In pursuit of wealthy and wealth Private Banks A global perspective

(1)

In pursuit of wealthy and wealth

Private Banks – A global perspective

Kuala Lumpur

October, 2014

(2)

World’s Leading Wealth Insights Firm

Winner 2007-10 – Global Wealth Insights Firm – Wealth Briefing; Winner of 2013 Thought Leadership Award Asia – Wealth Briefing Runner-up 2010-2012 – Agency of the Year – Financial Services Forum, Runner-up 2014 Thought Leadership in North America – Wealth Briefing

(3)

Triangulating the value proposition for private banks

Business model

insight

Advisor

insight

HNW/UHNW

Client insight

B

C

2

Ongoing strategic insight, calibration and practical implementation

Scorpio Partnership global private banking KPI benchmark

McLagan financial institutions KPI benchmarking analysis

McLagan advisor productivity and compensation benchmarking

Scorpio Partnership market research and employee surveys

Scorpio Partnership global HNW/UHNW client journey surveys

Scorpio Partnership market entry strategic research and consulting

(4)

1. The state of the global private banking

industry

(5)

Banks are shifting capital away from risky institutional

businesses to wealth management but challenges remain

Independent Advisors

Regional

Banks

Brokers

Global

Private

Banks

Boutique

Private

Banks

(6)

~

80%

~

20%

Expected Pre-tax

Profit Contribution

Attributed Equity to

Business Divisions

~

65%

~

35%

~

65%

~

35%

3Q12

2013

WM business, R&C, Global AM Investment Bank

UBS has refocused on WM which accounts for 65% of

attributed Equity and 80% of profit

(7)



Moving business mix

towards 50/50% split by

gradually growing capital

allocation in PB&WM



Consistent earnings

capacity of business

model to generate

substantial levels of

excess capital

Contribution to

Basel 3 Risk-Weighted Assets

26%

36%

38%

26%

38%

36%

15%

56%

29%

3Q11

4Q12

4Q13

Equities Advisory, Underwriting Fixed Income Private Banking & Wealth Management Investment Banking

Private Banking Share of RWA at Credit Suisse Up 9% Points

to 38% and Expected to Grow to 50%

(8)

Full Year 2013 Net Revenues

Global Wealth Management Global Wealth Management Fixed Income and Commodities (ex-DVA) Fixed Income and Commodities (ex-DVA)

Equity Sales Equity Sales

Asset

Management

Asset

Management

Other Other

Full Year 2006 Net Revenues

Morgan Stanley Has Reshaped Its Business So That Wealth Is

Now The Largest Component

(9)

Bankable assets have grown at twice the rate of captured

wealth since crisis

S o u rc e : S c o rp io P a rt n e rs h ip P riv a te B a n k ing K P I B e n c h m a rk 2014 8.0 17.4 18.5 20.3 17.8 26.4 30.8 35.0 26.7 39.7 46.2 52.6 0 10 20 30 40 50 60 2002 2007 2012 2013 A s s ets i n US D tr ill ion s

Total PB market size (USD) Bankable assets market size (USD) Total HNW financial assets (USD)

CAGR: 4.8% CAGR:

(10)

NNM is positive but slowing down

S o u rc e : S c o rp io P a rt n e rs h ip P riv a te B a n k ing K P I B e n c h m a rk 2014 2.07 0.73 2.74 5.87 4.43 3.74 -1.24 -1.16 3.39 0.95 1.02 1.06 0.86 -0.07 3.04 3.62 3.02 2.74 -2 0 2 4 6 8 2008 2009 2010 2011 2012 2013 A v er age NN M ( US D bi ll ions)

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…while cost-income ratios are growing

*Gross margin is defined as operating income divided by AuM Source: Scorpio Partnership Private Banking Benchmark 2014

112 119 102 98.2 107 ₁₀₄ 102 127 138 117 98.5 120 113 ₁₁₀ 60 80 100 120 140 160 2007 2008 2009 2010 2011 2012 2013 G ro s s m a rg in i n b p s

Pure player Diversified Overall

Global Financial

Crisis

61.9% 70.6% 75.1% 75.0% 74.6% 75.4% 78.3% 66% 88% 81% 87% _85.6% 86.1% 88.3% 40% 60% 80% 100% 2007 2008 2009 2010 2011 2012 2013 CIR

Diversified Pure player Overall

Sustained

increase of

cost-income ratios

and flattening

gross margins

form a

challenging

environment for

both type of PB

and WM firms.

