The world’s largest international wealth management firms weathered 2011 more successfully than the smaller ones, according to Scorpio Partnership’s annual Private Banking Benchmark study.
Upper-tier wealth management firms — those with assets under management greater than $20 billion — performed better than lower-tier firms on many fronts, including net new money, assets under management, income and pre-tax profit growth. But they also incurred higher expenses linked to their expansions into new markets and increasing global regulation, the study found.
Net new money and income for upper-tier firms climbed 16.1% and 3.81%, respectively, from 2010 to 2011. Lower-tier firms, in contrast, saw net new money flows fall by more than half and their income drop 8.53%. Upper-tier firms also saw greater pre-tax profits (17.9%) than their lower-tier peers (11.7%).
Despite the tumultuous economic environment, assets under management for the industry as a whole held steady, inching up.61% from 2010. Bank of America, with $1.67 trillion in assets, was No. 1 among the world’s top 20 global private banks, unchanged from last year. UBS ($1.55 trillion in assets) and Wells Fargo ($1.30 trillion in assets) each moved up the ranking one spot to No. 2 and No. 3, respectively. Morgan Stanley ($1.21 trillion in assets), meanwhile, slipped two places down the ranking. Citigroup had the biggest increase in assets, jumping 47.83% to $208 billion. The increase moved Citigroup from 20 to 13 in the ranking.
The ability of the international wealth management firms to hold their own during a difficult market environment was due to their expansion into growth markets, according to Scorpio Partnership, a London-based strategy and research firm. However, this came at a cost for the upper-tier firms that expanded into new markets. Among upper-tier wealth management firms, expenses rose 3.47% on average. Lower-tier firms, in contrast, saw expenses fall an average of 3.39%.
Scorpio Partnership also attributed the increased costs to the changing global regulatory environment following the 2008 financial crisis. Cross-border initiatives, such as Basel III, the UK’s Retail Distribution Review, and the U.S.’s Dodd-Frank reforms, “have implications for how firms run their wealth management operations in isolation or as part of a larger financial service group,” it said in a statement.
This year’s study covered 201 wealth management entities around the world.