20_future of private banking in india

8/3/2019 20_future of Private Banking in India

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FUTURE of Private Banking

Phil Molyneux


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Aims of Presentation

Examines the future prospects for the privatebanking / wealth management industry

Recaps key trends

Focuses on sources of new profitable growth:

Geographical areas

Client relationship deepening.

New areas / propositions

Future industry structure

Critical success factors.


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Key Future Trends

Private banking firms need to develop their businesses modelsand change (or enhance) their strategic focus in order to takeadvantage of the opportunities afforded by higher growth marketsand product segments

Profit growth is expected to be mid-market HNWIs in the

developed wealth management markets of North America andEurope, with a stronger growth potential in the newer emergingmarkets of Asia, the Middle East, Latin America and EasternEurope

Global private banks are actively developing activities in thethree key markets of China, India and Russia

Growth in the offshore wealth management area is expected tolag that of onshore business; Singapore and Hong Kong are perceived as markets that offer

the greatest potential here, given their advantages in attractingAsian wealth.


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Transformation of wealth management


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Sources of new profitable growth

Geographic participation. Potential growthopportunities in established and new markets

Client re

lationship deepening. Increasing thepenetration and loyalty of existing clients, and

targeting new client segments

New propositions. Developing product and

service innovations and personalising thewealth management advisory role.


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Geographic participation

New emerging wealth markets:

Particular attention has focused on the BRIC economies

Brazil, Russia, India and China in particular the latterthree economies, given the projected economic growthover the coming decades

Indias economy could be larger than Japans by 2032

Chinas larger than the US by 2041 (and the second

biggest economy in the world by 2016) Goldman Sachs forecasts show that the combined BRIC

economies will be larger than the current G6 (US, Japan,UK, Germany, France and Italy) by 2039.


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Overtaking the G6: when BRICs

US$GD

P would exceedG6

Source: Goldman Sachs (2003).


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The largest economies in 2050

Source: Goldman Sachs 2003.


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HNWI financial wealth forecast by region,

20042009E (US$ trillions)

Source: Capgemini Merrill Lynch (2005), World Wealth Report Capgemini.


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Global HNWwealth growth estimates

Global HNW wealth estimates from the Merrill Lynch Capgemini(2005) WorldWealth Report is expected to grow at an averageannual rate of 6.5% between 2004 and 2009. Emerging marketsare generally expected to experience the fastest growth:

Middle East 9.1%

Asia Pacific 6.9%

Latin America 6.4%

Seems to be consensus on above ranking but forecasts of HNWIwealth appear to vary is for the US and Europe.

Cap Gemini and Merrill Lynch expect a relatively low growth of3.8%, whereas BCG forecast 6% annual growth in HNW wealth.


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Global HNWwealth growth Growing

Consensus Growth of private banking business in North America and Europe

will predominantly come from established clients The North American wealth market will grow faster than that ofEurope and, because of its sheer size, will still remain a key market

In emerging markets (Asia, Eastern Europe and Latin America),growth will come from emerging (generally entrepreneurial) clients

In the Middle East, growth is mainly expected to come from inheritedwealth as well as from clients that have businesses linked mainly tothe energy sectors

China, India and Russia, plus possibly Brazil, are the most attractive

growth markets Offshore wealth will grow slower than onshore wealth, particularly inEurope, driven mainly by regulatory pressures relating totransparency and disclosure of activities, and by initiatives relating tothe cross-border taxation of investment income


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Global HNWwealth growth China

HNW wealth is believed to have been around $0.91 trillion in2004 and this is expected to grow to $1.73 trillion by 2009 anannual growth rate of 14%.

Russia Perceived as the key growth market in Eastern Europe. HNWI

wealth is estimated to amount to around $320 billion and this isexpected to more than double by 2009. At present most of this isheld offshore

India HNW wealth is estimated at around $310 billion (similar in size to

that of Russia) and the market is expected to grow by around10%15% annually to $520 billion by 2009. (Other forecasts

suggest that growth in UHNW clients could be even higher) Middle East and Latin America (particularly Brazil)

have stronger growth opportunities than the European and NorthAmerican


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Dont forget JAPAN!!!

Source: Maude (2006), Box 10.1, p263-266


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Growth in offshore private banking assets

Singapores ascendancy

Source: IBM Consulting Services (2005). European Wealth and Private Banking IndustrySurvey 2005, IBM Business Consulting Services.


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Client relationship deepening

Given the demographics and growth prospects of the traditionalwealth management markets ofNorth America and Europe, theopportunities to boost performance by attracting new clients willbe severely limited

Focus in these markets is to cultivate new business mainly

through existing client relationships and focusing aggressively onintergenerational wealth transfers, especially for mid-rangeHNWIs (ranging from $1 million to $30 million of AuM)

WHY? Because the wealth of mid-market clients is expected to grow by

more than that of less wealthy clients

Mass affluent market has not been a success Focus is to extend the range of services on offer to mid-level

HNWIs, expand the advisory role to encompass intergenerationalwealth transfer (product life-cycle) products and services anddevelop broader family wealth relationships


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Growth of multigenerational client

relationships, by client type,20022004

Source: Capgemini Merrill Lynch (2005), World Wealth Report. Capgemini.


