average of GBP38,250 The total tax contribution comes to GBP298.5 million – broken down at GBP151.2 million in income tax, GBP61.2 million in employee national insurance and GBP86 million in employer national insuranceIncome tax and NI contributions The calculation of that tax figure is based on an assumption of eight remuneration levels (20, 30, 40, 50, 75, 100, 150 and 250k) and the headcount weighted heavily Total tax = towards the lower remuneration bands. For instance, while 0.5% of all staff are GBP298.5 million allocated to GBP250,000, 30% of all staff are allocated to each of GBP20,000 and GBP30,000.© Scorpio Partnership 2012 | 27
  • 28. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe PCIMsIntroduction The private client investment manager segment of wealth managers is, like its HNW private bank counterpart, the traditional lynchpin of investment-related financial services to HNW and affluent market. Within its ranks are names synonymous with traditional stockbroking and asset management for individuals such as Rathbone Brothers, Cazenove Capital Management and Smith & Williamson Different from HNW private banks, however, this segment is more UK oriented in terms of proposition, client base, ownership and heritage. Also, as its name suggests, the focus is generally on investment capabilities over other product and service areas (though some have notably expanded into complimentary lines such as financial planning) Further, within this segment we have included the family office market, single and multi-family office establishments representing the wealth of either a single or multiple families. This market, largely hidden from public view, is large, international and very London-centric. The mandate for individual family offices varies considerably but they are ultimately stewards of very wealthy family or individuals wealth.Service overview Market size and participantsAt the centre of the offering from PCIMs is investment Scorpio Partnership market sizing analysis puts the PCIM segmentmanagement but it is often supplemented by other product and of the wealth manager market at approximately GBP217 billion inservice offerings. In general the offering may consist of: assets under management. Once again this market is seen to be growing at approximately 8% per year. - Investments (principally discretionary and advisory portfoliomanagement and across all asset classes, execution-only or On the AUM side we have included only those assets managed bystockbroking), cash management, traded options, spread betting) traditional PCIMs rather than the family segment. For the family - Trust and fiduciary (estate planning, tax mitigation, company office element of this market, we have taken the view that theirincorporation, succession planning) asset base is counted either within PCIM already or within another - Tax and financial planning (retirement and pension, income and area of the Wealth Manager segment, most likely HNW privateIHT planning, tax returns, structuring) banks. Therefore, in this PCIM segment there is no reference to, or - Other services such as asset allocation and risk profiling accounting specifically of, family office assets.© Scorpio Partnership 2012 | 28
  • 29. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe PCIMsMarket revenue Commentary on market revenue The Scorpio Partnership wealth distribution model sizes the AUM controlled by this segment at GBP217 billion or 9.9% of the GBP2.19 trillion of assets managed by all wealth managers in the UK, making it the smallest of the four wealth manager sub- segments in the market 100bps revenue – historical benchmark In terms of the segment’s revenue, like HNW private banks, the PCIM segment traditionally looked to take approximately 100bps or 1% of assets per annum. Achieving that performance on today’s AUM base would deliver a revenue for the 85bps revenue – today‘s performance segment of just under GBP2.2 billion Based on the data available for the UK as of today, however, Scorpio Partnership calculates a revenue closer to 85bps´which produces total segment revenue of approximately GBP1.845 billion per annum. Commentary on profit and corporate tax With average revenue of 85bps, the market is managing on average to deliver a profit margin of 20% to 30%, based on Scorpio analysis. Those levels see the PCIM segment delivering total annual profits of GBP369 million and GBP553 millionProfit and corporate tax In terms of the corporate tax then paid by the segment, we again assume two rates based on market performance and the complexity of the corporate tax calculation – 15% and the standard rate of 28%. Using the revenue average of 85bps and a profit margin of 20%, the total corporation tax payment sits at GBP55 million at 15% and GBP103 million at 28% However, in this analysis, the revenue and profitability of the large family office market has not yet been taken into account aside from some of the larger MFO type businesses that will be accounted for within the standard PCIM segment Here, we calculate total profits of GBP354 million at 20% profit margin for a corporation tax contribution of GBP53.1 million at 15% and GBP99 million at 28% The addition of the family office profit and taxation data gives the PCIM segment a total profitability of GBP723 million at 20% profit margin for tax contribution of GBP108 million at 15% and GBP202 million at 28%.© Scorpio Partnership 2012 | 29
