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Moving to Private Wealth Management Era

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Presentation slide from WMSL's seminar "Moving to Private Wealth Management Era"

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Moving to Private Wealth Management Era

  1. 1. Welcome to.. Wealth Management System Limited Wealth Campus ® ©
  2. 2. Moving to Private Wealth Management Era November 6 , 2007
  3. 3. Topics Why Private Wealth Management Business ? What is the Global Market Size: Now and Future? Who is Who in the PWM Business ? What criteria for Target Selection ? How to tap the Target Market ?
  4. 4. Recommended Book
  5. 5. PBG : TOMORROW’S NEW BACKBONE INDUSTRY Y 1993 Private Bank result : Net Revenue US$ 235 MM Growth 40% ROE 38% Return on Economic capital = 52% Why Private Wealth Management Business ?
  6. 6. 11 18 22 24 29 46 58 75% (1) Private Bank ROIC excluding Private Bank Japan Discontinuation Charge of $ 244MM after tax. (2) Asset Management ROIC excluding Transfer Agent Settlement of $ 151MM after tax. Note : Does not include Life Insurance & Annuities and Proprietary Investment Activities. Private Bank (1) Asset Management (2) Retail Banking Consumer Finance Capital Markets and Banking Cards Transaction Services Smith Barney Source : Citigroup Citigroup : Private Bank offers the highest ROIC Post-tax return on invested capital, 2004 Why Private Wealth Management Business ?
  7. 7. Wealth Management Business : Why not… 405%- 409% Wealth management profitability Percentage 100%= 1318m* 360m 958m 10 4.8 27.6 44.9 21.7 53.6 21.1 21.7 2.5 15.4 9.3 26.0 33.2 16.1 Corporate Small business Mass market Private Affluent 0.5% 5.3% 29.6% 405% 409% Mean = 23%Net profit Cost of capital Value creation *Excluding other businesses Risk adjusted return on capital Source : UniCredito Italiano investor presentation, 19 June 2001. Why Private Wealth Management Business ?
  8. 8. Onshore PB Swiss PB Swiss Retail Swiss Corporate Investment bank Equities Fixed income Asset Management highlow Potential net margin Marketgrowthpotential highlow Relative attraction of wealth managementSource : UBS investor presentation. Intl PB Intl PB Onshore PB Why Private Wealth Management Business ?
  9. 9. Wealth management average Federate Investors Franklin Resources Man Group Alliance Capital Julius Baer Amvescap Mellon Financial AG Edwards Northern Trust Vontobel Raymond James Charles Schwab Asset Managers 17.2 Private/Trust Bank 17.6 Retail Brokers 18.8 Citigroup Credit Suisse Monte dei Paschi JP Morgan Chase Morgan Stanley Monte dei Paschi Banco Popular Merrill Lynch Deutsche Postbank Anglo Irish Universal Banks 11.1 Investment Bank 14.1 EU Retail/ Corporate Banks 14.1 Wealth management ‘pure plays’ Other financial services plays Goldman Sachs Lehman Brothers Bear Steams Deutsche Bank 10.7 15.4 15.5 16.1 13.1 10.8 12.3 12.3 12.2 11.4 10.4 11.9 11.0 10.8 17.9 17.3 12.7 17.4 17.4 21.3 16.5 17.2 17.9 19.1 15.7 16.0 24.8 Financial service price-earnings rations, 2005Source : UBS; IBES; author’s analysis. Why Private Wealth Management Business ?
  10. 10. PBG : TOMORROW’S NEW BACKBONE INDUSTRY Y 1993 Private Bank result : Net Revenue US$ 235 MM Growth 40% ROE 38% Return on Economic capital = 52% Beside the Most Profit Business Group,…….. WM : THE FASTEST GROWING SECTOR OF THE FINANCIAL SERVICE INDUSTRY Why Private Wealth Management Business ?
  11. 11. Wealth Market Measurement Methodologies Mostly follow 2 steps 1) Estimate the Stock of Wealth 2) Estimate how that wealth is distributed across the adult population Estimate the Stock of Wealth : Private Saving Flow data or Private Investment Asset and GDP…adjust the book value with market value of equity / bond / real estate prices Estimate the wealth distribution : Using relevant official statistics….if no then..apply income distribution model as the proxy…Gini coefficient What is the Global Market Size: Now and Future?
