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Affluent and HNW Investing - UK - November 2014

“While the traditional model is under threat from a mix of rising costs, greater pricing transparency and intensifying competition, a new breed of wealth manager is starting to emerge. This could demystify the investment expertise of established discretionary managers and put their fees under greater pressure and scrutiny.”
– Sarah Hitchcock, Senior Analyst – Financial Services

This report looks at the following areas:

  • Wealthy investors need reassurance that product charges are ‘fair’ and ‘value for money’
  • Enter the new digital players
  • An ageing client base poses fresh challenges for wealth managers, but also presents an opportunity

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Table of contents

  1. Introduction

      • Report scope and definitions
        • Abbreviations
          • Key sources
          • Executive Summary

              • The market
                • Steady revenue growth
                  • Figure 1: Total UK wealth management industry revenues – fan chart, 2009-19
                • Five-year forecast
                  • Sub-sector performance
                    • Portfolio composition
                      • Market factors
                        • Recent investment performance
                          • Other important risk factors
                            • Companies, brands and innovation
                              • Product innovation
                                • Leading players in the market
                                  • Continued growth in discretionary services
                                    • Figure 2: Investment assets held by wealth managers, by mandate type, 2009-13
                                  • The consumer
                                    • Identifying and profiling the wealth target audience
                                      • Approach taken to making investment decisions and managing portfolio
                                        • Figure 3: Segmenting the target wealth market, by approach to investment management and decision-making, July 2014
                                      • Level of contact with professional advisers and wealth managers
                                        • Figure 4: Frequency of contact for advice or to trade investments, by type of firm, July 2014
                                      • Client investment holdings
                                        • Figure 5: Investments and other assets held, by wealth tier, July 2014
                                      • Investor risk tolerance
                                        • Figure 6: Attitudes toward risk, by wealth tier, July 2014
                                      • Areas of client interest
                                        • Figure 7: Agreement with statements regarding investment interests, by wealth tier, July 2014
                                      • Attitudes toward product charges
                                        • Figure 8: Level of confidence in product charges being clear and transparent, fair and value for money, July 2014
                                      • Financial priorities over the coming 12 months
                                        • Expected investment activity over the coming year
                                          • Figure 9: Assets expect to buy, sell or maintain over the next 12 months, July 2014
                                        • What we think
                                        • Issues and Insights

                                            • Wealthy investors need reassurance that product charges are ‘fair’ and ‘value for money’
                                              • The facts
                                                • The implications
                                                  • Enter the new digital players
                                                    • The facts
                                                      • The implications
                                                        • An ageing client base poses fresh challenges for wealth managers, but also presents an opportunity
                                                          • The facts
                                                            • The implications
                                                            • Trend Application

                                                                • Cool Vending
                                                                  • Brand Intervention
                                                                  • Market Drivers

                                                                    • Key points
                                                                      • Hold tight: it’s a bumpy ride
                                                                        • Figure 10: FTSE 100 and FTSE All-Share – daily index movements, January 2004-September 2014
                                                                      • Global market cap grew strongly in 2013, but can this be repeated in 2014?
                                                                        • Figure 11: Market capitalisation of global stock exchanges, by region, 2008-14
                                                                      • Legislative and regulatory developments
                                                                        • FCA investigated market abuse controls and agency responsibilities
                                                                          • Ban on new referral payments to discretionary fund managers
                                                                            • Platforms adjust to new charging rules in myriad ways
                                                                              • Pressure mounts over investment fund fee transparency
                                                                                • International initiatives
                                                                                  • CRD IV brings added disclosure and reporting pressures
                                                                                    • MiFID II aims to close ‘gaps’ in the existing regulatory framework and bolster investor confidence
                                                                                    • Market SWOT Analysis

                                                                                        • Figure 12: Wealth management market – SWOT analysis, 2014
                                                                                    • Who’s Innovating?

                                                                                      • Key points
                                                                                        • Hargreaves Lansdown plans to launch a D2C discretionary service to help fill the ‘advice gap’
                                                                                          • Others are set to follow suit
                                                                                            • The rise of the ‘online’ wealth manager
                                                                                              • Technology firm launches app for mass affluent investors
                                                                                                • Digital innovation
                                                                                                • Market Size and Forecast

                                                                                                  • Key points
                                                                                                    • Wealth manager revenues saw modest growth in 2013
                                                                                                      • Figure 13: Size of the UK wealth management sector, by number of client accounts, value of investment assets managed or administered and total revenues, 2009-13
                                                                                                    • Increased volatility in Q4 2014 could hit asset wealth
                                                                                                      • Looking ahead: steady growth forecast
                                                                                                        • Figure 14: Total UK wealth management industry revenues – fan chart, 2009-19
                                                                                                        • Figure 15: Forecast of total UK wealth management industry revenues, 2014-19
                                                                                                      • Forecast methodology
                                                                                                        • Fan chart explanation
                                                                                                        • Segment Performance