  • 30. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe PCIMsNumber of employees Total headcount = Commentary on employees 17,900 Based on Scorpio Partnership analysis of the data available via open sources, that provided to us and our own modeling we have sized the PCIM employee pool at 17,900 staff 27.5% of that number, or 4,923, are what the sector would call client-facing such as investment managers, stockbrokers and so on. The remaining 69.5%, or 12,978 employees, includes management, administrative, marketing and so on Scorpio Partnership analysis of the available market data reveals a ratio of staff to AUM of 1 staff member to GBP27.5 million in AUM. Applying that ratio to the full segment AUM of GBP217 billion gives 7,900 employees for the commercial PCIM segment Further, Scorpio Partnership modelling puts the number of family office entities active in the UK in one form or another at approximately 2,000. While single family offices, the vast majority of the market, will typically operate with between 1 and 10 staff, the multi-family office, a more commercial entity, will function with 10 and sometimes many more staff. For the purposes of the model, however, we areIncome tax and NI contributions assuming an average of 5 staff per family office and therefore 10,000 in total. 380.7 Total tax = Commentary on salaries, tax and NI contributions GBP613.5 million Based on Scorpio Partnership analysis of pay levels in the PCIM segment and an estimation of weightings of staff across remuneration levels, total remuneration for the 17,900 employees comes to GBP1,270 million or an average of GBP70,931 For the 4,922.5 client facing staff, the total salary cost is spend is GBP562.4 million, 157.7 or GBP114,250 on average, while for the 12,977.5 support staff the total spend is GBP707 million for an average of GBP54,500 75.1 Total headcount and salary distribution leads to a total tax contribution of GBP613.5 million – broken down at GBP380.7 million in income tax, GBP75.1 million in employee national insurance and GBP157.7 million in employer national insurance.© Scorpio Partnership 2012 | 30
  • 31. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and Lansons The Service Providers© Scorpio Partnership 2012 | 31
  • 32. Public distribution: UK Wealth Management Steering Committee Coordinated by Owen James, Scorpio Partnership, and Lansons Service Provider summaryAccountants Lawyers Insurers Platforms Revenue – GBP500 million Revenue – GBP446 million Revenue – GBP7.9 billion to AUA – GBP164 billion GBP15.8 billion Profit – GBP76 million Profit – GBP98 million Revenue – GBP490 million to Profit – GBP789 million to GBP656 million Corporation tax – GBP11.4 Corporation tax – GBP14.7 GBP2.37 billion million to GBP21.3 million million to GBP27.5 million Profit – GBP49 million to Corporation tax – GBP106 GBP98 million Headcount – 13,516 Headcount – 13,620 million to GBP662 million Corporation tax – GBP7.4 Total remuneration – Total remuneration – Headcount – 5,800 million to GBP27.6 million GBP1.12 billion GBP825 million Total remuneration – Headcount – 4,237 Average remuneration Average remuneration GBP374 million – GBP82,000 – GBP61,000 Total remuneration – Average remuneration GBP206 million Personal taxes Personal taxes – GBP64,500 – GBP561 million – GBP375 million Average remuneration Personal taxes – GBP49,000 – GBP158 million Personal taxes – GBP86 million © Scorpio Partnership 2012 | 32
  • 33. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsService Provider summary Trustees Ancillary Revenue – GBP347 million Revenue – GBP1.59 billion to GBP3.18 billion Profit – GBP54.4 million Profit – GBP318 million to Corporation tax – GBP8 GBP954 billion million to GBP15 million Corporation tax – GBP48 Headcount – 4,442 million to GBP267 million Total remuneration – Headcount – 3,500 GBP361 million Total remuneration – Average remuneration GBP226 million – GBP81,000 Average remuneration Personal taxes – GBP64,500 – GBP178 million Personal taxes – GBP106 million© Scorpio Partnership 2012 | 33
  • 34. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe accountantsIntroduction Like the legal advisory market, accountants too are central to the advisory network around private clients and will also often be the client relationship gatekeeper, navigating clients through the complexities of the market as well as channelling and administering other service providers. The accountancy community possibly has a greater role with HNWs than the legal sector due to tax and financial considerations The market is both deep and complex with several thousand firms in operation but dominated at the top by the Big Four global accounting giants who are followed by a long tail of several hundred smaller international, national and local firms. While some will have specialisations in certain areas they almost all do private client as well as corporate and commercial services Different from the legal market there is more cross-over in accountancy between private client work and corporate and commercial, particularly where the client is an entrepreneur or business owner.Service overview Market size and participantsThe accountancy services offered to the HNW private client market According to the Professional Oversight Board (PRC) of themay include: Financial Reporting Council, the accountancy regulator, as of June 2011, the UK’s seven membership bodies reported 304,000- Divorce planning members (this also includes Ireland) across 7,457 firms.- Trusts and estate administration- Tax and inheritance planning The market is heavily skewed towards the larger firms and,- Financial planning and advice specifically, towards the Big Four (PwC, Deloitte, KPMG and Ernst- Retirement and pension planning & Young). Based on data collected by the PRC by firm size (top 1 to- Investment consulting, advice and review 4, 5 to 9, 10 to 30 and so on) and average revenue for 4,115 firms- Tax efficient investment as of December 2010, Scorpio Partnership calculates that from a- CGT planning total revenue of GBP10.5 billion, 59.3% or GBP6.2 billion is- Exit and succession planning attributed to the Big Four. The next 96 firms from produced- Treasury management GBP2.08 billion (19.9%), while the huge tail of 3,115 firms produced- Immigration and expatriation advice GBP2.2 billion (20.8%).- Trust and tax compliance- Investment and business valuations Critically, unlike in the legal market where a number of the big firms- Specific services to business owners and entrepreneurs do not cover the private client market, the Big Four in the accounting market do focus on private client work and are therefore central to this analysis.© Scorpio Partnership 2012 | 34
