global market overview of private banking

© Scorpio Partnership 2014 | 1

In pursuit of wealthy and wealth Private Banks – A global perspective

Kuala Lumpur

October, 2014


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

Currently shortlisted for 2014 Thought Leadership in Switzerland, 2014 Thought Leadership in the United Kingdom, 2014 Thought Leadership in Asia


Triangulating the value proposition for private banks

Business model

insight

Advisor

insight

HNW/UHNW

Client insight

B

B C

2

2

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


1. The state of the global private banking

industry


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


CHF 3.4 – 4.5 billion reduction in Investment Bank expense base by 2015

~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


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%


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


Bankable assets have grown at twice the rate of captured

wealth since crisis

Sourc

e:

Scorp

io P

art

ners

hip

Private

Bankin

g K

PI B

enchm

ark

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

Assets

in U

SD

trilli

ons

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

CAGR:

4.8%

CAGR:

2.6%


NNM is positive but slowing down

Sourc

e:

Scorp

io P

art

ners

hip

Private

Bankin

g K

PI B

enchm

ark

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

Ave

rag

e N

NM

(U

SD

bil

lio

ns

)

Average diversified NNM Average pure player NNM Average overall NNM


…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

Gro

ss m

arg

in in

bp

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.


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


2. Looking at Asia through the Global Lens


The rising APAC HNW + wealth world

Source: RBC Capgemini 2013 World Wealth Report

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 LatinAmerica

Europe NorthAmerica

Asia Pacific

To

tal H

NW

We

alt

h (

US

D t

rill

ion

)

2012 Total HNW Wealth 2015 Forecast Total HNW Wealth


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

Destination of offshore wealth market by booking centre, USD trillion


6yr Total - USD11.8bn




6yr Total – USD314.0bn

6yr Total – USD102.0bn


Assets-switching velocity is impacting the attitudes

UK

Switzerland

Europe exc. UK and Switzerland

Asia Pacific

Middle East and Africa

Latin America

North America

APAC M&A

momentum is likely

to grow based on

continued operating

model pressures.

Source: Scorpio Partnership Deal Tracker 2013


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

Private banks are growing at 16% in the region but wealth is also growing at the same pace


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)

*Profit margins are defined as (revenue-cost)/AuM

Source: BCG Wealth Report; McLagan database

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


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

Internal Challenges External Challenges


Wealth management is not about the money

Wealth management is about the people

just

all all

All working together


3. The HNW mind


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

HNW routes to wealth are forcing change

Source: Scorpio Partnership


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

management.


Client view of the wealth managers performance

Source: Scorpio Partnership Futurewealth 2014

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


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

Sourc

e:

Capgem

ini, R

BC

WM

, and S

corp

io P

art

ners

hip

Glo

bal H

NW

Insig

hts

Surv

ey 2

013

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 ?

Q: And, at what level of overall service would you consider moving your relationship to another firm?


HNWs are searching for the core relationship

41.4%

53.1%

52.8%

49.2%

43.2%

35.4%

19.0%

14.4%

19.6%

11.8%

16.6%

21.9%

18.1%

6.9%

Global

Latin America

North America

APAC (excl. Japan)

MENA

Europe

Japan

Single firm Multiple firms

So

urc

e C

ap

ge

min

i, R

BC

WM

, a

nd

Sco

rpio

Pa

rtn

ers

hip

Glo

ba

l H

NW

In

sig

hts

Su

rve

y 2

01

3

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


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.


APAC HNWs have strong multi-shore tendencies

Sourc

e:

Capgem

ini, R

BC

WM

, and S

corp

io P

art

ners

hip

Glo

bal H

NW

Insig

hts

Surv

ey 2

013

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%

Complex needs No strong preference Straightforward needs

Perspective on financial needs

APAC Global


4. Onwards – What next in wealth

management for APAC?


20%

30%

40%

50%

60%

70%

80%

90%

Ad

vert

isin

g

Onlin

e e

xperie

nce

Pro

ducts

& s

erv

ices

Bra

nd v

alu

es

Pro

fessio

nal p

rem

ise

s

Hig

h q

ualit

y r

eport

ing

Inte

rnatio

nal outr

each

Eff

icie

ncy w

hen e

xecutin

g tra

des

Ma

rket know

ledge o

f advis

or

Rela

tio

nship

ma

nager

who u

nders

tan

ds

their n

ee

ds

So

lutio

ns a

nd s

erv

ices that m

eet m

yneeds

Fa

ir p

ricin

g a

nd

fees

Invitatio

ns to fin

an

cia

l eve

nts

/ s

em

inars

Invitatio

ns to n

on-f

inancia

l events

Recognitio

n o

f lo

yalty

Fre

quency a

nd q

ualit

y o

f advis

or

conta

ct

Pro

duct in

novatio

n

Qualit

y o

f re

searc

h

Investm

ent perf

orm

ance

% i

mp

ort

an

ce

Global Asia Pacific

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

Source: Scorpio Partnership Futurewealth 2014, which aimed to determine globally clients’ requirements from

different stages of the customer experience in order to do more business.

Sourc

e:

Scorp

io P

art

ners

hip

analy

sis

Pre During Post

© Scorpio Partnership 2014 | 31 Source: Futurepriority (Research program produced by Scorpio Partnership)

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

APAC HNWs have priorities on what wealth means


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

Note: This increases with wealth

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%


APAC HNWs are financial shoppers – wealth managers need

to constantly innovate to succeed

Sourc

e:

Scorp

io P

art

ners

hip

Fu

ture

wealth

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


Sourc

e:

Scorp

io P

art

ners

hip

Glo

bal H

NW

Insig

hts

Surv

ey 2

013

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%

Understandingmy wealth

managementneeds

Staff who areknowledgeable,

well-trained,and

professional

Deliveringappropriateproducts,

services andadvice

Working with afirm that has asolid reputation

Reporting thatallows me tomonitor myportfolio in

detail

On-goingaccount

servicing andinquiry handling

Communicationabout the

services andvalue they canoffer to clients

like me

Accountopening

processes

% o

f re

sp

on

den

ts w

ho

wo

uld

pay e

xtr

a

Asia-Pacific Rest of the world

an extra 12%, on average


Consistency

Creativity Credibility

Experience

Empathy Knowledge

What your clients want What the industry needs to build

Premium services are not just products and prices


The future is based on better business intelligence

Business

model insight

Advisor

insight

HNW/UHNW

Client insight

B

B C

2

2

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 ….

global market overview of private banking

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