                                                                                                          • Key points
                                                                                                            • Full-service wealth managers put in the strongest performance in 2013
                                                                                                              • Figure 16: Number of wealth manager accounts and the value of assets managed, by type of firm, 2010-13
                                                                                                            • Private banks have seen their share of total industry turnover decline over the past four years
                                                                                                              • Figure 17: Wealth manager revenues, by type of firm, 2010-13
                                                                                                            • Investment management fee income is the dominant revenue stream
                                                                                                              • Figure 18: Proportional distribution of wealth manager revenue streams, by type of firm, 2012 and 2013
                                                                                                            • Firms managed to cut costs in 2013…
                                                                                                              • Figure 19: Operational costs as a proportion of revenue, by type of firm, 2010-13
                                                                                                            • …boosting profitability
                                                                                                              • Figure 20: Profit margin, by type of firm, 2010-13
                                                                                                          • Portfolio Composition

                                                                                                            • Key points
                                                                                                              • Nearly a fifth of all client accounts are valued at over £250K
                                                                                                                • Figure 21: Number of wealth manager accounts/portfolios, by value band (nominee accounts only), 2013
                                                                                                              • Private banks have seen a 6% drop in client portfolios worth under £250K
                                                                                                                • Figure 22: Number of wealth manager accounts/portfolios, by firm type and value band (nominee accounts only), 2013
                                                                                                              • Asset allocations have hardly altered over the past five years
                                                                                                                • Figure 23: Proportional distribution of wealth manager assets, by type of asset class, 2009-13
                                                                                                              • Just over a fifth of investment assets are held in some form of tax wrapper
                                                                                                                • Figure 24: Proportional distribution of wealth manager assets, by ownership, 2013
                                                                                                            • Market Share

                                                                                                              • Key points
                                                                                                                • St James’s Place closes the gap on market leaders, Coutts and Barclays
                                                                                                                  • Figure 25: Largest 15 wealth managers, by assets under management – UK, 2012 and 2013
                                                                                                              • Companies and Products

                                                                                                                  • Coutts
                                                                                                                    • Description
                                                                                                                      • Position in the market
                                                                                                                        • Private client proposition and investment philosophy
                                                                                                                          • Distribution
                                                                                                                            • Key corporate data
                                                                                                                              • Figure 26: Coutts key data – UK private client business only, 2009-13
                                                                                                                              • Figure 27: RBS Group’s Wealth division – key annual data, 2011-13
                                                                                                                            • Recent activity
                                                                                                                              • Barclays
                                                                                                                                • Description
                                                                                                                                  • Position in the market
                                                                                                                                    • Private client proposition and investment philosophy
                                                                                                                                      • Distribution
                                                                                                                                        • Key corporate data
                                                                                                                                          • Figure 28: Barclays key data – UK private client business only, 2009-13
                                                                                                                                          • Figure 29: Barclays’ Wealth and Investment Management division – key financial data, 2011-13
                                                                                                                                        • Recent activity
                                                                                                                                          • St James’s Place Wealth Management
                                                                                                                                            • Description
                                                                                                                                              • Position in the market
                                                                                                                                                • Private client proposition and investment philosophy
                                                                                                                                                  • Distribution
                                                                                                                                                    • Key corporate data
                                                                                                                                                      • Figure 30: St James’s Place Wealth Management key data – UK private client business only, 2009-13
                                                                                                                                                      • Figure 31: St James’s Place Wealth Management – key annual data, 2011-13
                                                                                                                                                    • Recent activity
                                                                                                                                                    • Brand Communication and Promotion

                                                                                                                                                      • Key points
                                                                                                                                                        • Wealth managers spend a limited amount on above-the-line advertising
                                                                                                                                                          • Figure 32: Top ten advertisers of wealth management products and services, 2010-14
                                                                                                                                                          • Figure 33: Total advertising expenditure on wealth management and other related products and services, 2010-14
                                                                                                                                                        • Press and outdoor remain the most used advertising channels
                                                                                                                                                          • Figure 34: Proportional distribution of adspend on wealth management, by media type, 2010-14
                                                                                                                                                      • Channels to Market

                                                                                                                                                        • Key points
                                                                                                                                                          • Discretionary sector is the largest, by number of client accounts…
                                                                                                                                                              • Figure 35: Number of client accounts/portfolios, by mandate type, 2009-13
                                                                                                                                                            • …and by assets under management
                                                                                                                                                              • Figure 36: Investment assets held by wealth managers, by mandate type, 2009-13
                                                                                                                                                            • Discretionary returns under pressure
                                                                                                                                                              • Figure 37: Revenue return on discretionary and advisory assets, 2009-13
                                                                                                                                                          • Segmenting the Target Wealth Market

