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Wealth Management System Limited
Welcome to..
Wealth Campus
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Moving to Private Wealth Management Era
November 6 , 2007
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 ?
Recommended Book
Why Private Wealth Management Business ?
Y 1993 Private Bank result :
Net Revenue US$ 235 MM
Growth 40%
ROE 38%
Return on Economic capital = 52%
PBG : TOMORROW’S NEW BACKBONE INDUSTRY
Why Private Wealth Management Business ?
Citigroup : Private Bank offers the highest ROIC
Private Bank (1)
75%
Smith Barney
58
46
Transaction Services
29
Cards
24
Capital Markets and Banking
Consumer Finance
22
Post-tax return on invested capital, 2004
Retail Banking
Asset Management (2)
18
11
(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.
Source : Citigroup
Why Private Wealth Management Business ?
Wealth management profitability
Wealth Management Business : Why not… 405%- 409%
Percentage
Risk adjusted return on capital
100%= 1318m*
360m
958m
10
4.8
Corporate
15.4
Small business
9.3
0.5%
27.6
5.3%
53.6
Mass market
26.0
29.6%
44.9
Affluent
33.2
21.7
Private
405%
21.1
409%
21.7
16.1
2.5
Net profit
Cost of capital
Value creation
*Excluding other businesses
Source : UniCredito Italiano investor presentation, 19 June 2001.
Mean = 23%
Why Private Wealth Management Business ?
Wealth management ‘pure plays’
24.8
Charles Schwab
Raymond James
AG Edwards
16.0
Retail Brokers
18.8
15.7
Other financial services plays
Anglo Irish
16.1
Deutsche Postbank
15.5
EU Retail/
Corporate Banks
Monte dei Paschi
15.4
14.1
Banco Popular
Northern Trust
19.1
17.9
Julius Baer
Vontobel
Monte dei Paschi
17.6
16.5
Franklin Resources
21.3
Asset Managers
Amvescap
17.4
17.3
Alliance Capital
Man Group
Wealth management
average
Source : UBS; IBES; author’s analysis.
Investment Bank
14.1
Morgan Stanley
12.3
Goldman Sachs
12.2
Bear Steams
17.9
11.4
10.4
Universal Banks
17.2
11.1
JP Morgan Chase
Credit Suisse
12.7
12.3
Merrill Lynch
Lehman Brothers
17.4
Federate Investors
10.8
Private/Trust
Bank
17.2
Mellon Financial
13.1
11.9
11.0
Citigroup
10.8
Deutsche Bank
10.7
Financial service price-earnings rations, 2005
Why Private Wealth Management Business ?
Y 1993 Private Bank result :
Net Revenue US$ 235 MM
Growth 40%
ROE 38%
Return on Economic capital = 52%
PBG : TOMORROW’S NEW BACKBONE INDUSTRY
Beside the Most Profit Business Group,……..
WM : THE FASTEST GROWING SECTOR OF THE
FINANCIAL SERVICE INDUSTRY
What is the Global Market Size: Now and Future?
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?
Niche Market but Big Purchasing Power : ¼ of GFS
136.0
2004, $ Trillion
40.9
30.8
14.3
Non-GB
14.9
Other
G8*
G8=$26.6 tn
US
11.7
HNW
Wealth
Global
Financial
stock
Global GDP
*Japan, Germany, UK, France, Italy, Canada, Russia
HWN wealth is larger than Annual G8’s GDP
Global Financial Stock = Bank Deposits + Fixed Income + Equities Securities Market
Source : Capgemini/Merrill Lynch; IMF; McKinsey Global Institute.
What is the Global Market Size: Now and Future?
HNW wealth estimation & comparison by Region
Japan HNW is estimated at Usd 5.1 Trillion
Capgemini/
Merrill Lynch
ROW*
Asia-Pacific
Europe
N. America
TOTAL
Difference
BCG
5.4
3.8
1.6
Japan**
7.2
2.2
8.9
5.1
5.1
7.3
- 0.1
3.5
5.4
9.3
10.2
-0.9
6.3
30.8
24.5
*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
Source : Capgemini/Merrill Lynch; Boston Consulting Group; The Economist; author’s calcutions.
What is the Global Market Size: Now and Future?
Asset allocation of HNWIs
100%
100%
100%
10%
13%
14%
Alternative Investments*
17%
13%
Real Estate**
10%
12%
Cash / Deposits
25%
27%
Fixed Income
35%
34%
Equities
2003
2004
15%
25%
30%
20%
2002
* 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.