(12)

Key highlights

Global Banks have realized the importance of focusing on Wealth

Management as a sustainable and less riskier business

Growth in wealth and high % of untapped wealth provides good

impetus for PBs to consider it as a future oriented business

High cost business model compared to institutional business means

that scale & breadth is needed for success

(13)

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The rising APAC HNW

+

wealth world

APAC will

dominate global

wealth by 2020

based on

forecasts.

Notably, regional

HNW growth in

APAC HNW

wealth is 9.8%

compares with an

average of 5.5%

GDP growth rate

in APAC

ex-Japan.

1.3 1.8 7.5 10.9 12.7 12 1.4 2.2 8.3 13.1 15 15.9 0 4 8 12 16 20

Africa Middle East Latin America Europe North America Asia Pacific T ota l HNW W e a lth (U S D tril li on)

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1.9

0.9 2.4

2.6 0.6

Source of total HNW offshore wealth market, USD trillion

The offshore fund flows for HNW

+

assets

Source: Scorpio Partnership analysis, BCG

At USD2.4trn

APAC is the

second largest

market region for

offshore business.

Equally, the

growth in the

regional key

booking centers is

significant.

In sum, wealth

management in

Asia is not just the

future, it is the

now….

Switzerland USD2.2trn

Hong Kong and Singapore USD1.2trn Channel Islands and Dublin USD1.1trn Caribbean and Panama USD1.1trn

United Kingdom USD0.9trn

United States USD0.7trn

Other USD0.7trn

Luxembourg USD0.6trn

(16)

6yr Total - USD11.8bn 6yr Total - USD451.3bn

6yr Total - USD32.7bn

6yr Total - USD286.5bn 6yr Total – USD314.0bn

6yr Total – USD102.0bn

6yr Total - USD575.2bn

Assets-switching velocity is impacting the attitudes

UK

Switzerland

Europe exc. UK and Switzerland Asia Pacific

Middle East and Africa

APAC M&A

momentum is likely

to grow based on

continued operating

model pressures.

(17)

Private Banks in Asia experienced double-digit % asset

growth

13 14 15 15 15 16 30 30 35 43 43 46 50 58 60 75 115 117 201 215 0 50 100 150 200 250 UOB Coutts Societe Generale J. Safra Sarasin ABN AMRO EFG Pictet Barclays Standard Chartered BNP Paribas Bank of Singapore DBS Deutsche Morgan Stanley Julius Baer JP Morgan HSBC Credit Suisse Citi PB UBS

Asia-Pacific AuM in 2012 (US$ Bn)

Source: Private Banker International

(18)

PBs in Asia are at a low point on pre-tax margins with a

median cost-to-income ratio at about 70%

61 79 81 75 80 71 0 10 20 30 40 50 60 70 80 90 2007 2008 2009 2010 2011 2012

Cost-to-income (%)

39 41 36 32 39 20 16 18 ₁₅ 20 0 5 10 15 20 25 30 35 40 45 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Profit Margins* (bps)

 Cost to income ratio have been running north of 70% with some boutique firms reporting CIR of 90% and above. Effect of such high CIR will be felt in the moderate to long term

 Compensation expense in boutique PB firms are at level of 70%+ of total compensation expenses while for bulge firms, it is at 50% levels

 Profit margins in Private Banking industry have continued to decline since the global financial crisis and have reached a very low level of almost 20 basis points

Global Financial

Crisis

(19)

Key Challenges Faced by Private Banks in Asia

Organizational Setup

:

Lack of alignment of front, middle and back office and leadership challenges in teams and markets

Performance Management

:

Weak performance management methodology and pay for performance approach

Front Support Cost

:

Increasing cost in front and selected middle office functions (e.g. ARM, Business Managers etc.)

