Private banks around the world are struggling to attract the money of the wealthy despite the fact that many of them are getting wealthier.
According to new research by global business consultant Scorpio Partnership, new money into private banks fell by nearly 19% in 2010, despite a rise in the number of wealthy individuals.
Based on figures from the Merrill Lynch and Capgemini 2011 World Wealth Report, the number of high net worth individuals rose by over 8% in 2010 to 10.9 million, with their collective wealth surpassing $42 trillion, compared with $39 trillion in last year’s report.
These latest numbers from Scorpio Partnership suggests that wealth managers are still not attracting the money of the wealthy more than two years after the worst period of the financial crisis.
Catherine Tillotson, managing partner and head of research at Scorpio Partnership, said in a statement: “Uncertainty from clients as to the value of the industry continues to shape weaker than necessary performance when you consider the strong growth in personal fortunes in many markets. New clients appear to still be holding off.”
Wealth managers have also seen a drop in profits, driven by rising regulatory costs and increased spending to meet demands from the Asia Pacific region. The report said that the cost-income ratio has reached record highs approaching 80% in comparison with less than 70% before the crisis.
The reluctance of the wealthy to put money in banks comes as wealth managers fail to provide good returns to clients in the wake of the financial crisis, forcing clients to keep more money in other low risk and low margin investments or cash, according to the report.
The research, which surveyed nearly 200 global financial institutions, ranked the Bank of America as the largest wealth manager, with assets under management of $1.94 trillion. Morgan Stanley was second, with assets worth $1.63 trillion, and UBS came third with $1.39 trillion. The top 10 wealth managers together control assets worth more than $11 trillion.
London-based Scorpio Partnership specialises in dealing with the wealthy and financial institutions – this research is the firm’s 10th annual key performance indicator report.