The document discusses the future of the global wealth management industry. It notes that while there is significant wealth available to be managed, millionaire clients are not signing up with wealth managers as rapidly as the industry would like. There are three main challenges for the industry: 1) consumers have more choice in providers now; 2) consumers have greater knowledge and may invest independently; 3) brand is important but wealth managers have not effectively promoted their brands. The industry, particularly smaller firms, must adapt to these new realities around consumer behavior and branding in order to grow and better serve wealthy clients.

1. In fact, it is often assumed that the
wealth management segment is
poised to rescue many an
international bank from terminal
decline. If one looks at any of today’s
top 20 global financial franchises,
more than half of them will have
“wealth” as a central divisional plank
for future growth; while the other
half are considering the option.
And why not? By various
annual estimates, there are almost 10
million millionaires across the planet.
Their total investable wealth is
estimated at somewhere between
USD40 trillion and USD44 trillion
depending on which reports you read
and which calculations you make.
Equally, by our own calculations the
industry actually manages only 40%
of this total asset base. So, the
argument goes, there is plenty more
wealth market share to strive for and,
consequently, the future of wealth
management looks bright. Brighter,
some might say, than ever.
This brightness can, however, be
deceptive. The money may be out
there, but the question is whether it
will flow into the industry – or what is
needed make that happen?
Moreover, of the 40% of the total
that is under management today,
nearly USD14 trillion is managed by
the 20 largest operators. The reality is
that the industry as a whole cannot
expect the wealth-holders’ funds to
just fall into their laps. In fact, the
challenge of winning new assets is
greater than ever.
In the global economic
environment, the millionaire and
multi-millionaire are just as influenced
by uncertainty. They have seen their
portfolio values fluctuate violently
– whichever institution they have
been with.
Those without the same amount of
wealth might not have too much
sympathy, but when it comes to
ensuring that a multi-trillion-dollar
industry can continue to thrive (and
potentially revive some of the most
important financial services franchises
in the industry) then these concerns
are, in our view, acutely relevant.
Consumer choice
The sentiment of the millionaire is
the key to the industry’s success.
Understanding and anticipating this
sentiment is critical the future of
wealth management and, as they
consider their own future path, a
growing number of firms are
catching on.
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The FSC Report 2013
Is wealth management the
future of financial services?
Millionaires move markets. Managing the money of millionaires should therefore mean that one can
ride in the slipstream of their fortune-making endeavours. Or so the market wisdom goes. In this
context, the global wealth management industry has been attracting a lot of attention. Its star has
been in the ascendant. For the past decade, while other parts of the financial markets have stumbled,
wealth management appears to have shone brightly – as a concept, if not as a successful business.
BY SEBASTIAN DOVEY
OVERVIEW
ABOUT THE AUTHOR
Sebastian Dovey is a
managing partner at Scorpio
Partnership. Responsible for
development and execution of
strategy, he has completed
assignments worldwide for
banks, asset managers, family
offices, tech firms, service
providers, aggregators and
start-up wealth management
initiatives. Sebastian is a
regular commentator on the
wealth management industry
and speaks at industry events
worldwide. He lectured at the
Swiss Finance Institute’s
executive MBA programme,
holds a history BA from
University College London and
an MSc in economics from the
London School of Economics.