Platform Inefficiency & Regulatory Cost

:

Lack of holistic platform to support increased regulatory

requirements (e.g. AML, KYC, FATCA)

Demand for RMs

:

High demand for RMs who can move assets leading to overcompensation and reduced productivity

Client Behavior

:

High price sensitive clients who want control and have mismatched expectations on risk-return

Quality of Advice

:

Ineffective advisory process of RMs with focus on sales orientation rather than advisory orientation

Changing Regulations

:

Growing sophistication of regulators and increased scrutiny on sales process and pricing policies

(20)

Wealth management is not about the money

Wealth management is about the people

just

all

(21)

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Durability of financial

suppliers and

protection of assets

Delivering value for

money.

Greater control /

influence over

investments.

Offering of real-time

wealth management.

Age and attitudes,

wealth level, type of

wealth.

Self-directing

Rise of

digital

Segment

complexity

Value

sensitivity

Risk

awareness

(23)

The starting line is the value point – this is recalibrating

Q: How would you rate the industry in terms of value for money today?

?

Source: Scorpio Partnership, Sungard

The issue of

value and its

variance among

the demographics

is possibly the

single most

important

planning factor for

the future of

wealth

(24)

Client view of the wealth managers performance

82 78 ₇₆ 75 ₇₅ 71 70 70 68 65 ₆₅ ₆₄ 63 ₆₂ 61 58 51 42 74 68 ₆₇ 69 65 63 62 ₆₁ 55 57 56 56 55 55 51 55 42 ₄₁ 30 40 50 60 70 80 90

Factors performance, global Factor performance, APAC

APAC

respondents tend

to assess

performance of

wealth managers

7.9% lower, on

average

(25)

APAC HNWs hold WM to a high standard

50.2 57.4 56.3 53.0 59.9 77.9 69.1 65.3 61.8 63.5 North America Latin America Middle East & Africa Europe Asia-Pacific

WM performance

Client minimum tolerance

S o u rc e : C a p g e m ini , R B C W M , a n d S c o rp io P a rt n e rs h ip Glo b a l H N W I n s igh ts S u rv e y 2013

Analysis based on the following:

Q: We’d now like you to imagine that you are giving your wealth manager an exam mark. Thinking about your overall relationship with your main wealth manager, what performance score would you give them ?

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HNWs are searching for the core relationship

41.4% 53.1% 52.8% 49.2% 43.2% 35.4% 14.4% 19.6% 11.8% 16.6% 21.9% 18.1% Global Latin America North America

APAC (excl. Japan)

MENA

Europe

Single firm Multiple firms

c e Ca pgem ini , RB C W M , and S c orp io P art ner s hi p Gl obal HN W I ns ight s S urv ey 2013

Q: (on a 10-point spectrum): Please indicate your preference for working with multiple wealth management firms (who each have a specific area of expertise) vs. a single firm (that can meet your full range of needs)

The global HNW market is transforming in the debate around engagement.

Even in the emerging

markets where the

complexity of assets

may be high, the

trend is toward

working with a single

firm. Notably, in Asia,

the clients most want

a single firm with the

ability to access

multiple experts

(27)

HNWs in APAC are more focused on wealth preservation

than growth

Source: Capgemini, RBC WM, and Scorpio Partnership Global HNW Insights Survey 2013

Emerging markets

(APAC-based) HNWs

are almost in the

balance between

preservation and

creation.

Crucially, global

average is 26%

(growth) and 33%

(preservation).

Compared to RoW

APAC investors are

more bullish on

equities. Rebalancing

cash is key.

(28)

APAC HNWs have strong multi-shore tendencies

S o u rc e : C a p g e m ini , R B C W M , a n d S c o rp io P a rt n e rs h ip Glo b a l H N W I n s igh ts S u rv e y 2013

Whether it is preservation or growth, emerging markets (APAC-based) HNWs

are nearly twice as likely to consider they have complex needs (linked typically

to offshoring and re-shoring)

41% 26% 33% 23% 35% 42% 0% 10% 20% 30% 40% 50%

Perspective on financial needs

(29)

4. Onwards – What next in wealth

management for APAC?

