Wealth management margins remain tight

ProfitThe wealth management businesses of UBS and Morgan Stanley have each reached over $2 trillion of assets under management (AuM) thanks to a “solid” business year for the industry in 2014.

AuM for over 200 industry players rose by an average of 3.4% and operating profits also improved by an average of 3.3%, according to Scorpio Partnership.

However, the industry is still tackling major compression factors in terms of costs versus income, says Sebastian Dovey, managing partner at Scorpio Partnership. Costs were equivalent to 84.4% of income. Although operating income rose 4.6%, operating expenses increased 6.2%.

These factors provide a drag on more positive developments. For example, client volumes increased in 2014, with net new money up by 25.8%. Demand for wealth services are strengthening for many players, too, says Scorpio Partnership in its Global Private Banking Benchmark 2015.

US players continue to dominate the global industry based mainly on their domestic businesses. A number of European firms were adversely impacted by the performance of the euro.

In the top ten, BNP Paribas and HSBC – ranked 8th and 9th respectively – both fell two places based on AUM in dollar terms (see below). JP Morgan rose above them.

“This is a complex moment in our history. The operating model is facing major growing pains to accommodate the expectations of financial groups for wealth management divisions to deliver sustained high margin results,” says Dovey. “Some are not moving quickly enough, with rates of growth slowing.”

The top 10 players’ assets under management and growth are:

Name AUM ($bn) Growth
UBS 2,035.2 3.5%
Morgan Stanley 2,025.0 6.1%
Bank of America Merril Lynch 1,984.3 6.3%
Credit Suisse 883.7 -0.5%
Royal Bank of Canada 704.4 4.6%
Citi 550.5 n/a
JP Morgan 428.0 18.6%
BNP Paribas 370.7 -6.2%
HSBC 365.0 -4.5%
Goldman Sachs  363.0 10.0%

 

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