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Affluent Investing - UK - November 2012

“Historically, wealth management has been one of the most profitable areas within the banking sector. While it remains a lucrative business, with considerable untapped potential (particularly within the mass affluent sphere), private banks and wealth management firms are facing a number of regulatory challenges and cost pressures, as well as new forms of competition.”

– Sarah Hitchcock, Senior Analyst – Financial Services

Some questions answered in this report include:

  • What is the value of the wealth management market?
  • What’s the size of the target audience?
  • How will new charging transparency rules affect the market?
  • How are clients likely to react to the introduction of advice fees?
  • Do incumbents have anything to fear from DIY wealth management?

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Table of contents

  1. Introduction

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

              • The market
                • Revenue growth expected to slow
                  • Figure 1: Forecast of wealth management industry revenues – fan chart, 2007-17
                • Sub-sector performance
                  • Growth in assets under management slowed in 2011
                    • Figure 2: Number of client accounts/portfolios and value of assets under management, 2007-12
                  • Portfolio composition
                    • Market factors
                      • Difficult economic and regulatory backdrop
                        • Companies, brands and innovation
                          • Product innovation
                            • Leading players in the market
                              • Continued growth in discretionary services
                                • Figure 3: Investment assets held by wealth managers, by mandate type, 2007-11
                              • The consumer
                                • Identifying and profiling the target audience
                                  • Investment approach
                                    • Figure 4: Segmenting the target wealth market, by approach to investment management and decision-making, July 2012
                                  • Level of contact with professional advisers and wealth managers
                                    • Figure 5: Frequency of contact for advice or to trade investments, by type of firm, July 2012
                                  • Reaction to economic downturn and market volatility
                                    • Figure 6: Impact of economic downturn and eurozone crisis on investment attitude/approach, July 2012
                                  • Current financial situation and prospects
                                    • Key financial and investment objectives
                                      • Figure 7: Top six financial goals over the next 12-18 months, July 2012
                                    • Expected investment activity over the coming year
                                      • Figure 8: Assets expect to buy, sell or maintain over the next 12 months, July 2012
                                    • What we think
                                    • Issues in the Market

                                        • What is the value of the wealth management market?
                                          • What’s the size of the target audience?
                                            • How will new charging transparency rules affect the market?
                                              • How are clients likely to react to the introduction of advice fees?
                                                • Do incumbents have anything to fear from DIY wealth management?
                                                • Trend Application

                                                  • Use new devices to connect and communicate with clients…
                                                    • …and develop interactive tools to help them monitor and meet their financial goals
                                                      • 2015: Brand Intervention
                                                      • Market Drivers

                                                        • Key points
                                                          • Prevailing economic uncertainties engender greater investor prudence
                                                            • Figure 9: Investor responses to wider market trends, 2012
                                                          • Greater market turbulence undermines confidence
                                                            • Figure 10: FTSE 100 and FTSE All-Share – daily index movements, January 2004-September 2012
                                                          • Global market cap fell by 14% in 2011
                                                            • Figure 11: Market capitalisation of global stock exchanges, by region, 2008-12
                                                          • Lower trading volumes
                                                            • Overview of macroeconomic factors influencing investor behaviour
                                                              • Key legislative and regulatory developments
                                                                • Regulatory body to be replaced in early 2013
                                                                  • Government backs proposals to separate retail from investment banking…
                                                                    • …which will have particular implications for the HNW
                                                                      • Regulator describes the wealth management sector as an “emerging risk”
                                                                        • Basel III requires banks to hold greater capital
                                                                          • RDR poses a major challenge for wealth managers
                                                                            • Figure 12: Value of compliance-related costs, 2010 and 2011
                                                                          • Reduction in supply
                                                                            • Potential winners and losers: passive versus active funds
                                                                              • Recent tax changes affecting wealthy clients
                                                                              • Market SWOT Analysis

                                                                                  • Figure 13: Wealth management market – SWOT analysis, 2012
                                                                              • Who’s Innovating?