2. This rising awareness is very exciting
and there are three core issues that
the industry must recognise. First, the
consumer has a choice and is
exercising it. Second, consumer
knowledge is rising and this may
result in them changing their terms of
engagement or even acting
independently. Third, the consumer is
influenced by brand to a greater
extent than the industry realises and
the private banking brand must step
up its game.
Indeed, real competition in the
wealth industry today is intensifying.
Specifically, in relation to the first
issue (consumer choice) it is clear ­­
that there are more wealth
managers now than ever before.
This breeds confusion, even for
the millionaire, and a change in the
consumption patterns for financial
services. There may, if one looks
purely at the statistics, be available
wealth to be managed but,
alarmingly, the millionaire clients
are not signing up with the
wealth management industry as
rapidly as the industry would either
like or need.
Fund inflows into wealth
management businesses have been
relatively flat for nearly five years
now. For most firms a single digit
percentage inflow of new funds – as
opposed to market performance – is
considered a major result in these
markets. That level of inflow is
insufficient, however, to support the
long term plans of many of these
businesses.
Industry observers typically remark
that the discipline imposed by
professional wealth managers on
personal wealth trumps all other
forms of expenditure. Clients, they
believe, will always find a place in
their wallet for the private bank. It is
a nice thought. But with low inflows
of funds, it could be argued that the
private banks and wealth managers
are failing.
That would be slightly unfair but
they are certainly not succeeding to
their full potential. The reason for this
under performance is not competition
between banks, but rather it is
competition for the private client
from outside.
Consumer knowledge
This brings us to the second issue for
the future of wealth management –
consumer knowledge. For the wealth
industry it is no longer sufficient to
understand why wealthy clients are
choosing one provider over another,
they must also recognise that these
same consumers – particularly those
not currently using the services of the
wealth industry – are not only judging
their merits against their peers but
also against deploying (sorry,
investing) their funds elsewhere.
For example, instead of buying an
investment portfolio a wealthy client
might choose to purchase art worth a
million dollars; or invest directly in a
business; or acquire a new home; or
even buy a bar of gold and bury it.
Anything, in fact, rather than put it
back into a financial system that, in
their view, has already done enough
damage to their wealth.
This issue of consumer knowledge
is underestimated by many wealth
managers and with catastrophic
consequences. Today’s clients have
the ability to access much more
information than was previously the
case. The perception of the financial
advisor as the supreme oracle on all
wealth matters is one that is in need
of a major re-adjustment. Clients are
actively investigating their options
and some are even considering taking
more independent control of
managing their wealth.
The challenge is therefore to
emphasise to today’s potential client
that the private bank and wealth
manager is in touch with their
requirements and is not an expensive
luxury that they could afford to be
without. Here, the industry does itself
no favours.
In a recent examination of several
thousand HNWs across the globe we
discovered that private clients
considered the services offered by
wealth managers to be overly
expensive relative to results and the
customer service experience – which
is a core part of how they determine
value – of financial services to be the
worst across a basket of industries
that includes men’s fashion. In other
words, private banking’s customer
experience is deemed worse than
buying designer underpants. That is a
truly sobering thought.
From the findings it appears that
executive leadership in the wealth
industry generally continues to
believe that the best value – and
hence brand demonstration – is
achieved by having more salesmen on
the streets. It does not consider that
their brand identity could perhaps
help them do their job better and,
with clever messaging, could actually
reach out to entirely new audiences.
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The FSC Report 2013 Is wealth management the future of financial services? | Overview
“The reality is that
the industry as a
whole cannot expect
the wealth-holders’
funds to just fall into
their laps. In fact,
the challenge of
winning new assets
is greater than ever.”
“In other words, private banking’s customer
experience is deemed worse than buying designer
underpants. That is a truly sobering thought.”

3. Branding
Certainly sales points are critical but
here we move on to the third point of
relevance to the future of the wealth
management industry – brand.
Salespeople are important but, as we
often point out, it does not explain
why the industry’s top 20 institutions
– all major global brands – control
80% of the world’s wealth today. So
brand must have an influence.
Indeed, the top issue for many
clients in selecting an institution is
what the brand communicates to
them. This communication might
come via a salesman but,
interestingly, the research shows that
increasingly it does not. Clients are
influenced by what they see of the
bank on the web, on television, on
the airport billboard, in the hotel
magazine, on twitter and so on …
Moving forward, this issue is going to
become even more important and
the winners in the industry will be
those that seize on this.
Generally speaking, financial
services providers (and particularly
private banks) have been shy about
promoting themselves at a corporate
level. This is an oversight. In fact, it is
the smaller institutions – and by this
we mean firms managing less than
USD100 billion – that must adjust
their thinking the most. If they
continue to believe that their winning
formula is simply to be the low profile
antidote to the mega banks, then
they will continue to limit themselves.
Time and again when we look at
investor feedback on the industry,
they state that they were largely
unaware of the range of offerings
available until the internet came
along. Indeed, based on customer
insight, it is very likely that these
institutions are in effect limiting their
capacity to grow relative to their
more visible peers. This in turn has
consequences. These firms may start
to find they are less able to attract
the better talent and as a result their
competency strengths will dip relative
to their peers and, ultimately, this will
have a knock on effect on their client
business too.
Conclusions
So, the clock is ticking on the world
of wealth management. The figures
show a clear clustering of business
among large operators. This does not
mean the end of the boutique. On
the contrary, they will continue to
thrive but they must adapt and adjust
to their changing landscape.
Meanwhile, we are now beginning
to uncover the consumer patterns of
the HNW individual worldwide and it
is highlighting new points of
emphasis that wealth managers will
need to consider if they are to win
and retain their custom. The brand is
an important element.
Finally, it is not that the industry is
lacking in good brand attributes –
some of it is actually brilliant and
many other industries would die for a
heritage that stretches back for
centuries. But the reality is that selling
legacy only goes so far. And in
today’s age of wealth, modernity is as
much of an attraction as history, if
not more.
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The FSC Report 2013Overview | Is wealth management the future of financial services?
“But the reality is that
selling legacy only
goes so far. And in
today’s age of wealth,
modernity is as much
of an attraction as
history, if not more.”
QWhat words do you want to associate with
your wealth management experience?
Source: Scorpio Partnership
Note: This is based on insight from over 3,500 high net worth investors globally