  • 35. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe accountantsMarket revenue Total revenue = Commentary on market revenue GBP500mn Based on Scorpio Partnership analysis of the PRC data, on average revenue for the top 4,115 firms in the UK, out of a total revenue of GBP10.5 billion, 59.3%, or GBP6.2 billion, is attributed to the Big Four. The next 96 firms from produced GBP2.1 billion (19.9%), while the huge tail of 3,115 firms produced GBP2.2 billion (20.8%) The PRC data also allows provides audit and non-audit splits which show the big 4 drives 63% of income from non-audit work compared to 53% for the rest. Stripping that out creates a revenue figure of GBP6.2 billion for the whole market Big 4 Further Scorpio Partnership analysis of the service and staff make-up of many of Top 10 the firms in the top 200, as defined by publication Accountancy Age, suggests approximately 2.5% revenue contribution from private client services at the Big 4, The rest around 5% for the top 100 (ex the Big 4), and Scorpio assumes a level of approximately 25% for the rest Total revenue generated based on those estimations reaches to GBP500 million, split GBP100 million from the Big 4, GBP110 million from the top 100 (ex Big Four)Profit and corporate tax Total profit = GBP76mn and GBP290 million from the rest. Total tax = GBP11.4mn+ Commentary on profit and corporate tax 28% Scorpio Partnership analysis and estimations of the subsequent profit performance 15% of these accountancy businesses gives a blended average of 25% profit for the Big 4 and 15% profit level for the remaining firms 28% On that basis the total profit for the accountancy segment is GBP76 million , split 15% GBP25 million from the Big Four, GBP16.5 million from the top 100 (ex Big Four) 28% and GBP34.5 million from the rest 15% In terms of tax, again using the standard two tax levels of 15% and the standard corporation tax rate of 28%, the segment is paying GBP11.4 million at 15% tax cost and GBP21.3 million at 28%.© Scorpio Partnership 2012 | 35
  • 36. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe accountantsNumber of employees Total headcount = Commentary on employees 13,516 The Big Four have a total staff size in the UK of 47,000. Since 37% of their business is audit, we assume 63% of staff or 29,600 is non-Audit. Scorpio Partnership analysis of the private client units of firms within Accountancy Age’s 50 + 50 report gives an average of 2.5% of all staff operating within a private client department. Therefore, applied to the Big Four firms, there will be in the region of 740 staff Outside of the Big Four the average private client team rises to approximately 10% of all staff. Scorpio Partnership analysis of the partners in the top 100 firms (ex Big Four) totals 3,884 and an average ratio of 6% partners to all staff. Turning that into an all staff figure gives 64,733 of which 53%, or 34.309, is non-audit. 10% of that is 3,431 For the huge tail of 3,115 firms we assume a conservative (for the whole group) headcount of 3 per firm working in private client focused work. That totals 9,345 which, when added to 740 for the Big Four and 3,431 for the top 100 gives a total headcount for the segment of 13,516Income tax and NI contributions We assume a distribution of all staff at 6% partners, 44% professionals and 50% support staff. 359 Total tax = Commentary on salaries, tax and NI contributions GBP561 million For the Big Four specifically, due to the high earning nature of their equity partners we employed 12 bands from GBP20,000 through to GBP1 million. For the rest of the market we employed 11 bands from GBP20,000 through to GBP750,000 Total segment remuneration for the 13,516 staff reaches to GBP1,117 million split GBP91.7 million for the Big Four staff, at an average of GBP123,975, and GBP1,025 140.9 million for rest of market, at an average of GBP80,250 The total tax paid on that amount is GBP561 million – broken down as GBP359.2 in 61 income tax, GBP61 million in employee national insurance and GBP140.9 million in employer national insurance© Scorpio Partnership 2012 | 36
  • 37. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe lawyersIntroduction Legal advisers are at the heart of the advisory network around private clients, often acting as the gatekeeper and therefore the channel through which other wealth service providers access the client. They are often the first port of call, along with accountants, in establishing a client’s advisory network and structures, particularly when a client has business interests or family-related wealth issues The legal market in the UK is both deep and complex, consisting of many different firms ranging from the large multinational mega-firms (though most of the Magic Circle and other big firms focus on corporate work to the exclusion of private client), nationwide and regional full service firms, specialist London and regional-only private client focused firms and hundreds if not thousands of sole practitioners The offering to private clients is broad but for HNW clients tends to be wrapped within service offerings entitled private client, private capital, wealth management, entrepreneurs, landed estates and so on.Service overview Market size and participantsThe legal services offered to the HNW private client market are According to The Law Society, as of February 2010, there werelikely to include: 115,475 registered practicing solicitors in the UK and, of those, 85,128 (74%) worked in one of the 10,362 private practice firms- Divorce and family law- Trusts, probate, wills and estates The total revenue produced by these firms, as estimated by The- Tax and planning Law Society, stood at GBP19.4 billion in 2009. According to data- Wealth structuring from The Lawyer, however, the top 200 firms in the UK by revenue- Succession planning produce almost GBP15 billion, or 77% (compared against 2009- Domicile, residency and immigration revenue) of that revenue and therefore dominate the landscape- Litigation and dispute resolution- Residential property- Yachts and aircraft At the very top of the market, however, a large number of the major- Art and heritage law firms including Clifford Chance, Allen & Overy and Freshfields- Charity, philanthropy and giving do not have a private client practice and so are excluded from this- Reputation management analysis. This applies to 12 out of the largest 16 firms. This is largely- Employment based therefore on firms within the top 200 that offer private client services.© Scorpio Partnership 2012 | 37