  12. 12. 30.8 136.0 40.9 11.7 14.9 14.3 Non-GB Other G8* US HNW Wealth Global Financial stock GlobalGDP G8=$26.6 tn *Japan, Germany, UK, France, Italy, Canada, Russia Source : Capgemini/Merrill Lynch; IMF; McKinsey Global Institute. HWN wealth is larger than Annual G8’s GDP Niche Market but Big Purchasing Power : ¼ of GFS 2004, $ Trillion Global Financial Stock = Bank Deposits + Fixed Income + Equities Securities Market What is the Global Market Size: Now and Future?
  13. 13. 5.15.1 ROW* Asia-Pacific Europe N. America TOTAL Capgemini/ Merrill Lynch 5.4 7.2 8.9 9.3 30.8 2.2 7.3 5.4 24.5 10.2 1.6 Japan** - 0.1 3.5 6.3 -0.9 3.8 BCG Difference *Latin America, Middle East and Africa **Not disclosed; estimate takes BCG’s $4.5 trillion estimate for 2003 (as published in the Economist, 10 June 2004), and assumes growth in line with that of non-Japan Asia HNW wealth estimation & comparison by Region Source : Capgemini/Merrill Lynch; Boston Consulting Group; The Economist; author’s calcutions. Japan HNW is estimated at Usd 5.1 Trillion 5.1 What is the Global Market Size: Now and Future?
  14. 14. What is the Global Market Size: Now and Future? 20% 30% 15% 25% 10% 35% 13% 25% 10% 17% 13% 12% 27% 34% 14% * Includes structured products, hedge funds, managed fund, foreign currency, commodities (including precious metals), private equity and investments of passion (fine art and collactables). ** Includes direct real estate investments and REITs, which are not common instruments outside the United States. Asset allocation of HNWIs Alternative Investments* 100% 100% 100% Cash / Deposits Fixed Income Equities Real Estate** 2002 2003 2004 Source : Capgemini/Merrill Lynch, ‘Relationship Manager Surveys’, March 2003, April 2004, April 2005; ‘World Wealth Report’ 2005.
  15. 15. Oil makes More HWN in Middle East Middle East Asia-Pacific Europe Latin America TOTAL 7.1 8.2 7.7 3.7 5.8 7.9 17.3 1.5 4.9 10.2 8.5 6.7 8.8 28.9 Africa N. America 2003-2004 1997-2004 Source : Capgemini/Merrill Lynch ‘World Wealth Report’ (various years); author’s analysis. Economic Growth and Asset Price are the key driver What is the Global Market Size: Now and Future? Growth in HNW wealth by region
  16. 16. N.America and Europe = 59% (5.3 Million People) AP has 2.3 Million Millionaires with Average USD 3.1 M 9.3 7.2 2.7 8.9 3.7 1.0 0.7 2.6 2.3 0.3 0.3 0.1 HNW wealth ($ tn) No.of HNWIs (m) Asia-Pacific Europe N.America Latin America Middle East Africa $30.8 tn 8.3 m Avg wealth Per HNWI $m3.7 7.0 3.3 12.3 3.1m 3.4 3.4 66.7 5.2 5.2 5.6 17.3 100% =$74 trillion-$93 trillion >$100m >$20m-$100m >$5-20m >$1-$5m $100m-$1m Source : Boston Consulting Group : Capgemini/Merrill Lynch; author’s calculations What is the Global Market Size: Now and Future?
  17. 17. Wealth Held Offshore from Given Region In Western Europe primarily driven by global tax initiatives N.America Asia excl. Japan Latin America E.Europe Middle East Africa W.Europe Japan 3 3 25 30 55 65 70 75 Global average* = 23%*Weighted by wealth Source : Boston Consulting Group; Julius Baer; author’s client work. What is the Global Market Size: Now and Future?
  18. 18. Offshore needs Strong Brand / Onshore emphasis on Local Presence 0 35 70 0 35 70 Offshore Onshore Wealth management attributes Brand/ reputation Caring/ attentive Trustworthy and reliable Professional Confidentiality Forward looking Helpful Proactive Flexible Performance Approachable/ Easy to deal with Keep promise Sincere/honest Consistent Transparent Innovative Accessible/ conveniently located branches Relationships Easy to use Source : McKinsey & Company, ‘Annual Investment and Wealth Management CEO Conference, 2005 What is the Global Market Size: Now and Future?
