Redefining Ways to Deliver Advice

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A new era: redefining ways to deliver trusted adviceGlobal Private Banking and Wealth Management Survey 2009

July 2009

Financial Services


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PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Contents

1

Contents

Foreword 2

Key survey headlines 6

01 Performance in crisis what to do now? 8

02 Client service disciplined segmentation lifts quality 16

03 Products and services delivering Nouveau Classic banking 22

04 The people agenda a new strategy required 26

05 Operations and technology delivering client value and cost efficiency 34

06 Risk management protecting the client promise 40

Background to the 2009 Survey 46

Contacts 50

PricewaterhouseCoopers1 services 53

1 PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers Internat ional Limited, each of which is a separate and independent legal entity.


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2PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Foreword

Foreword

Since our 2007 Survey, the world of thewealth manager has become far morechallenging. With asset values down,lower trading volumes and clients focusedon lower margin products, revenueprospects are severely reduced. Clientsare expecting more from their wealthmanager, are asking difficult questions andlooking for assurance. Client relationshipsappear less secure. Additionally,governments and regulators are increasingthe pressure on wealth managers in avariety of ways.

As a reaction to this, wealth managers arereturning to their core focusing ontrusted advice and the long-term clientrelationships that have traditionally been atthe very heart of the business. In aneconomic downturn, companies move upand down performance and profitabilityleague tables more than at any other time.Wealth managers who successfully

redefine their business models now will

retain leadership during the subsequenteconomic upturn. The logic is simple andcompelling: businesses have to plan tosucceed in a downturn if they are to haveany realistic chance of winning when goodtimes return.

The current environment offers realopportunities for those wealth managerswith the agility and ability to adapt theirstrategies, people and processes toaddress gaps in the market. In our viewthere are three underlying themes that willdefine the future of the industry:

The emergence of NouveauClassic banking;

Adaptation of business models,specifically the drive for processefficiency and improved service; and

Increasing political, fiscal andregulatory pressures.

The PricewaterhouseCoopersPrivate Banking and WealthManagement Leadership Team

PricewaterhouseCoopers is delighted to bring you this latest edition of our Global Private Banking andWealth Management Survey, A new era: redefining ways to deliver trusted advice.

Jeremy JensenEMEA Leader

C Steven CrosbyAmericas Leader

Justin OngAsia Pacific Leader


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Wealth managers need to plan for a tax-transparent world, taking steps to ensurethat product ranges, sales techniques andmessages are fully compliant with newregulations. Organisations need to thinkcarefully about where they place clientsfunds, as well as the vehicles andtechniques they use to serve their clients.Exactly how this will play out over time

remains to be seen, particularly withgovernment very much inside the tent.

A new era

Against the current background offinancial turmoil, the wealth managers thatemerge as leaders will not only do what isrequired for survival in the short term.

They will also be agile and innovativeenough to respond to the demands of thenew wealth management landscape in away that builds long-term competitiveadvantage. The business of wealthmanagement has changed for good andsome of yesterdays business modelshave clearly failed. Only those wealthmanagers that understand this will thrive

in this new era.

Thank you to all whocontributed

Our Survey would not be a successwithout significant industry participationand we would like to thank the 238organisations based in 40 countries thattook part. We hope that you find thisSurvey insightful and thought-provokingand we would be delighted to discussin detail your feedback on the issuesraised within it. Please do not hesitateto contact us or your usualPricewaterhouseCoopers contact.

Finally, we would like to thank theentire PricewaterhouseCoopers teamwho have worked together over

many months to produce such aninsightful report, in particular theGlobal Editorial Board.

We are looking forward to thenext edition.

The PricewaterhouseCoopers PrivateBanking and Wealth ManagementLeadership Team

PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Foreword

5

We would like to take this opportunity to thank all the organisations

who participated in our Survey


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6PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Key survey headlines

Key surveyheadlines

Performance in crisis what to do now?

After several years of acceleratinggrowth, the economic crisis has broughtwealth managements expansion to ascreeching halt.

Placing clients at the centre of thebusiness model, providing objectiveadvice and possessing a strong brandare now key to success.

Taking care of the client providesits own rewards the most profitable

wealth managers have significantly lowerratios of clients per CRM across eachwealth segment.

Client service disciplinedsegmentation lifts quality

Servicing strategies must define andaddress specific client segments, withdifferentiated offerings designed tosupport clients needs throughout allstages of their lives.