  • 38. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe lawyersMarket revenue Commentary on market revenue All market While total UK legal market revenue stood at GBP19.4 billion in 2009, Scorpio Top 200 Partnership analysis of firms within the top 200 firms (as defined by The Lawyer publication) reveals 46% of that group’s total income (GBP14.94 billion) produced by firms offering various forms of private client services Therefore, within the top 200, firms with a private client service offering produced total revenue of GBP6.88 billion. If we then assume a 46% share for the whole market, the income level for all firms with a private client service is GBP8.92 billion Further Scorpio Partnership analysis of the service and staff make-up of those firms with private client services would suggest approximately 5% of staff sit within a private client unit. We therefore apply a 5% proportion to total earnings which, for those firms within the top 200, equates to GBP344 million in annual revenue, while for the full market it means annual revenue for private client services of GBP446 million. Commentary on profit and corporate tax Scorpio Partnership analysis on the financial performance of the top 200 law firmsProfit and corporate tax in the UK with a private client business produces an average profit margin of 22% Therefore, applied to the above revenue figures firms in the top 200 produce a total 28% profit of GBP75.7 million from private client services while for the whole market the figure reaches up to GBP98 million 15% 28% In terms of the tax cost from those performance data, we are again applying the discounted rate of 15% and the standard corporation tax rate of 28% due to the 15% difficult in calculating the real tax contribution based on an analysis of actual payments. Therefore, based on those two levels, within the top 200 the private client legal community is paying GBP11.3 million or GBP21.1 million while for the whole market the contribution is either GBP14.7 million or GBP27.5 million.© Scorpio Partnership 2012 | 38
  • 39. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe lawyersNumber of employees Total headcount = Commentary on employees 13,620 The Law Society, as of February 2010, reported 85,128 solicitors working in private practice across the UK Scorpio Partnership analysis of the private client departments of firms within The Lawyer ‘s top 200 annual analysis for year-end 2009 reveals an average of approximately 5% of all legal staff sit within a private client unit. Applied to the whole market that proportion means 4,256 legal staff working in the UK private client segment Further, analysis of all legal staff (equity partners, salaried partners and lawyers) against all staff reveals an average ratio of 1 lawyer for every 2.2 support staff. Meaning there are approximately 9,364 support staff serving the segment The total UK-wide headcount for the private client legal segment is therefore in the region of 13,620 employees. Commentary on salaries, tax and NI contributionsIncome tax and NI contributions The total headcount for this segment has been distributed across the ten remuneration levels again but, given the potentially large remuneration differences, 220.5 this has been done for both legal and support staff. For the legal staff, where 6% Total tax = are partners, the headcount has been divided across bands from 500k down to 20k GBP375.1 million while for support staff the range is from 100k to 20k Total segment remuneration for the 13,620 staff reached GBP825.1 million split GBP399 million for the lawyers, at an average of GBP93,754, and GBP426 million for the support staff, at an average of GBP45,500 100.6 The tax cost of that remuneration base comes to GBP375.1 million – broken down at GBP220.5 million in income tax, GBP54 million in employee national insurance 54 and GBP100.6 million in employer national insurance.© Scorpio Partnership 2012 | 39
  • 40. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe insurersIntroduction The insurance market is a clear participant in the effort to protect the wealth and valued possessions of the affluent and HNW whether that is their home, car, boat, family, life, investments, business and so on. However, insurance is also a planning tool used principally in relation to tax efficiency which adds another dimension to the relevance of the market In terms of the UK insurance market, while having significant depth in the number of providers (both locally incorporated and able to do business via EU licence) offering insurance services it is in fact dominated by the leading players such as Aviva, Lloyds, Legal & General, Prudential and so on The affluent and HNW client segment is most often not separated out from the retail market in the service offering and thus wealthier clients often buy the same insurance products as any standard individual client. Some firms do, however, segment and specifically target the segment though this element of the market is still small when compared to the overall size of the UK industry.Service overview Market size and participantsThe insurance market for affluent and HNW private clients is similar The UK is the third largest insurance market in the world by annualin many form to the retail market in terms of the offering yet premium, according to Swiss Re, accounting for 7% of allpolicies will tend to be more bespoke depending on the wealth of premiums paid. According to the Association of British Insurersthe end client. The offering may consist of: (ABI), that market is served by a total of 1,005 (UK registered plus EEA registered) general insurance firms and 309 (UK and EEA) long-- Home and contents insurance (primary residence, term insurance registered firms.holiday/overseas homes, investment properties)- Art, antiques and jewellery The ABI in its September 2011 Key Facts report also states that the - Cars (specialist, vintage) UK insurance industry employs a total of 290,000 staff and paid - Yacht and motorboat annual taxes in 2010 of GBP10.4 billion. - Personal risk (kidnap and ransom) - Bloodstock However, the contribution of the mass affluent and HNW segments - Life insurance (often as a wrapper) within this whole is not tracked or separated out in performance or - Travel sizing date. It is largely included within the retail market.© Scorpio Partnership 2012 | 40