  19. 19. Growth in offshore private banking assets-Singapore’s ascendancy What do you believe will be the most important offshore centers in terms of growth of private banking assets in two years’ time? Rank 1 2 3 4 5 6 7 Offshore centers in 2005 Switzerland Singapore Hong Kong UK Luxembourg Cayman Islands Bahamas Offshore centers in 2007 E Singapore Switzerland Hong Kong UK Luxembourg Cayman Islands Bahamas Source : IBM Consulting Service (2005). Offshore centers in 2007 : Singapore rank # 1 ? What is the Global Market Size: Now and Future?
  20. 20. Annual Growth Rate 2004-2009E Global…………...…………. 6.5% Africa…………………………. 5.6% Middle East………………….. 9.1% Latin America……………….. 6.4% Asia-Pacific………………….. 6.9% N.America…………..……….. 8.4% Europe……………………….. 3.8% 0.9 2002 2003 2004 2009E 8.4 7.4 5.9 3.6 0.6 0.8 8.6 8.5 6.6 3.4 0.6 0.8 8.9 9.3 7.2 3.7 0.7 1.0 1.5 10.7 5.0 10.1 13.9 HNWI financial wealth forecast by region, 2004-2009E (US$ trillions) Source : Capgemini/Merrill Lynch World Wealth Report 2005. What is the Global Market Size: Now and Future?
  21. 21. BRIC’s : The next big 4 in WM Market Overtaking the G6: when BRICs’ GDP would exceed G6 2000 20102005 2015 2020 20302025 2035 2040 20502045 2055 China India Russia Brazil BRICs’ US UK Japan France G6 Italy Italy Germany Germany Japan Italy France Germany France Germany *Cars indicate when BRICs’ US$GDP exceeds US$GDP in the G6 Source : Goldman Sachs (2003). What is the Global Market Size: Now and Future?
  22. 22. Italy Brazil India Japan China US Gremany Russia UK France 0 5 10 15 45 5020 25 30 35 40 The largest economies in 2050 GDP (2300, US$ trillions) Source : Goldman Sachs (2003). What is the Global Market Size: Now and Future?
  23. 23. What is the Global Market Size: Now and Future?
  24. 24. Advisers & Access Providers High (advice, Banking, etc) Direct Banks • ING Direct • Egg • DAB Private Banks • EFG International • Bordier • Julius Baer • Pictet • Vontobel • Sarasin • Coutts • C Hoare & Co Trust Institutions/Custodians • Northern Trust • Atlantic Trust • Wilmington Trust • Fiduciary Trust • Bank of New York • Mellon Financial Family Offices • Global Wealth Management • Fleming Family & Partners • Rockefeller • Bessemer Trust • Stanhope Capital Investment Banks •JP Morgan •Goldman Sachs •Lehman Brothers/ Neuberger Berman •Lazard •Rothschild Retail/ Universal Banks • UBS • Credit Suisse • Bank of America • Deutsche • HSBC • Citigroup • BNP • ABN Amro • MLP • Banca Fideuram • UK IFAs • 21i.net Stockbroders • Cortal • E*TRADE • Consors • Charles Schwab • Morgan Stanley • Merrill Lynch Asset Managers • Fidelity • Old mutual • BGI • Schroders • Sanford Bernstein • AMVESCAP Product Specialists • Man Investments • GAM • Permal • Apax partners• Blackstone • 3i Low (Products/ Transaction) Affluent HNW UHNW Client segment Source : Author’s analysis. Wealth management competitor landscape Who is Who in the PWM Business ?
  25. 25. Top Ten got 14% even Top 20 got only less 20% AUM 878 Billions Global market share of top 10 players, end 2004 Percent 80 68 58 36 33 14 Wealth Mgmt. Asset Mgmt. Fixed Income M&A Global Banks** Credit Cards* Wealth management industry fragmentation UBS MerrillLynch Citigroup Wachovia Bank of America Private Bank Credit Suisse Charles Schwab† * US market only ** Top 15, based on market capitalisation Includes US Trust† Fidelity JP Morgan Private Bank HSBC 0.6 0.6 0.7 0.7 1.0 1.0 1.6 2.4 2.6 2.9 Source : Mercer Oliver Wyman; Bloomberg; Global Investor; Deutsche Bank; Datastream; Barron’s; Wealth Partnership Review; Datamonitor; Scorpio Partnership; company data; author’s analysis. Who is Who in the PWM Business ?