(30)

20% 30% 40% 50% 60% 70% 80% 90% A d v e rt is ing On lin e e x p e rien c e P ro d u c ts & s e rv ic e s B ra n d v a lue s P ro fe s s ion a l p re m is e s H igh q u a lit y r e p o rt ing In te rn a tion a l o u tr e a c h E ff ic ie n c y w h e n e x e c u ting t ra d e s Mar k e t k n o w led g e o f a d v is o r R e lat io n s h ip man a g e r w h o u n d e rs ta n d s th e ir n e e d s S o lu tion s a n d s e rv ic e s t h a t mee t my needs Fair p ri c ing a n d f e e s In v it a tion s t o f ina n c ial e v e n ts / s e m ina rs In v it a tion s t o n o n -f ina n c ial e v e n ts R e c o g n it ion o f loy a lt y Fr e q u e n c y a n d q u a lit y o f a d v is o r c o n ta c t P ro d u c t inn o v a tion Qu a lit y o f re s e a rc h In v e s tm e n t p e rf o rm a n c e % i m port a nce

The future is benchmarking the tangible experience

Q: In your opinion which of the following factors would you rank as the most important attributes when considering a wealth management firms? _{APAC importance features}

S o u rc e : S c o rp io P a rt n e rs h ip a n a ly s is

(31)

Having sufficient wealth to secure your own

and your family’s future

Having sufficient wealth to choose what you

do in life

Not worrying about money every day

Having a disposable income (in excess of

what you require for financial security)

Having sufficient wealth to buy or invest in

whatever you wish

Being able to enjoy a luxury lifestyle

Having a level of wealth that commands

political or economic influence

Other

% of respondents

(32)

The route to winning new business – not whispering

Percentage of clients introduced through the website

<US$500,000: 8.7% US$500,000-US$2m: 8.5% US$2m-US$4m: 13.9% US$4m +: 13.2%

33%

Independent assessment

Q: How were you first introduced to your primary wealth manager?

Introduction reason Global APAC Referral from family or friend 24% 20% Through my own research of the market 17% 16% Through a relationship manager at the firm 12% 17% Referral from a trusted advisor (e.g. attorney, accountant) 11% 11%

Other 9% 5%

Through the website of the firm 8% 11% Referral from another part of the business 8% 8%

In response to an advertisement 6% 6% Referral from another client at the firm 6% 6%

(33)

APAC HNWs are financial shoppers – wealth managers need

to constantly innovate to succeed

S o u rc e : S c o rp io P a rt n e rs h ip Futur e w e a lt h 2014 average

4.7

APAC

Rest of the world

average

4.9

average

2.6

average

2.5

Q: How many other firms did you consider working with before making your selection?

Q: How many providers do you currently work with regarding your personal investments? USD4m+ 6.6 USD2m-4m 5.1 USD500,000-2m 3.4 <USD500,000 2.6 7.2 USD4m+ 5.3 USD2m-4m 3.2 USD500,000-2m 2.5 <USD500,000 USD4m+ 4.8 USD2m-4m 3.2 USD500,000-2m 2.1 <USD500,000 2.0 4.9 USD4m+ 3.3 USD2m-4m 1.9 USD500,000-2m 1.9 <USD500,000

(34)

S o u rc e : S c o rp io P a rt n e rs h ip Glo b a l H N W I n s igh ts S u rv e y 2 0 1 3

APAC HNWs will pay for premium service

67% _66% 67% 61% 64% 53% 60% 27% 57% _57% 55% 50% 46% 45% 38% 20% 10% 20% 30% 40% 50% 60% 70% 80% Understanding my wealth management needs

Staff who are knowledgeable, well-trained, and professional Delivering appropriate products, services and advice Working with a firm that has a solid reputation Reporting that allows me to monitor my portfolio in detail On-going account servicing and inquiry handling Communication about the services and value they can offer to clients like me Account opening processes % o f r es p o n d ent s w h o w o u ld p ay ex tr a

Asia-Pacific Rest of the world

(35)

Consistency

Creativity

Credibility

Experience

Empathy

Knowledge

What your clients want

What the industry needs to build

(36)

The future is based on better business intelligence

Business

model insight

Advisor

insight

HNW/UHNW

Client insight

B

C

2

Ongoing strategic insight, calibration and practical implementation

Wealth management has

evolved in APAC almost in

spite of itself. But we are now

entering an industrialisation

of the model where future

profits are dependent on

better sustained insight on all

aspects of the business. A

lack of intelligence would be

a great loss ….