The age-old problem of tapping the pool of high net worth individuals’ money not already controlled by wealth management firms is a major th...

The age-old problem of tapping the pool of high net worth individuals’ money not already controlled by wealth management firms is a major theme covered by Bridgewell Securities' latest analysis of the UK private client market.

Bridgewell Securities believes UK households currently have financial assets of £3.2 trillion ($5.6 trillion), which excludes loans and property. In contrast, the private client wealth management industry had £226 billion of assets under management at the end of 2004 and served around 900,000 discretionary and advisory clients.

As Bridgewell said in its latest report: “We believe the potential asset pool from which private client wealth managers can seek to make a living remains largely untapped.”

But then there is the reluctant investor problem. Data derived from Compeer, the research group, and quoted by Bridgewell shows that, despite healthy gains by the major global equity markets during the year (2004), the value of assets under management remained relatively static compared with 2003.

Bridgewell also believes investor reluctance also emerges from an analysis of retail equity trading. “The strength of the UK stock market since the end of 2003 has failed to provoke a recovery in trading volumes on the scale that historical trends would lead us to expect,” said Bridgewell.

The London-based stockbroker believes some of this fall in trading volume is due to retail investors' growing appetite for trading contracts for differences (CFDs). But the sharp rise in the proportion of sell orders relative to buy orders suggests investor appetite remains weak.

All this leads to a more challenging environment for UK wealth managers. “We believe the depth and breadth of private clients’ investment requirements are undergoing structural change; wealth managers will need to work hard to attract new clients and to gain greater ownership of their existing clients.”

This is particularly the case as clients are demanding a far greater range of products and services than before. And this is facilitating the move towards wealth mangers offering much more of a “total financial management solution”.

“For private client wealth managers, this trend presents potentially greater opportunities to sell products into the high net worth market, but these products will be specialist in nature in all of the major asset classes,” said Bridgewell.

Bridgewell identified three major trends within the wealth management market in recent years:

• Greater investment in fixed income products;
• Increasing attention to alternative asset classes; and
• Growing use of in-house and third-party collective investment vehicles.

The stockbroker report says that the potential of the self-invested personal pension schemes (SIPPS) for wealth managers could be extremely significant.

“SIPPS are likely to gain most popularity among individuals with pension pools in excess of £100,000 – the point at which active management and an open-architecture approach become more compelling,” said Bridgewell.

Just how big the SIPPS market is likely to be, Bridgewell quoted research by TrustNet, the UK fund information specialist, which estimates that the number of SIPPS will rise from 85,000 today to 500,000 by 2010, implying annual compound growth of more than 40 per cent.

Despite the fragmented nature of the UK wealth management sector, Bridgewell says most of the market is controlled by around 10 firms. “We estimate the top ten players manage around 49 per cent of private client assets and the next 50 companies some 48 per cent, with the remaining 3 per cent being managed by around 75 companies.”

Bridgewell believes consolidation pressures will remain, although the importance of gaining management support in order to acquire businesses that are heavily people-dependent can often make the process a complicated one.

“We continue to believe that the fragmented nature of the market (outside of the top ten players) and the growing need to provide private clients with a full service offering will drive further corporate activity in the sector,” said Bridgewell.