                                                                                • Key points
                                                                                  • New technology is driving new innovation
                                                                                    • Wealth managers starting to explore social media banking potential
                                                                                      • Figure 14: Usage of social networking sites, by wealth tier, July 2012
                                                                                    • New ‘online’ wealth managers are emerging in the US and the concept could easily migrate here
                                                                                      • LBG and RBS reposition their wealth management divisions
                                                                                      • Market Size and Forecast

                                                                                        • Key points
                                                                                          • Revenues increased by a respectable margin in 2011…
                                                                                            • Figure 15: Size of the UK wealth management sector, by number of client accounts, value of investment assets managed or administered and total revenues, 2007-12
                                                                                          • …but growth will slow in 2012, due to a more subdued trading environment
                                                                                            • 2011 sees fall in net new business
                                                                                              • Figure 16: Investment asset growth and net new business for wealth managers, 2008-11
                                                                                            • Looking ahead: steady growth forecast
                                                                                              • Figure 17: Forecast of wealth management industry revenues – fan chart, 2007-17
                                                                                              • Figure 18: Forecast of wealth management industry revenues, 2012-17
                                                                                            • Forecast methodology
                                                                                              • Fan chart explanation
                                                                                              • Segment Performance

                                                                                                • Key points
                                                                                                  • PCIMs and full-service stockbrokers marginally outperformed the private banks in 2011
                                                                                                    • Figure 19: Number of accounts and the value of assets managed, by type of firm, 2007-11
                                                                                                  • PCIMs have grown their share of revenues over the past five years
                                                                                                    • Figure 20: Total wealth management industry revenues, by type of firm, 2007-11
                                                                                                  • Investment management fee income is the top revenue stream
                                                                                                    • Figure 21: Proportional distribution of revenue streams, by type of firm, 2010 and 2011
                                                                                                  • Cost pressures continue to increase
                                                                                                    • Figure 22: Operational costs as a proportion of revenue, by type of firm, 2007-11
                                                                                                  • Private banking sector saw an improvement in profitability in 2011
                                                                                                    • Figure 23: Profit margin, by type of firm, 2006-11
                                                                                                • Portfolio Composition

                                                                                                  • Key points
                                                                                                    • A fifth of all client accounts are valued at over £250,000
                                                                                                      • Figure 24: Number of wealth manager accounts/portfolios, by value band (nominee accounts only), 2011
                                                                                                    • Asset allocations have remained broadly stable over the past five years
                                                                                                      • Figure 25: Proportional distribution of assets, by type of asset class, 2007-11
                                                                                                    • Around a fifth of investment assets are held in some form of tax wrapper
                                                                                                      • Figure 26: Proportional distribution of assets, by ownership, 2011
                                                                                                  • Market Share

                                                                                                    • Key points
                                                                                                      • Barclays and Coutts remain well ahead of rivals by AUM
                                                                                                        • Figure 27: Largest 15 wealth managers, by assets under management and number of client accounts – UK, 2010 and 2011
                                                                                                    • Companies and Products