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New Clients

New clients will emanate primarily from thoseeconomies expected to have the greatesteconomic growth potential, namely Russia,

India and China

These will have created their wealth throughentrepreneurial activity and will seek services

that reflect their greater familiarity with morecomplex financing options coupled withrelatively strong protection elements


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Increasing client penetration and loyalty

Understanding the needs and aspirations of clients

Focusing on higher-value clients

Creating value-added services for clients.

Focus on delivering relevant value to targeted clients. That,of course, requires wealth managers to understand theneeds and expectations of clients and also really demandsthat the relationship manager understands more preciselywhat clients value.

Confidentiality

Security and

Performance are important value-enhancing propositions.


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New propositions

-

Product Innovation Affluent women

In the UK there are more women millionaires agedbetween 18 and 44 than men

In Saudi Arabia, the regions largest wealthmarket, women are reported to own 40% ofprivate wealth

E

thnic groups See Box 10.2 Maude (2006 p.270-272 for

more details)


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Non-financial lifestyle services

Lifestyle services are an umbrella term referring to a wide rangeof services designed to support, facilitate and improve thelifestyles of wealthy clients

Includes: 1. Lifestyle organization services aimed at assisting in organizing

and facilitating aspects of individuals lives such as leisure,entertainment, shopping and event planning.

2. Travel services aimed at supporting and arranging individualstravel requirements.

3. Property and home services aimed at assisting withindividuals household and property requirements including

finding, purchasing, moving and maintaining the home. 4. Luxury asset acquisition services aimed at helping wealthy

individuals in the purchase and management of large-scaleluxury items.


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Lifestyle services

Source: Datamonitor, Incorporating Lifestyle Services into the Wealth Management Proposition Survey, May 2003,


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Lifestyle services

Attractions of offering such services:

No single established best source for lifestyle services

Wealth managers are in a relatively strong position to supplysuch services as they (a) have access to the client segment that

is more likely to require lifestyle services and (b) can often havestrong and trusted relationships with their clients, which makesthem credible referees for these types of services.

Such services can add to:

1. Revenue diversification..

2. Incremental revenue opportunities. For example, by offering to

help wealthy clients buy luxury items, wealth managers can maintaina post-acquisition role in the management of the acquired item.

3. Increase clientloyalty. Lifestyle services can increase client loyaltyand deepen client knowledge


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Aggregator role

The industry is increasingly being viewed (and talked about) asan aggregator, whereby a whole range of suppliers, bothinternal and external to the bank, offer a range of services thatcan be offered individually or bundled together to meet clientneeds.

Such aggregation activity means that wealth managers have tobe much more nimble and efficient in sourcing, distributing andidentifying value-enhancing services (for both the client and thebank).

The aggregator function of wealth managers, and the growing

focus on value-added advice led sales, has encouraged (orforced) the industry to consider developing their business alongsimilar lines to the family office, with the aim of offering holisticand independent advice.


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Industry Structure - Evolving to the next

level of a global trusted advisor?


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Industry Structure

Global champions league. Strong global wealth managementgiants such as UBS, Credit Suisse, Citigroup, Merrill Lynch andHSBC. These target numerous onshore and offshore locationsand are developing their businesses in both mature markets andemerging high growth regions.

Regional premierleague. Medium-to-large players with strongdomestic and regional brands such as BNP Paribas, DeutscheBank, Santander, Bank of America, etc. They offer a wide rangeof products and services, but typically do not have a stronginternational presence.

Smallspecialised players. These operate mainly locally or focus

on niche product or client segments. They includeE

FGInternational, Wegelin & Company, Sal Oppenheim, Hoare & Co,family offices, etc. They are mainly distributors and rely entirelyon client relationships as their main asset, with heavilyoutsourced production, operations and technology.


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Winners and losers in European wealth

management over the next3

to5

years

Source: Mercer Oliver Wyman (2005).


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CRITICALSUCCESS FACTORS

Common skill set needed for success. These relateto:

Building client relationships and developing a proactive and

flexible response to increasingly complex needs Networking, for both production and distribution purposes

Marketing, co-branding and enhanced target client focus

Improving operational efficiency cost, revenue and capitalefficiency

Implementing value-based pricing and client management.


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Key is to develop common skills in

building relationships

Source: IBM Consulting Services (2005).


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Boosting Efficiency

Cost efficiency can be improved by initiatives such ascentralising and outsourcing operations, shedding low-valueclients, more aggressive product management and more rigorousmanagement of human resources (e.g. remunerating managersmore on the basis of value created)

Revenue efficiency can be boosted by initiatives such asapplying more systematic value added pricing models tailored tospecific client segments, increasing investment thresholds forunprofitable clients, identifying areas for effective cost-pluspricing and promoting higher-margin specialised advisory

services Capital efficiency directs capital resources to the highest value-

adding areas of the business, with a relentless focus on valuecreation across all product and business areas.


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Conclusion

Examines the future prospects for the privatebanking / wealth management industry

Focuses on sources of new profitable growth:

Geographical areas China, India, Russia Client relationship deepening focus on mid-wealth HNWIs

and intergenerational wealth planning services + focus onholistic advice

New areas / propositions women, ethnic groups, lifestyle

services, family office style services Future industry structure

Critical success factors - building on relationships, morevalue-based approach to business and clients

20_future of private banking in india

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