  • 41. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe insurersMarket revenue Commentary on market revenue If 20% of market The total amount of premiums paid in the UK in 2010, according to the ABI’s September 2011 Key Facts document, was GBP156.4 billion. This total was split GBP110.4 billion for long-term and savings (life insurance, pensions, etc.) and GBP46.4 million for non-life (home, motor insurance, etc.) Subsequent Scorpio Partnership analysis of the broken out data provided by the ABI extracted those areas relating to corporate premiums and others not related to If 10% of individual planning and protection. The total premium for all individuals, and thus market the full retail market, came to GBP78.85 billion No market analysis is available on the proportion of personal insurance premium segmented by wealth levels. Therefore, we have assumed a conservative 10%, or GBP7.9 billion, of that total retail market is attributable to the insurance planning and protection premiums of the affluent and HNW. A more optimistic, but still possible, figure would be 20% for GBP15.8 billion When the value of the assets in question is considered and thus the size of the premiums involved a high proportion of the whole is very feasible . Indeed, theProfit and corporate tax Scorpio Wealth Distribution Model puts the number of individuals with wealth in excess of USD1 million in the UK at 448,090 individuals. Against the 10% premium value of GBP7.9 billion the average annual spend is therefore almost GBP17,500 or just 0.45% of average wealth for this group per annum. Commentary on profit and corporate tax In terms of the segment’s profitability, Scorpio Partnership analysis of the leading insurance firms’ data reveals a relatively low level of profitability. We have therefore assumed two options for full market of 10% and 15% Assuming the 10% of premium level, at a 10% profit margin the segment produces GBP789 million per annum while at 15% profit the figure is GBP1,183 million The tax contribution on those performance figures, if we again assume a 15% and 28% corporation tax level, is therefore GBP106 million and GBP220 million at 10% profit margin and GBP177 million and GBP331 million at 15% profit margin© Scorpio Partnership 2012 | 41
  • 42. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe insurersNumber of employees Total headcount = Commentary on employees 5,800 According to the ABI in its September 2011 Key Facts report the UK insurance industry employs a total of 290,000 staff We assume at least a 10% share of all personal premiums. However, given that the ticket size for premiums at the MNW or HNW level are likely to be significantly higher, even if more complex to establish and administer, we assume just 2% of total UK insurance sector headcount to be dedicated to this segment of wealth. That means 5,800 employees which includes individuals such as brokers as well as all sales, administrative and support personnel. Commentary on salaries, tax and NI contributions The total headcount of 5,800 staff has again been distributed across the standard ten remuneration bands (in GBP thousand at 20, 30, 40, 50, 75, 100, 150, 250, 350 and 500k) with 1% in the top band (GBP500,000) and 70% of the total distributed across GBP50,000, GBP40,000, GBP30,000 and GBP20,000 The subsequent total remuneration cost for all 5,800 employees in the insuranceIncome tax and NI contributions sector comes to GBP374 million, at an average of GBP64,500, with a total tax contribution arising from that of GBP158 million – broken down at GBP93.7 million Total tax = in income tax, GBP22 million in employee national insurance and GBP42 million in GBP158 million employer national insurance.© Scorpio Partnership 2012 | 42
  • 43. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe platformsIntroduction The platform market is an increasingly relevant part of the UK wealth management market and likely its fastest growing sub-sector in terms of use and assets. As a technology enabled offering platforms are increasingly central to the overall solution delivered to advisers and end clients, particularly, though certainly not exclusively, in the IFA arena where platforms support with expertise and product that is less likely to sit in-house. In fact, already 90% of IFAs use a platform or multiple platforms The platform space is expected to achieve greater market penetration as a result of the Retail Distribution Review and the entry of more major players is on track Platform service providers divide (with cross-over) into administrative platforms which support advisers in managing their business and discretionary asset management platforms which are focused on offering an investment service.Service overview Market size and participantsThe platform market offers an increasing array of products and According to specialist industry analysts The Platforum as ofservices to support both its advisory clients and the end-client. In September 2011 there were 23 platforms in the UK marketmost cases the market has evolved beyond the traditional fund administering a total of GBP164 billion. That is a huge jump of 59%supermarket model. The offering may consist of: on GBP102 billion reported in June 2010. Further, more conservatively, The Platforum predicts quarter-on-quarter growth of 5.34%, meaning the market will potentially grow by 23.13% over- Funds (in the form of OEICs or SICAVs) the year to GBP202 billion by June 2012- Standard savings products and cash accounts- Insurance and pension products including SIPPs In terms of our analysis we have taken the data for the full platform- Onshore and offshore bonds market as its offering is agnostic of wealth level and delivers a- Discretionary asset management via third party providers holistic service offering to all end investors regardless of wealth- Hedge funds- ETFs Of the 23 platforms active today the largest are providers such as- Asset allocation and fund selection support Skandia, Cofunds and FundsNetwork while numerous other smaller- Risk profiling and investment research firms are growing apace such as Ascentric, Elevate and Nucleus.© Scorpio Partnership 2012 | 43