                                                                                                        • Barclays Wealth and Investment Management
                                                                                                          • Description
                                                                                                            • Position in the market
                                                                                                              • Affluent proposition
                                                                                                                • Distribution
                                                                                                                  • Financial performance
                                                                                                                    • Figure 28: Key interim financial data for Barclays Wealth and Investment management, H1 2011 and H1 2012
                                                                                                                    • Figure 29: Barclays Wealth – key financial data, 2010 and 2011
                                                                                                                  • Recent activity
                                                                                                                    • Coutts & Co
                                                                                                                      • Description
                                                                                                                        • Position in the market
                                                                                                                          • Affluent proposition
                                                                                                                            • Distribution
                                                                                                                              • Financial performance
                                                                                                                                • Figure 30: RBS Group’s Wealth division – key interim data, H1 2011 and H1 2012
                                                                                                                                • Figure 31: RBS Group’s Wealth division – key annual data, 2010 and 2011
                                                                                                                              • Recent activity
                                                                                                                                • UBS Wealth Management
                                                                                                                                  • Description
                                                                                                                                    • Position in the market
                                                                                                                                      • Affluent proposition
                                                                                                                                        • Distribution
                                                                                                                                          • Financial performance
                                                                                                                                            • Figure 32: UBS Wealth Management division (Europe and Asia) – key interim data, H1 2011 and H1 2012
                                                                                                                                            • Figure 33: UBS Wealth Management division (Europe and Asia) – key annual data, 2010 and 2011
                                                                                                                                          • Recent activity
                                                                                                                                            • HSBC Private Bank
                                                                                                                                              • Description
                                                                                                                                                • Position in the market
                                                                                                                                                  • Affluent proposition
                                                                                                                                                    • Distribution
                                                                                                                                                      • Financial performance
                                                                                                                                                        • Figure 34: HSBC Private Bank – key interim data, H1 2011 and H1 2012
                                                                                                                                                        • Figure 35: HSBC Private Bank – key annual data, 2010 and 2011
                                                                                                                                                      • Recent activity
                                                                                                                                                        • St James’s Place Wealth Management
                                                                                                                                                          • Description
                                                                                                                                                            • Position in the market
                                                                                                                                                              • Affluent proposition
                                                                                                                                                                • Distribution
                                                                                                                                                                  • Financial performance
                                                                                                                                                                    • Figure 36: St James’s Place Wealth Management – key interim data, H1 2011 and H1 2012
                                                                                                                                                                    • Figure 37: St James’s Place Wealth Management – key annual data, 2010 and 2011
                                                                                                                                                                  • Recent activity
                                                                                                                                                                    • Hargreaves Lansdown
                                                                                                                                                                      • Description
                                                                                                                                                                        • Position in the market
                                                                                                                                                                          • Affluent proposition
                                                                                                                                                                            • Distribution
                                                                                                                                                                              • Financial performance
                                                                                                                                                                                • Figure 38: Hargreaves Lansdown – key annual data, 2011 and 2012
                                                                                                                                                                              • Recent activity
                                                                                                                                                                              • Brand Communication and Promotion

                                                                                                                                                                                • Key points
                                                                                                                                                                                  • Wealth managers spend a relatively small amount on advertising
                                                                                                                                                                                    • Figure 39: Top ten advertisers of wealth management products and services, 2010-12
                                                                                                                                                                                    • Figure 40: Total advertising expenditure on wealth management and other related products and services, 2010-12
                                                                                                                                                                                  • Press and outdoor are the most used advertising channels
                                                                                                                                                                                    • Figure 41: Proportional distribution of adspend on wealth management, by media type, 2010-12
                                                                                                                                                                                  • Sponsorship activity
                                                                                                                                                                                  • Channels to Market

                                                                                                                                                                                    • Key points
                                                                                                                                                                                      • Discretionary sector is the largest, by number of client accounts…
                                                                                                                                                                                          • Figure 42: Number of client accounts/portfolios, by mandate type, 2007-11
                                                                                                                                                                                        • …and by assets under management
                                                                                                                                                                                          • Figure 43: Investment assets held by wealth managers, by mandate type, 2007-11
                                                                                                                                                                                        • Revenue returns under pressure, particularly in the advisory sector
                                                                                                                                                                                          • Figure 44: Revenue return on discretionary and advisory assets, 2007-11
                                                                                                                                                                                      • Assets Held by the Target Wealth Market

                                                                                                                                                                                        • Key points
                                                                                                                                                                                          • Survey background
                                                                                                                                                                                            • Segmenting respondents according to level of wealth
                                                                                                                                                                                              • Figure 45: Segmentation of total sample, by value of investable assets (wealth tier), July 2012
                                                                                                                                                                                            • Size of the target market
                                                                                                                                                                                              • Figure 46: Demographic profile of the target wealth market, by wealth tier, July 2012
                                                                                                                                                                                            • Asset ownership
                                                                                                                                                                                              • Figure 47: Pensions, investments and other assets held by the target wealth market, by wealth tier, July 2012
                                                                                                                                                                                          • Investment Approach and Usage of Professional Client Services