  26. 26. What Criteria for Target Market Selection ? Original Model : Team-Based Total # Bankers : 532 Private Bankers Revenue per Banker : $3.8 million p.a. Banker Support Ratio : 7:1 Compensation Model : Base + Bonus Banker Compensation : 6% Revenue Net Income Margin : 28% # of Clients : ~ 25,000 # of Clients per Banker : 47 Avg. Relationship Size : ~$7.1 million Avg. Rev. per HNW Client : ~$70,600 p.a. Client Private Banker 6% Revenue Investment Counselor Invest. Finance Specialist Capital Markets Specialist Trust and Estate Planner Integrated client-facing team Brokerage Capital Markets Investments Trust and Estate Planner Credit Banking Foreign Exchange Risk Management Insurance Real Estate Family Advisory Art Advisory Citigroup Private Bank service model and key metrics Source : Citigroup (2004)
  27. 27. What Criteria for Target Market Selection ? Sources of prospective clients Source : Datamonitor(2002), ‘Clients Acquisition in Wealth Management Survey’, September 2002. Existing clients  Referring friends  Referring family  Referring work colleagues Intermediaries  Financial Advisors  External asset managers  Lawyers  Accountants  “Ambassadors” Marketing & Promotion  Advertising  Cold calling  PR  Event sponsorship  Worksite marketing  Seminars External growth  Acquisitions  Alliances Staff  Poaching staff from the competition  Offering services to the group’s own wealthy staff Internal referrals  Other wealth mgt units  Retail banking  Investment banking  Corporate banking  Stockbroking Prospective customers
  28. 28. What Criteria for Target Market Selection ? EXAMPLES OF DIFFERENT ENTRY CRITERIA APPLIED BY PROVATE BANKS Example 1 • Minimum account size USD 1 m Example 2 • USD 5 m + of bankable assets Source : Presentation by Peter Wuffli, CEO, UBS, at Morgan Stanley European Banks conference, 22 March 2006, page 8. Estimate excludes real estate, private business interests, insurance and other illiquid assets.
  29. 29. Affluent $100,000 - $500,000 High net worth $500,000 - $5m Very HNW $5m - $50m Ultra high Net worth >$50 Million 23% 49% 69% 47% 19% 32% 19% 30% Percentage of asset under management Percentage of respondents expecting increase in 3 years Client bands The Wealth management pyramid Source : Pricewaterhouse Coopers (2005), ‘Global Wealth Management Survery’. What Criteria for Target Market Selection ?
  30. 30. Trusted adviser  Demonstrably acting in primary interests to client  Holistic approach to advice, given nature of client’s other business and personal circumstances  Prepared to make long-tem investments in clients-invest significant time into activites that bring no gain to bank/relationship manager Active management of Clients High personal engagement with client and understanding of each client’s requirements/expectations  Personalised attention to investment performance  Targeted, solution-driven investment advice  Proactive recommendation for actions for client’s portfolio Oversight of portfolio  Risk profiling of clients  Intermittent monitoring of portfolio  Regular (annual/ semi-annual) reviews and strategy discussion  Occasional mass information updates  Process driven client acquisition  Respond to requests for investment ideas Execution of agreed financial services  Accept client introduction / respond to requests for business from potential clients  Proficient investment advice along bank’s guidelines and regulatory expectations  Standardised risk assessment and matching  Procurement of investment vehicles  Full regulatory compliance  Processing, execution and correct reporting of transactions and account statements  Technically correct advice KYC and other compliance issues Relationship manager’s actions aligned with incentive-based activites Steps to excellence in Client relationship management Source : Booz Allen Hamilton and Reuters (2003). Assumed entry level competence Potential increasing depth of relationship (usually negatively correlated with number of clients/relationship manager and positively correlated with AuM/client) What Criteria for Target Market Selection ?