  • 44. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe platformsMarket revenue Commentary on market revenue The segment’s charging structure typically fits between 10bps and 100bps depending on the complexity of the service offering and amount of assets in question. On average, however, market professionals put the sector’s revenue on At 40bos on AUA its AUA base of GBP164 billion at 30bps to 40bps Therefore, at 30bps on GBP164 billion the platform segment is generating annual At 30bos on AUA revenues of GBP490 million. At the more optimistic 40bps on all AUA the segment‘s revenue reaches GBP656 million Given the (increasing) level of competition in the market and market insight research, however, we believe the 30bps level to be most representative of the full market. Commentary on profit and corporate tax In the terms of the sector’s profitability, again, the competitiveness of the segment as well as high cost associated with entry and the development of an increasingly sophisticated technology-based product is seen to be impacting on profitabilityProfit and corporate tax Therefore, we estimate profitability at 10% and 15%. Based on these assumptions, at the 30bps revenue level, the segment is driving an annual profit of GBP49.2 million at 10% profitability and GBP66 million at 15% profitability More positively, on 40bps average revenue on AUA, the segment is creating annual profit of GBP66 million at 10% profitability and GBP98 million at 15% profitability Turning to the segment’s corporation tax contribution, and again assuming two effective tax take levels of 15% and 28%, at the 30bps on revenue level, the tax cost on the 10% profit margin is GBP7.4 million at 15% and 13.7 million at 28% while at 15% profit margin the tax cost is GBP11 million and GBP20.6 million at 15% and 28% respectively.© Scorpio Partnership 2012 | 44
  • 45. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe platformsNumber of employees Total headcount Commentary on employees = 4,237 According to data collected on the 23 platform providers by sector analyst The Platforum, the total headcount stands at 4,237 Given the heavy technical and administrative nature of the platform business model, the number of client facing staff number is relatively low. For the purposes of this work we estimate it to be 10% of total headcount or 424 employees The remaining 90% or 3,813 are support staff and a mix of technical and administrative given the service nature of platforms Commentary on salaries, tax and NI contributions After allocating those 4,237 staff across eight total remuneration levels from GBP250,000 down the total segment remuneration is GBP206.2 million at an average of GBP48,667 per employee For the 424 client facing staff, the business development teams and account managers, the total salary spend comes in at GBP27.98 million for an average ofIncome tax and NI contributions GBP66,000. For the 3,813 non-client facing staff the total spend is GBP178.3 million for an average remuneration per employee of GBP46,750 46.3 In terms of the headcount weightings across remuneration levels, we have assumed Total tax = GBP86.1 million a maximum remuneration for the segment of GBP250,000 and allocated 2% of client-facing staff to that level. Otherwise staff are allocated across seven remuneration levels (150, 100, 75, 50, 40, 30 and 20k) Based on those remuneration totals and weightings the segment has a total tax 24.3 contribution of GBP86.1 million – broken down at GBP46.3 million in income tax, GBP15.5 million in employee national insurance and GBP24.3 million in employer 15.5 national insurance© Scorpio Partnership 2012 | 45
  • 46. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe trusteesIntroduction The onshore trust market in the UK is relatively easy to define but extremely hard to size. Ultimately, however, it is a segment within segments since its product and service offering is delivered in the vast majority of instances within six of the other segments reviewed in this analysis – HNW private banks, mass affluent banks, PCIMs, IFAs, lawyers and accountants For each of the above six segments a proportion of their overall proposition is the delivery of trust and trustee services. This service line in each case integrated into their core offering whether that is investment management, financial advice, law and so on The data that is used to size this segment is therefore data that is extracted from and already accounted for within the above six segments The only exception to that double counting is for employees of overseas trust businesses that are employed in the UK. These individuals are counted in the total headcount, salary and personal tax calculationsService overview Market size and participantsDelivered across six of the segments also sized in this research the As outlined, the onshore trust market is essentially already countedUK onshore trust market, in addition to the onshore presence of as it is a service line that sits within six of the other segments in thisnumerous offshore trust businesses, delivers a service offering that analysis.may consist of: Little or no data actually exists that separates out the trust area of- Trust and company establishment and administration work from those larger business lines, however. Therefore, our- Tax planning approach to attempt to size this area of work has been to extract a- Wealth structuring value that is attributable to trust work from the six segments that- Succession planning- Provision of trustees deliver within their wider proposition a trust product and service offering. We have thus made an estimate for each. In addition, we have also looked at the number of offshore trust businesses in key jurisdictions and made an estimate of the percentage that employ a permanent presence on the UK mainland.© Scorpio Partnership 2012 | 46
  • 47. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe trusteesMarket revenue Commentary on market revenue This data on revenue is pure double counting from the six areas identified as providers of trust services To arrive at a market revenue figure for this segment Scorpio Partnership has estimated a proportion of revenue that is attributable to trust services within each of the identified trust service segments Those estimations are: HNW private banks (2% of all revenue = GBP132.8mn), mass affluent banks (0.5% = GBP31.3mn), PCIMs (1% = GBP18.5mn), IFAs (0.5% = GBP22mn), lawyers (15% = GBP66.9mn) and accountants (15% = GBP75mn) Therefore, the total estimated market revenue for the trust segment is GBP346.5 million Commentary on profit and corporate tax To estimate the profitability of the trust segment, Scorpio Partnership again employed the data from the six relevant segments. This time on their respective profit totalsProfit and corporate tax Therefore, HNW private banks (2% of total profit = GBP13.3mn), mass affluent banks (0.5% = GBP7.8mn), PCIMs (1% = GBP3.7mn), IFAs (0.5% = GBP3.3mn), lawyers (15% = GBP14.7mn) and accountants (15% = GBP11.6mn) At 28% tax The combined total for the segment therefore comes to GBP54.4 million per annum At 15% tax Then, assuming the two corporation tax rates of 15% and 28% on that profit total, the trust segment is contributing between GBP8.15 million at 15% and GBP15.2 million at 28%.© Scorpio Partnership 2012 | 47