                                                                                                                                                                                            • Key points
                                                                                                                                                                                              • Just over half the sample prefer to take a DIY investment approach
                                                                                                                                                                                                  • Figure 48: Segmenting the target wealth market, by approach to investment management and decision-making, July 2012
                                                                                                                                                                                                • RDR implementation to impact the adviser-reliant
                                                                                                                                                                                                  • The wealthier an individual is, the more they require the services of an adviser
                                                                                                                                                                                                    • Figure 49: Approach to investment management and decision-making, by wealth tier, July 2012
                                                                                                                                                                                                  • The adviser-reliant and discretionary-dependent tend to have the most diversified portfolios
                                                                                                                                                                                                    • Figure 50: Pensions, investments and other assets held by the target wealth market, by investment approach, July 2012
                                                                                                                                                                                                  • Contact with professional advisers tends to be on an irregular or ad hoc basis
                                                                                                                                                                                                    • Figure 51: Frequency of contact for advice or to trade, by type of firm, July 2012
                                                                                                                                                                                                  • Over half of the affluent and HNW have never used the services of a wealth manager
                                                                                                                                                                                                    • Figure 52: Frequency of contact for advice or to trade, by type of firm and wealth tier, July 2012
                                                                                                                                                                                                • Impact of External Factors on Investment Behaviour

                                                                                                                                                                                                  • Key points
                                                                                                                                                                                                    • Economic worries and market turbulence have made many wealthier investors more cautious
                                                                                                                                                                                                      • Figure 53: Impact of economic downturn and eurozone crisis on investment attitude/approach, by wealth tier, July 2012
                                                                                                                                                                                                    • Self-directed investors are favouring cash
                                                                                                                                                                                                      • Figure 54: Impact of economic downturn and eurozone crisis on investment attitude/approach, by investment approach, July 2012
                                                                                                                                                                                                    • Nearly one in three wealthy individuals feel worse off compared to a year ago…
                                                                                                                                                                                                      • Figure 55: Current financial situation compared to 12 months ago, by wealth tier, July 2012
                                                                                                                                                                                                    • …although the ratio falls slightly among the self-directed…
                                                                                                                                                                                                      • Figure 56: Current financial situation compared to 12 months ago, by investment approach, July 2012
                                                                                                                                                                                                    • …and there is greater optimism looking forward…
                                                                                                                                                                                                      • Figure 57: Financial wealth expectations over the next 12 months, by wealth tier, July 2012
                                                                                                                                                                                                    • …especially among the self-directed
                                                                                                                                                                                                      • Figure 58: Financial wealth expectations over the next 12 months, by investment approach, July 2012
                                                                                                                                                                                                  • Financial Goals and Investment Plans

                                                                                                                                                                                                    • Key points
                                                                                                                                                                                                      • The ‘rich’ are keen on getting richer
                                                                                                                                                                                                        • Figure 59: Financial goals over the next 12-18 months, by wealth tier, July 2012
                                                                                                                                                                                                      • Financial priorities vary according to investment approach
                                                                                                                                                                                                        • Figure 60: Financial goals over the next 12-18 months, by investment approach, July 2012
                                                                                                                                                                                                      • A large proportion of new client money will flow into cash- and equity-based investments
                                                                                                                                                                                                        • Figure 61: Assets expect to buy, sell or maintain over the next 12 months, July 2012
                                                                                                                                                                                                    • Appendix – Assets held by the Target Wealth Market

                                                                                                                                                                                                        • Figure 62: Ownership of cash savings products, by demographics, July 2012
                                                                                                                                                                                                        • Figure 63: Ownership of investment or other assets (top six only), by demographics, July 2012
                                                                                                                                                                                                    • Appendix – Investment Approach and Usage of Professional Client Services