Source : Capgemini/Merrill Lynch, ‘Relationship Manager Surveys’, March 2003, April 2004, April 2005; ‘World Wealth Report’ 2005.
What is the Global Market Size: Now and Future?
Growth in HNW wealth by region
2003-2004
28.9
Middle East
Oil makes More HWN in Middle East
1.5
17.3
Africa
4.9
10.2
N. America
6.7
8.5
Asia-Pacific
8.8
7.9
Latin America
5.8
3.7
Europe
7.7
8.2
TOTAL
7.1
Economic Growth and Asset Price are the key driver
Source : Capgemini/Merrill Lynch ‘World Wealth Report’ (various years); author’s analysis.
1997-2004
What is the Global Market Size: Now and Future?
N.America and Europe = 59% (5.3 Million People)
100% =$74 trillion-$93 trillion
>$100m
Africa
>$20m-$100m
Middle East
5.2
5.2
5.6
17.3
>$5-20m
Latin America
$30.8 tn
8.3 m
0.7
1.0
3.7
0.1
0.3
0.3
Asia-Pacific
7.2
Europe
8.9
>$1-$5m
66.7
$100m-$1m
Avg wealth
Per HNWI
3.7 $m
Source : Boston Consulting Group : Capgemini/Merrill Lynch; author’s calculations
3.3
12.3
2.3 3.1m
2.6
9.3
2.7
HNW wealth
($ tn)
No.of HNWIs
(m)
N.America
AP has 2.3 Million Millionaires with Average USD 3.1 M
7.0
3.4
3.4
What is the Global Market Size: Now and Future?
Wealth Held Offshore from Given Region
75
Africa
70
Middle East
65
E.Europe
55
Latin America
30
Asia excl. Japan
W.Europe
25
Japan
3
N.America
3
*Weighted by wealth
In Western Europe primarily driven by global tax initiatives
Global average* = 23%
Source : Boston Consulting Group; Julius Baer; author’s client work.
What is the Global Market Size: Now and Future?
Offshore needs Strong Brand / Onshore emphasis on Local Presence
70
Trustworthy and
reliable
Brand/
reputation
Caring/
attentive
Professional
Offshore
Confidentiality
Accessible/
conveniently
located
branches
Forward looking
Innovative
35
Helpful
Performance
Proactive
Sincere/honest
Keep promise
Approachable/
Easy to deal with
Flexible
Consistent
Transparent
0
0
Relationships
Easy to use
35
70
Onshore
Wealth management attributes
Source : McKinsey & Company, ‘Annual Investment and Wealth Management CEO Conference, 2005
What is the Global Market Size: Now and Future?
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?
Offshore centers in 2005
Rank
Offshore centers in 2007 E
Switzerland
1
Singapore
Singapore
2
Switzerland
Hong Kong
3
Hong Kong
UK
4
UK
Luxembourg
5
Luxembourg
Cayman Islands
6
Cayman Islands
Bahamas
7
Bahamas
Offshore centers in 2007 : Singapore rank # 1 ?
Source : IBM Consulting Service (2005).
What is the Global Market Size: Now and Future?
HNWI financial wealth forecast by region, 2004-2009E (US$ trillions)
0.9
1.5
5.0
0.7
1.0
0.6
0.8
0.6
0.8
10.1
3.7
3.4
3.6
7.2
6.6
5.9
7.4
13.9
8.5
9.3
8.4
8.6
8.9
2002
2003
2004
Source : Capgemini/Merrill Lynch World Wealth Report 2005.
10.7
2009E
Annual Growth Rate
2004-2009E
Global…………...………….
Africa………………………….
Middle East…………………..
Latin America………………..
Asia-Pacific…………………..
N.America…………..………..
Europe………………………..
6.5%
5.6%
9.1%
6.4%
6.9%
8.4%
3.8%
What is the Global Market Size: Now and Future?
Overtaking the G6: when BRICs’ GDP would exceed G6
UK Germany
US
Japan
China
Italy
France
Germany
Japan
India
Italy
France Germany
Russia
Italy
France Germany
Brazil
G6
BRICs’
*Cars indicate when BRICs’ US$GDP exceeds US$GDP in the G6
2000
2005
2010
2015
2020
Source : Goldman Sachs (2003).
