Private Banking Offers Increasing Opportunities
If there is one thing that is not changing in the private banking industry, it is the fact that the potential opportunities are massive. Everything else in the sector - from service channels to corporate alliances, and from product design to the use of the internet - is in a state of flux, as the wealth management industry comes to terms with a bewildering flurry of demographic, economic, technological and cultural changes worldwide.
For the established players already offering private banking services, and the new entrants trying to join them, the appeal of the sector is twofold. First, experience shows that it offers an alluring combination of high profitability and low volatility, in marked contract to the cyclical booms and busts seen in investment banking.
Second, the potential target market for private banking services is continuing to grow rapidly, as the ranks of high net worth individuals and "new affluent" continue to expand, and as technology increases the number of possible channels through which to reach them.
The figures on the number of wealthy speak for themselves. Research by the consultants Booz-Allen & Hamilton suggests that the OECD nations alone now have more than 16 million individuals with more than E500,000 ($446,430) in investable assets - and that the combined assets of wealthiest individuals, defined as those with more than E5m to invest, have been growing at over 12% a year.
The findings of the Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report 2001 confirm the trend. The researchers say there are now more than 7.2 million high net worth individuals worldwide, holding more than $1m each in financial asset wealth, totalling around $27 trillion (up from $25.5 trillion in the previous year).
Despite volatility and the collapse of dot-com stocks, the report finds that high net worths' collective wealth grew by 6% in 2000, with the growth of high net worth individuals in the US and Canada (9%) and Europe (7.5%) outpacing the global average and consolidating their lead over other regions (see table).
Not surprisingly, the race to manage this money is increasingly fierce. A study released by PricewaterhouseCoopers and the Economist Intelligence Unit (EIU) in November 2001, Wealth Management at a Crossroads: Serving Today's Consumer, claims that intense competition, increasing client demands and a squeeze on margins at a time of economic uncertainty will see some players facing a stark choice between changing the way they serve clients or going out of business.
It also finds that wealth management clients are dissatisfied with existing services, and require skilled advice to guide them through the economic downturn.
Bruce Weatherill, global audit and advisory private banking partner at PricewaterhouseCoopers, says: "Clients want it all: a range of innovative products, local knowledge and personal service. Realistically, only two groups have a chance of meeting these demands while keeping costs under control. One is large conglomerates with the financial clout and global scope to tailor complex products to a range of international markets across a large client base. The other group is the niche players that are able to provide high quality, highly personalised advice and service. Those companies caught in between these two groups, who can offer neither bespoke advice nor the global product range and enabling technology of the larger groups, will be under severe pressure."
Like "wealth management", the term "private banking" now means widely differing thing to different people, depending on the type of institution involved and the nature of its target customer base.
This fragmentation reflects the growing diversity of the customer base, as banks move to reflect the differing needs of wealthy individuals. In short, the "rich" can no longer be lumped together in one category, and banks are responding with more closely-targeted services and products. …