                                                                                                                                                                                                          • Figure 64: Management approach to investing, by demographics, July 2012
                                                                                                                                                                                                          • Figure 65: Frequency of using or consulting a high street bank or building society staff/adviser, by demographics, July 2012
                                                                                                                                                                                                          • Figure 66: Frequency of using or consulting an IFA, by demographics, July 2012
                                                                                                                                                                                                          • Figure 67: Frequency of using or consulting a sharedealing/stockbroking division of a high street bank or building society, by demographics, July 2012
                                                                                                                                                                                                          • Figure 68: Frequency of using or consulting a private bank or wealth management company, by demographics, July 2012
                                                                                                                                                                                                          • Figure 69: Frequency of using or consulting a traditional stockbroker (in person or by phone), by demographics, July 2012
                                                                                                                                                                                                          • Figure 70: Frequency of using or consulting an online broker/sharedealing service, by demographics, July 2012
                                                                                                                                                                                                      • Appendix – Impact of External Factors on Investment Behaviour

                                                                                                                                                                                                          • Figure 71: Impact of economic downturn and eurozone crisis on investment attitude and approach (top five responses), by demographics, July 2012
                                                                                                                                                                                                          • Figure 72: Current financial situation compared to 12 months ago, by demographics, July 2012
                                                                                                                                                                                                          • Figure 73: Financial wealth expectations over the next 12 months, by demographics, July 2012
                                                                                                                                                                                                      • Appendix – Financial Goals and Investment Plans

                                                                                                                                                                                                          • Figure 74: Top five financial goals over the next 12-18 months, by demographics, July 2012
                                                                                                                                                                                                          • Figure 75: Next six financial goals over the next 12-18 months, by demographics, July 2012
                                                                                                                                                                                                          • Figure 76: Expected activity relating to cash savings or money market funds over the next 12 months, by demographics, July 2012
                                                                                                                                                                                                          • Figure 77: Expected activity relating to individual stocks and shares over the next 12 months, by demographics, July 2012
                                                                                                                                                                                                          • Figure 78: Expected activity relating to collective investments over the next 12 months, by demographics, July 2012
                                                                                                                                                                                                          • Figure 79: Expected activity relating to government or corporate bonds over the next 12 months, by demographics, July 2012
                                                                                                                                                                                                          • Figure 80: Expected activity relating to structured products over the next 12 months, by demographics, July 2012
                                                                                                                                                                                                          • Figure 81: Expected activity relating to property investment over the next 12 months, by demographics, July 2012
                                                                                                                                                                                                          • Figure 82: Expected activity relating to specialist investments over the next 12 months, by demographics, July 2012
                                                                                                                                                                                                          • Figure 83: Expected activity relating to alternative investments over the next 12 months, by demographics, July 2012
                                                                                                                                                                                                          • Figure 84: Expected activity relating to pension funds over the next 12 months, by demographics, July 2012

                                                                                                                                                                                                      Companies Covered

                                                                                                                                                                                                      • Adam & Company
                                                                                                                                                                                                      • Barclays Bank plc
                                                                                                                                                                                                      • Citigroup Inc.
                                                                                                                                                                                                      • Coutts & Co
                                                                                                                                                                                                      • Deutsche Bank AG
                                                                                                                                                                                                      • Financial Services Authority (The)
                                                                                                                                                                                                      • Google, Inc.
                                                                                                                                                                                                      • Hargreaves Lansdown Plc
                                                                                                                                                                                                      • HSBC USA Inc.
                                                                                                                                                                                                      • JPMorgan Invest LLC (BrownCo)
                                                                                                                                                                                                      • Lloyds Banking Group
                                                                                                                                                                                                      • Research in Motion Uk Ltd.
                                                                                                                                                                                                      • Royal Bank of Scotland Group plc
                                                                                                                                                                                                      • St James' Place Plc
                                                                                                                                                                                                      • UBS Wealth Management UK Ltd

                                                                                                                                                                                                      Affluent Investing - UK - November 2012

                                                                                                                                                                                                      US $2,478.79 (Excl.Tax)