  • 48. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe trusteesNumber of employees Total headcount Commentary on employees = 4,442 The headcount make-up of the onshore trust market is essentially formed of two sources: those already counted in the six relevant segments, and thus double counted here, and those working onshore in the UK for legal, accounting and trust businesses from other jurisdictions such as Jersey, Guernsey, the Isle of Man, Switzerland, Cayman and so on For the onshore segment, Scorpio Partnership has used the same percentage as used for proportion of revenue for each of the relevant six segments to calculate the total headcount. Therefore: HNW private banks (2% of all staff), mass affluent banks (0.5%), PCIMs (1%), IFAs (0.5%), lawyers (15%) and accountants (15%) That gives a total (double counted) headcount for trust services of 4,312 For the offshore headcount, Scorpio Partnership looked at the number of trust and corporate service provider businesses registered in some of the leading jurisdictions and then, combined with some market conversations, applied a percentage of firms to that number that are likely to operate with a permanentIncome tax and NI contributions presence onshore in the UK. For the Isle of Man, for instance, there are in the region of 200 registered corporate service providers of which a maximum of 5% are Total tax = estimated to have a UK presence GBP174.9 million The total headcount for the offshore portion comes to 130 giving a total for the trust segment of 4,442. Commentary on salaries, tax and NI contributions Allocating the total headcount of 4,442 across the standard ten remuneration bands (20, 30, 40, 50, 75, 100, 150, 250, 350 and 500k), but with slightly more weighting given to the middle bands in this instance, gives a total remuneration for the segment of GBP361.5million at an average of GBP81,375 The offshore headcount of 130 accounts for GBP12.2 million of that (avg. 93,750) The subsequent tax contribution for the full group reaches a total of GBP174.9 million (GBP5.9 million for offshore) – broken down at GBP108.8 million (GBP3.7 million) in income tax, GBP20.6 million (GBP0.67 million) in employee national insurance and GBP45.5 million (GBP1.55 million) in employer national insurance.© Scorpio Partnership 2012 | 48
  • 49. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe ancillary service providersIntroduction As a sizeable segment of the UK financial services sector, wealth management employs thousands of staff, serves thousands of clients and operates with a sophisticated and complex operating model that subsequently feeds into a wide array of external ancillary service providers Therefore, there are hundreds, if not thousands, of businesses supplying specialist services to the UK wealth management sector across the right through the value chain from the specialist, sophisticated, professional and highly technical end through to the day to day needs of any business In terms of sizing that market place the approach here is to look at the so-called higher end professional services that sit outside of the internal remit of many firms in UK wealth management and will therefore be employed by a large section of the sector. Further, these service providers are relatively easily grouped into distinct business lines such as recruitment, information technology, strategy and operational consultancies, PR, information and so onService overview Market size and participantsThe lead professional ancillary service areas to the UK wealth Arriving at a data point that sizes the number of ancillary servicemanagement market are: providers to the UK wealth management sector is extremely difficult given the multiplicity of potential service lines and needs of- Management and strategy consultants (e.g. McKinsey, PwC, individual institutions. The total number of UK-based providers whoScorpio) are on the pay roll of wealth managers in the UK certainly reaches- Information, research and knowledge providers (e.g. Bloomberg, into the hundreds and, depending on what is included, possibly theStandard & Poor’s, Wealth Briefing) thousands once every wealth manger is taken into account- IT and systems consultants and providers (e.g. Advent,Temenos, SEI, Citisoft) For the sake of this analysis, however, we are focusing on the main- PR, marketing and branding agencies (e.g. Lansons, Broadgate intellectual and information service providers to the sector asMainland) revealed, certainly in terms of jobs and remuneration. Our starting- Recruitment firms point also to measure this segment, based on Scorpio Partnership- Others such as education firms, real estate services and so on research with the market, is the proportion of the market’s expenses bill that applies to ancillary-type services. That is typically between 10% and 20% of a firm’s total costs.© Scorpio Partnership 2012 | 49
