The annual survey by PricewaterhouseCoopers indicates that alternative/structured products are among the top areas that wealth managers will look to outsource over the next three years.
PricewaterhouseCoopers' 2003 Global Private Banking/Wealth Management Survey indicates that revenue generation is the top priority and competition for clients, particularly ultra high net worth individuals, will intensify. Wealth managers will need to reconfigure their business models and consider open product architecture to achieve profitability.
The 2003 survey was conducted among over 100 institutions in Europe, North America and Asia. Below are some highlights of particular interest to investment managers.
The global model is only desirable or profitable for the largest private banking players. Wealth managers which used this period of retrenchment to protect revenue and control costs have strengthened their position.
For Chief Executives, global coverage is no longer as pressing an issue as previously reported. Wealth managers are concentrating on differentiating their service, and playing to strengths, rather than attempting to offer a full service across all geographic territories.
Wealth managers now realise that few of their clients desire access to global markets, and that while size and spread may ostensibly offer a route to growth, profitability is harder to achieve on a global scale. Open product architecture, enabling wealth managers to source products from a large range of markets, means it is no longer as necessary to operate globally.
As shown in Figure 1 (see below), investment and alternative products are among the top areas that wealth managers will look to outsource to third party providers.
The wealth management industry will polarise between producers and distributors. Only those making a clear strategic choice and reconfiguring their business model accordingly will be able to compete effectively and profitably.
Against a background of dire investment performance over recent years, wealth managers have begun to recognise the difficulties of competing on the strength of investment performance alone.
At the same time, the introduction of open product architecture has enabled wealth managers to source products from outside their organisation and compete on the basis of superior client service, acting as a multi-channel distributor of products.
As shown in Figure 2 (see below), some 59% of respondents cite distribution as the primary focus of their strategy, versus only 22% who are currently focused on production. Participants predict that in three years this gap will widen, with 64% orienting their strategic direction towards distribution but only 16% intending to focus on production.
Wealth managers have a key strategic decision to take, assessing carefully their own size, strengths and differentiators. Most will need to reconfigure their business models in order to transform into a well differentiated distributor, and recognise that changing a long standing asset manager model represents a major challenge.
Figure 1: Products to be outsourced in 3 years
- Basic retail banking and cash management products: 20%
- Credit related banking products: 10%
- Investment products: 34%
- Alternative/Structured products: 55%
- Trust services: 40%
- Other high net worth products: 23%
Figure 2: Strategic Direction
- Differentiation: 69%
- Customer Service Reinvention: 69%
- Distributor: 59%
- Focus Strategy: 32%
- Synergy: 30%
- Producer: 22%
......and in three years
- Differentiation: 79%
- Customer Service Reinvention: 64%
- Distributor: 64%
- Focus Strategy: 45%
- Synergy: 45%
- Producer: 16%
This article was prepared by Sandra Dowling (London) and Rolf Birren (Zurich) of PricewaterhouseCoopers.