                                                                                                                                                            • Key points
                                                                                                                                                              • Survey background
                                                                                                                                                                • Classifying respondents according to their level of wealth
                                                                                                                                                                  • Figure 38: Segmentation of total sample, by value of investable assets (wealth tier), July 2014
                                                                                                                                                                • A note about the data
                                                                                                                                                                  • Demographic profile and variations
                                                                                                                                                                  • Management Approach and Usage of Professional Client Services

                                                                                                                                                                    • Key points
                                                                                                                                                                      • Less than half of the target wealth market employ the services of a professional adviser, at least some of the time
                                                                                                                                                                          • Figure 39: Segmenting the target wealth market, by approach to investment management and decision-making, July 2014
                                                                                                                                                                        • Evidence of a shift towards self-directed decision-making among the wealthiest tiers
                                                                                                                                                                          • Figure 40: Approach to investment management and decision-making, by wealth tier, July 2012 and July 2014
                                                                                                                                                                        • Contact with professional advisers tends to be on an irregular or ad hoc basis
                                                                                                                                                                          • Figure 41: Frequency of contact for advice or to trade, by type of firm, July 2014
                                                                                                                                                                        • More than half of the affluent and HNW have never used the services of a wealth manager
                                                                                                                                                                          • Figure 42: Frequency of contact for advice or to trade, by type of firm and wealth tier, July 2014
                                                                                                                                                                        • Using technology to bridge the advice gap
                                                                                                                                                                        • Investment Holdings

                                                                                                                                                                          • Key points
                                                                                                                                                                            • Asset holdings increase with wealth
                                                                                                                                                                              • Figure 43: Pensions, investments and other assets held, by wealth tier, July 2014
                                                                                                                                                                            • More regular contact with advisers helps to build more complex and diversified portfolios
                                                                                                                                                                              • Figure 44: Pensions, investments and other assets held, by management approach, July 2014
                                                                                                                                                                          • Attitudes toward Risk and Investment Interests

                                                                                                                                                                            • Key points
                                                                                                                                                                              • The affluent and HNW are less likely to be ‘cautious’
                                                                                                                                                                                • Figure 45: Attitudes toward risk, geographic exposure and investment interests, by wealth tier, July 2014
                                                                                                                                                                              • Management approach influences investment choice
                                                                                                                                                                                • Figure 46: Investment approach and areas of interest, by management approach, July 2014
                                                                                                                                                                            • Attitudes toward Product Charges

                                                                                                                                                                              • Key points
                                                                                                                                                                                • FCA imposes the unbundling of charges
                                                                                                                                                                                  • Less than half of respondents are confident of investment product charges being ‘fair’ and ‘value for money’
                                                                                                                                                                                      • Figure 47: Level of confidence in product charges being clear and transparent, fair and value for money, July 2014
                                                                                                                                                                                  • Investment Plans and Priorities

                                                                                                                                                                                    • Key points
                                                                                                                                                                                      • Retirement saving is the number one priority
                                                                                                                                                                                        • Figure 48: Saving and investment priorities over the next 12 months, by wealth tier, July 2014
                                                                                                                                                                                      • Financial goals vary according to level of wealth
                                                                                                                                                                                        • A large proportion of new client money will flow into cash- and equity-based investments
                                                                                                                                                                                          • Figure 49: Assets expect to buy, sell or maintain over the next 12 months, July 2014
                                                                                                                                                                                      • Appendix – Market Size and Forecast

                                                                                                                                                                                        • Total market forecast – best- and worst-case scenarios
                                                                                                                                                                                          • Figure 50: Forecast of UK wealth manager revenues – best- and worst-case scenarios, at current prices, 2014-19
                                                                                                                                                                                        • Forecast methodology
                                                                                                                                                                                          • Fan chart explanation

                                                                                                                                                                                          Companies Covered

                                                                                                                                                                                          • Adam & Company
                                                                                                                                                                                          • Barclays Bank plc
                                                                                                                                                                                          • Citigroup Inc.
                                                                                                                                                                                          • Coutts & Co
                                                                                                                                                                                          • Deutsche Bank AG
                                                                                                                                                                                          • Financial Services Authority (The)
                                                                                                                                                                                          • JPMorgan Chase & Co
                                                                                                                                                                                          • Lloyds Banking Group
                                                                                                                                                                                          • NatWest
                                                                                                                                                                                          • Rolls-Royce Motor Cars Ltd
                                                                                                                                                                                          • Royal Bank of Scotland Group plc
                                                                                                                                                                                          • St James' Place Plc

                                                                                                                                                                                          Affluent and HNW Investing - UK - November 2014

                                                                                                                                                                                          US $2,648.76 (Excl.Tax)