  • 50. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe ancillary service providersMarket revenue Commentary on market revenue The Scorpio Partnership wealth distribution model sizes the AUM controlled by the UK wealth management sector at GBP2.19 trillion. Total market revenue from the If 20% of the sector‘s four wealth manager segments, based on their individual assumptions, for this total cost base asset base is GBP19.15 billion Against that revenue is a total cost base of GBP15.9 billion, reached by totaling the cost base for each of the four segments based on their assumed profitability which averages out at 17% for GBP15.9 billion an industry cost income ratio of 83% If 10% of the sector‘s Scorpio research into the proportion of a firm’s total cost that can be applied to total cost base –our lead assumption ancillary services attributes between 10% and 20%, depending on the business model employed by the firm. Applying those percentages to the total cost of the market and the annual spend on ancillary services is between GBP1,590 million and GBP3,180 million We have therefore assumed that to be the annual revenue of the ancillary segment and the 10% level to be most appropriate for the full market.Profit and corporate tax Commentary on profit and corporate tax Scorpio research suggests the ancillary segment to be extracting a profit on its activities on average 20% to 30% on the revenue it generates Therefore, at 10% of total cost (revenue of GBP1,590 million) the ancillary services sector will generate between GBP318 million per annum at a 20% profit margin and GBP477 million at a 30% profit margin In terms of the tax contribution on those performance figures, again employing the discounted tax take of 15% and the standard rate of 28%, the ancillary services sector will pay either GBP47. 7 million at the 15% tax rate and GBP89 million at 28% on 20% profit and GBP71.6 million at the 15% tax rate and GBP133.6 million at 28% on 30% profit.© Scorpio Partnership 2012 | 50
  • 51. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsThe ancillary service providersNumber of employees Total headcount Commentary on employees = 3,500 The Scorpio Partnership estimation on the number of firms within the main business areas (IT, consultancy, etc.) serving the UK wealth management is 350 businesses Across this group of core providers, based on knowledge of team sizes and estimations, we have assumed a total headcount of 3,500 staff, all employed directly as a result of services provided to the UK wealth management market. We believe this to be a conservative estimation Commentary on salaries, tax and NI contributions Employing the standard ten remuneration bands (20, 30, 40, 50, 75, 100, 150, 250, 350 and 500k) and allocating the 3,500 headcount across those gives a total remuneration for the segment of GBP225.75 million or an average of GBP64,500 The total tax contribution on this salary base is GBP106 million – broken down at GBP64.5 million in income tax, GBP13.8 million in employee national insurance and GBP27.7 million in employer national insuranceIncome tax and NI contributions In terms of the distribution across the ten remuneration bands, we allocated 1% of total segment headcount to GBP500,000 at the top and 20% each to GBP20,000 and GBP30,000. The exact breakdown is in the appendix. Total tax = GBP106 million© Scorpio Partnership 2012 | 51
  • 52. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and Lansons Appendix© Scorpio Partnership 2012 | 52
  • 53. Public distribution: UK Wealth Management Steering CommitteeCoordinated by Owen James, Scorpio Partnership, and LansonsMethodologyMarket sizing – assets under managementTo build the picture of the asset value of the UK wealth management market, in terms of the assets under management within themarket, we have employed the Scorpio Partnership Wealth Distribution Model. This market tool uses a combination of top downand bottom up analysis to minimise double counting.The size of the banking sector has been estimated using top down analysis. We have calculated the total wealth of the massaffluent and HNW client segments (including non-domestic HNW wealth managed in the UK) and used our Benchmark data toestimate how much of this wealth is controlled by UK banking entities. We have taken this approach because many banks do notprovide segmented AUM data for different client groups or countries and, where banks do provide these data, the segments arenot consistent across the market. This approach minimises double counting. In the case of HNW banking providers, we haveassumed a 42% penetration rate. In the case of mass affluent banking providers, we have assumed a 55% penetration rate.The size of the IFA sector has been estimated using bottom up analysis. The IFA sector rarely releases AUM data, but goodrevenue data are available for the leading firms.The size of the PCIM sector has been estimated using bottom up analysis ensuring there is no double counting between PCIMs,IFAs and the banking sector.We have made the assumption that the four Wealth Manager segments are the asset holders/managers. The six other segmentsin this analysis are providers of services and not the managers of the money and therefore, apart from the platform and trusteesegments, we do not seek to provide an assets under management or administration data point.The platform sector and the trustee sector are seen as service provider since the assets they administer are managed within thefour money manager segments in almost all instances.© Scorpio Partnership 2012 | 53
  • 54. Public distribution: UK Wealth Management Steering Committee Coordinated by Owen James, Scorpio Partnership, and Lansons Data and information sourcesAccountants Lawyers Insurers Platforms The Professional Oversight The Law Society, Fact Book The Association of British The Platforum PAT tool Board – Key Facts and Trends 2010 Insurers (ABI), UK Insurance – Scorpio Partnership analysis in the Accountancy Profession, The Lawyer UK 200 Key Facts, September 2011 June 2011 The Legal 500 Swiss Re, Sigma Report 2011 ICAEW Career Benchmark The Solicitors Regulation Hiscox Wealth Review 2009 Ancillary Survey 2011 Authority Scorpio Partnership analysis Accountancy Age, 50+50 2011 Roll On Friday Scorpio Partnership analysis Accountancy’s Top60 Survey, Scorpio Partnership analysis 2011 Trustees Scorpio Partnership analysis Scorpio Partnership analysisHNW Private Banks Mass Affluent Banks IFAs PCIMs Scorpio Partnership, Wealth Scorpio Partnership, Wealth Scorpio Partnership, Wealth Scorpio Partnership, Wealth Distribution Model, Global Distribution Model, Global Distribution Model, analysis Distribution Model, Global Private Banking Benchmark, Private Banking Benchmark, Individual firm data Private Banking Benchmark, analysis analysis contributions analysis Individual firm data British Bankers Association Owen James Advisory Individual firm data contributions Financial Services Authority Distributors Benchmark 2011 contributions British Bankers Association TheCityUK Professional Adviser Top 100, APCIMs Financial Services Authority 2010 TheCityUK Plimsoll IFA analysis 2011 © Scorpio Partnership 2012 | 54

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