2025
2030
2035
2040
2045
2050
2055
BRIC’s : The next big 4 in WM Market
What is the Global Market Size: Now and Future?
The largest economies in 2050
China
US
India
Japan
Brazil
Russia
UK
Gremany
France
Italy
GDP (2300, US$ trillions)
0
Source : Goldman Sachs (2003).
5
10
15
20
25
30
35
40
45
50
What is the Global Market Size: Now and Future?
Who is Who in the PWM Business ?
High
(advice,
Banking, etc)
Wealth
management
competitor
landscape
• EFG International
• Bordier
Private Banks
• Julius Baer
• Pictet
• MLP
• Banca Fideuram
• Coutts
• C Hoare & Co
Trust Institutions/Custodians
• Northern Trust
• Atlantic Trust
• Wilmington Trust
• Fiduciary Trust
• Global Wealth Management
• Fleming Family & Partners
• Rockefeller
• Bessemer Trust
• Stanhope Capital
• BNP
• ABN Amro
• HSBC
• Citigroup
• Bank of America
• Deutsche
• Bank of New York
• Mellon Financial
Family Offices
Retail/ Universal Banks
• UBS
• Credit Suisse
• Vontobel
• Sarasin
Advisers & Access Providers
• UK IFAs
• 21i.net
Investment Banks
Stockbroders
• Cortal
• E*TRADE
• Consors
• Charles Schwab
• JP Morgan
• Goldman Sachs
• Lehman Brothers/
Neuberger Berman
• Lazard
• Rothschild
• Morgan Stanley
• Merrill Lynch
Direct Banks
• ING Direct
• Egg
• DAB
• Fidelity
• Old mutual
• BGI
• Schroders
• Sanford Bernstein
• AMVESCAP
Product Specialists
Low
(Products/
Transaction)
• Man Investments • GAM • Permal • Blackstone • Apax partners • 3i
Affluent
Source : Author’s analysis.
Asset Managers
HNW
Client segment
UHNW
Who is Who in the PWM Business ?
Top Ten got 14% even Top 20 got only less 20%
Global market share of top 10 players, end 2004
Percent
80
UBS
2.9
AUM 878 Billions
Merrill Lynch
68
Citigroup
36
33
14
M&A
Fixed
Income
2.4
Credit Suisse
58
Credit
Cards*
2.6
Global
Banks**
* US market only
** Top 15, based on market capitalisation
† Includes US Trust
Asset
Mgmt.
1.6
Charles Schwab†
1.0
Wachovia
1.0
Bank of America
Private Bank
0.7
Fidelity
0.7
JP Morgan
Private Bank
0.6
HSBC
0.6
Wealth
Mgmt.
Wealth management industry fragmentation
Source : Mercer Oliver Wyman; Bloomberg; Global Investor; Deutsche Bank; Datastream; Barron’s; Wealth Partnership Review;
Datamonitor; Scorpio Partnership; company data; author’s analysis.
What Criteria for Target Market Selection ?
Client
Integrated client-facing team
Capital
Markets
Specialist
Private Banker
6% Revenue
Trust and
Estate Planner
Brokerage
Credit
Capital
Markets
Investments
Banking
Foreign
Exchange
Investment
Counselor
Invest.
Finance
Specialist
Trust and
Estate Planner
Risk
Management
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.
Insurance
Real Estate
Family
Advisory
Art
Advisory
Citigroup Private Bank service model and key metrics
Source : Citigroup (2004)
What Criteria for Target Market Selection ?
Sources of prospective clients
Existing clients
Marketing & Promotion
 Advertising
 Cold calling
 PR
 Event sponsorship
 Worksite marketing
 Seminars
 Referring friends
 Referring family
 Referring work colleagues
 Poaching staff from the
competition
 Offering services to the
group’s own wealthy staff
Prospective
customers
External growth
 Acquisitions
 Alliances
Staff
Intermediaries
 Financial Advisors
 External asset managers
 Lawyers
 Accountants
 “Ambassadors”
Source : Datamonitor(2002), ‘Clients Acquisition in Wealth Management Survey’, September 2002.
Internal referrals
 Other wealth mgt units
 Retail banking
 Investment banking
 Corporate banking
 Stockbroking
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.
What Criteria for Target Market Selection ?