  31. 31. How to Tap Target Market ? Polarisation of the asset management industry A B Traditional products Market Tracking C Innovative products Structured Products 0.5 Hedge Fund 0.8 Index funds 3.2 Real estate 1.1 Private Equity 0.6 Quantitative products 0.4 ETF 0.2 Money Market 4.3 Active bonds 12.3 Active equities 11.6 Below average 10 20 30 40 50 100 200 Above average Projected Market Growth : 2004-2006e 2003 Size ($x trillion) Revenue margin (bp) Source : National statistics; BCG analysis
  32. 32. Ranking of preferences according to level of importance Clients’ reasons for choosing their wealth manager 19% 19% 28% 28% 44% 47% 50% 56% 64% 67% 75% 83% Referrals frombusiness introducers Familyhistory Extentofgeographical Access to otherspecialistservice Breadth ofproductrange PricingofProductandservice Investmentperformance Referrals from existingclients Image andreputation Qualityofinvestmentadvice Confidentialityandsecurity Qualityofclientservice Source : IBM Consulting Services, European Wealth and Private Banking Industry Survey 2005. How to tap the Target Market ?
  33. 33. How to tap the Target Market ? Source : Mercer Oliver Wyman (2005) 2% Follow new client advisor 3% External communications initiative 3% Other channels 6% Relationship with UBS employee 7% Through non-client referral 8% Through rep office or other unit/ division 37% Recommendation from existing client 22% Through external asset manager 12% Client’s own initiative Client acquisition at UBS
  34. 34. 1 2 3 >4 3% 18% 39% 40% Number of providers used Source : IBM Consulting Services, European Wealth and Private Banking Industry Survey 2005. 79% of European Private Wealth Clients use less than 2 Private Banks… ..only 3% use more than 4 Private Banks Number of Private Bank Used by 1 Client How to tap the Target Market ?
  35. 35. How to tap the Target Market ? 27 37 n/a 39 16 40 27 46 31 53 28 59 34 64 37 64 42 69 2004 1999 Transaction fees/commissions too high Insufficient disclosure of fees to investors Account churning Firms putting their own interests ahead of Investors’ Industry’s reluctance to punish wrongdoers Lack of internal controls to prevent Wrongful actions Insider trading Insufficient disclosures of risks to investors Industry motivated by greed *Aided basis Clients’ ‘big problems’ Investors indicating issue a “big problem”* Percent Source : US Securities Industry Association annual investor survey, November 2004 Trust is more and more challenged
  36. 36. * Sum of percentage of respondents with ‘strongly agree’ and agree responses. Clients’ reasons for leaving their wealth manager Source : Clients’ reasons for leaving their wealth manager* 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Death Generational transfer Changes in legislation Following key staff Mergers Poor quality reporting Poor product and services offering Decline of the bank's image Lack of good investment offer Pricing of products and services Poor investment performance Poor investment advice Dissatisfaction with service How to tap the Target Market ?
  37. 37. Wave 1 : Fund supermarkets  Largely failed due to bewildering choice and reliance on direct distribution  E.g. Ample/I II, Skandia Emerging Waves 2 : True partnerships  Open, full scope architecture with just 1-2 partners  Embedded and partner AM treated equally or as defined product suite  E.g. Vanguard/Wellington: Unicredito/Pioneer Wave 2 : Niche gap-fillers  Very limited OA where embedded AM does not have product offering  Largely failed due to narrowness of scope  E.g. Invesco, Deutsche Emerging Waves 3 : True partnerships  Streamlined Internal capabilities, with low- cost sub-advised product in-fill  White label arrangements retain house brand  E.g. Clariden’s sector funds, Friends Nory & Slme Emerging Waves 1 : Multi-Managers  Focus on distribution and packaging and offering best-of- breed products through multi-manager solutions  E.g. Manager-pickers like Frank Russell Spread Time Today Open architecture waves – where we’re at and where we’re going Source : Mercer Oliver Wyman (2005). To Higher Value Added Services once the OA ready How to tap the Target Market ?
  38. 38. From Products sale force Secrecy and asset preservation Proprietary products Investments focus Stocks and bonds Transactional pricing Off-shore dominant Fragmented Research as generic service Research paid through trading execution To Trusted wealth advisor Value added solutions Open architecture Full client balance sheet Alternatives, derivatives, etc Annuity pricing On-shore dominant Consolidated Research driving investment insights Research paid explicitly Transformation of wealth management Source : Presentation by Todd S. Thomson, Chairman and Chief Executive Officer, Citigroup Global Wealth management, UBS Asset Gathering Conference, 31 March 2005. How to tap the Target Market ?

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