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Wealth managers need to shape up or ship out, says PwC

A staff reporter

30 January 2005

Firms offering wealth management services need to quickly re-evaluate their strategies as competition hots up or risk going out of business, a new PricewaterhouseCoopers report warns. The report said pressures such as increasing client demands and a squeeze on margins due to economic uncertainty could only be expected to increase in the coming months. Those firms who will survive a possible cull would be institutions that turn the microscope on themselves. "The pressure is mounting for the wealth management industry across Asia, Europe and the US. Providers are having to look harder than ever at how they can meet client expectations and still make a decent profit," said Jeremy Scott, global head of PwC financial services practice. The report, Wealth Management at a Crossroads: Serving Today's Consumer, looks at the industry from both the perspective of the service providers and the clients themselves, with some surprising findings. Bruce Weatherill, a member of PwC's wealth management editorial board for the study, said the crucial finding was that clients were simply not happy with the service they were being offered. Customer loyalty to financial institutions is under great pressure. Although only 22 per cent of respondents described themselves as dissatisfied with their primary financial provider, 43 per cent were considering changing provider. Weatherill said banks needed to target their markets carefully. "Providing you target your service in that way, I think there's a hell of a lot to be gone for. The people who are losing margin at the moment are doing so because they are firing blunder buses into the air, hoping to hit a mass affluent person but that's bombarding them with product rather than concentrating on service and advice," Weatherill told Private Client Management. The report appears to confirm fears from private banks which have been scaling back their wealth management ventures amid fears the bottom may be falling out of the market thanks to weak equity bourses. Lloyds TSB has drastically reduced its Create offering, scrapping a number of its original elements such as share dealing until at least next year. Goldman Sachs has reduced the service it is offering while the Merrill Lynch HSBC joint venture has warned it expects to cut around 150 jobs. Only the Royal Bank of Scotland's launch last month of its new affluent service has gone smoothly. The Royal Bank aims to offer an integrated banking and wealth management service for people with £100,000 or more to invest. Weatherill said even in a crowded marketplace there was room for new entrants. Respondents were asked to select the disincentives, which prevented them changing their financial provider. Established relationships, costs and time investment were all identified by close to half the respondents as deterrents to change. What was most significant, however, was that 31 per cent of respondents chose the answer lack of alternatives. "I don't think the market is necessarily overcrowded. I think it is underserved," Weatherill said. PwC carried out the survey across three continents – Asia, North America and Europe – by holding a series of detailed interviews with leading figures in the wealth management industry during September and October. Executives from over forty different institutions, including private banks, family offices and brokerages, took part. That was bolstered by an online survey conducted in conjunction with the Economist Intelligence Unit to test the attitudes of the mass affluent to wealth management. Another finding was that for providers servicing an international client base, localisation was crucial. The regulatory and economic context was more important in shaping the product and service mix than cultural differences between markets. "And to the extent that regulatory stringency stemming from the 11 September terrorist attacks will accelerate the movement of money onshore, knowledge of local tax regimes will become more vital. As a result, the global banks' advantages of size and scope mean nothing if they do not tailor their offering to the local markets." Weatherill said firms had to adapt for different markets, citing the Asian market as an example. "I don't think the players are particularly bothered what happens once they've been sold their product, providing it's efficient and effective but they have a great deal of difficulty in buying it from an expat," he said.