Client bands
Ultra
high
Net worth
>$50 Million
Percentage of
respondents
expecting increase
in 3 years
Percentage of
asset under
management
19%
47%
Very HNW
$5m - $50m
30%
69%
High net worth
$500,000 - $5m
32%
Affluent
$100,000 - $500,000
The Wealth management pyramid
Source : Pricewaterhouse Coopers (2005), ‘Global Wealth Management Survery’.
19%
49%
23%
How to Tap Target Market ?
Polarisation of the asset management industry
Projected Market Growth : 2004-2006e
Index funds
3.2
Above
average
Structured
Products
0.5
ETF
0.2
Real estate
1.1
Market Tracking
A
B
Hedge Fund
0.8
Quantitative
products
0.4
Traditional
products
C
Private Equity
0.6
Innovative products
Money Market
4.3
Below
average
Active equities
11.6
Active bonds
12.3
10
20
30
Source : National statistics; BCG analysis
40
50
2003 Size ($x trillion)
100
200
Revenue margin (bp)
How to tap the Target Market ?
Clients’ reasons for choosing their wealth manager
Quality of client service
Confidentiality and security
Quality of investment advice
Image and reputation
Referrals from existing clients
Investment performance
Pricing of Product and service
Breadth of product range
Access to other specialist service
Extent of geographical
Family history
Referrals from business introducers
83%
75%
67%
64%
56%
50%
47%
44%
28%
28%
19%
19%
Ranking of preferences according to level of importance
Source : IBM Consulting Services, European Wealth and Private Banking Industry Survey 2005.
How to tap the Target Market ?
Client acquisition at UBS
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
12% Client’s own initiative
22% Through external
asset manager
Source : Mercer Oliver Wyman (2005)
How to tap the Target Market ?
79% of European Private Wealth Clients use less than 2 Private Banks…
..only 3% use more than 4 Private Banks
40%
39%
Number of Private Bank Used
by 1 Client
18%
3%
1
2
3
>4
Number of providers used
Source : IBM Consulting Services, European Wealth and Private Banking Industry Survey 2005.
How to tap the Target Market ?
Trust is more and more challenged
Investors indicating issue a “big problem”*
2004
Percent
69
Industry motivated by greed
1999
42
64
Firms putting their own interests ahead of
Investors’
37
Industry’s reluctance to punish wrongdoers
64
34
59
Lack of internal controls to prevent
Wrongful actions
28
53
Insider trading
31
46
Insufficient disclosures of risks to investors
27
40
Account churning
16
Insufficient disclosure of fees to investors
39
n/a
37
Transaction fees/commissions too high
27
*Aided basis
Source : US Securities Industry Association annual investor survey, November 2004
Clients’ ‘big problems’
How to tap the Target Market ?
Clients’ reasons for leaving their wealth manager
0%
10% 20% 30% 40% 50%
60% 70% 80% 90% 100%
Dissatisfaction with service
Poor investment advice
Poor investment performance
Pricing of products and services
Lack of good investment offer
Decline of the bank's image
Poor product and services offering
Poor quality reporting
Mergers
Following key staff
Changes in legislation
Generational transfer
Death
* Sum of percentage of respondents with ‘strongly agree’ and agree responses.
Source : Clients’ reasons for leaving their wealth manager*
How to tap the Target Market ?
Open architecture waves – where we’re at and where we’re going
To Higher Value Added Services once the OA ready
Spread
Emerging Waves 1 : Multi-Managers
 Focus on distribution and packaging and offering best-ofbreed products through multi-manager solutions
 E.g. Manager-pickers like Frank Russell
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 lowcost sub-advised product in-fill
 White label arrangements retain house brand
 E.g. Clariden’s sector funds, Friends Nory &
Slme
Wave 1 : Fund supermarkets
 Largely failed due to bewildering choice
and reliance on direct distribution
 E.g. Ample/I II, Skandia
Time
Today
Source : Mercer Oliver Wyman (2005).
How to tap the Target Market ?
Transformation of wealth management
To
From
Products sale force
Trusted wealth advisor
Secrecy and asset preservation
Value added solutions
Proprietary products
Open architecture
Investments focus
Full client balance sheet
Stocks and bonds
Alternatives, derivatives, etc
Transactional pricing
Annuity pricing
Off-shore dominant
On-shore dominant
Fragmented
Consolidated
Research as generic service
Research driving investment insights
Research paid explicitly
Research paid through trading execution
Source : Presentation by Todd S. Thomson, Chairman and Chief Executive Officer, Citigroup Global Wealth management, UBS Asset Gathering Conference,
31 March 2005.