Disciplined segmentation will not onlyhelp wealth managers tackle todays clientservice challenges, but also allow servicesto be offered to specific clients in a morecost-effective manner.

Products and services delivering NouveauClassic banking

Wealth managers are seeking to redefinetrusted advisor status.

In the wake of investment frauds,transparent product offerings, togetherwith robust suitability and due diligenceprocesses, are critical not only to drivecustomer value but also to protect thereputations of wealth managers.

Product and service offerings needto be clearly aligned with client

preferences and financial goals,while also being operationallyefficient for the wealth manager.

01 02 03


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The people agenda a new strategy required

Todays economic crisis presentschallenges for which CRMs have neitherthe experience nor the training.

If quality of advice is to be the realdifferentiator, CRMs need to developstronger advisory skills, as well asexpanding their knowledge in areas suchas tax and risk.

As governments and regulators drivechange in reward structures, long-term

compensation and development packagesmust encourage client-centric behavioursand CRM loyalty.

Operations and technology delivering client value andcost efficiency

COOs at successful wealth managersmust make changes to their operatingmodels to reduce costs, whilesimultaneously investing to supportand drive business growth.

Many COOs surveyed believe there aresignificant cost savings that can be madeover the next two years and place processefficiency towards the top of their agendas.

With two-thirds of CEOs identifying

acquisitions as continuing to be a part oftheir growth strategy, there will certainlybe significant challenges around theintegration of operations.

Risk management protecting the client promise

Robust risk management is the guardianof every wealth managers reputation.

Poor risk management when selectingproducts for clients has been an evidentweakness undermining manyestablished wealth management brands.

In this new era, risk managementmust come of age. Its applicationmust be holistic and driven by clientsexpectations.

PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Key survey headlines

7

04 05 06


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8PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Performance in crisis what to do now?

Performance in crisis what to do now?

01The business model of wealth managers

has been designed primarily for growth.The strategy of growth is realised throughthe aspired relationship of trust betweenthe client and his CRM or externallythrough the acquisition of CRMs and/orcompetitors. In recent boom years thisgrowth has accelerated and at the sametime yielded high levels of profitability thatfuelled the attractiveness of the wealth

management sector. In the 2007 edition ofour Survey, prior to the current financialcrisis, Chief Executive Officers (CEOs)were still convinced that more than30% growth would be achievable in thecoming years.

With the benefit of hindsight this turnedout to be a fallacy. The growth story cameto a screeching halt in 2008. Assetsunder management (AuM) have shrunkconsiderably. Disillusioned by thenegative performance of their invested

assets, clients have become more risk

averse, moving into cash and less riskyinstruments (with lower margins for wealthmanagers). This also reduces tradingactivity. As a result, wealth managersrevenues have shrunk considerably.

In addition, clients require much more timeand attention from their CRM. Poorperformance needs to be explained andefforts to retain clients intensified. Thesedevelopments should not have come as asurprise to most veterans of the industry,since wealth management is not a puregrowth business, but is exposed tosignificant cyclicality. The last downturns(the oil crisis, the internet dotcom bubbleand several local crises) and theirrepercussions ended the independence orthe existence of a number of small andmid-sized wealth managers.

After several years of accelerating growth, the economic crisis has brought wealth managements expansionto a screeching halt. Placing clients at the centre of the business model, providing objective advice andpossessing a strong brand are now key to success. Taking care of the client provides its own rewards the most profitable wealth managers have significantly lower ratios of clients per Client RelationshipManager (CRM) across each wealth segment.


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To make things tougher, the relatively fixedcost base of institutions cannot easily beadjusted in the near term. The effectivewealth manager would first start bylooking at the largest cost block, whichis the front office (see Figure 1). Cuttingthere could, potentially, expose the wealthmanager to the risk of further clientattrition, since fired CRMs might take

some of their clients with them. This couldalso threaten to overload the remainingclient advisors and further exacerbaterevenue decline.

Our Survey suggests, however, that thelarge majority of CRMs take significantlyless than 40% of their client assets whenthey change employer. This is significantly

less than the perception in the industry.In the back-office, costs are largelyfixed and therefore controlling unitcosts is challenging. The only meaningfulway to reduce cost would be to closedown locations and centralise oroutsource back-office activities. Such anexercise could, however, prove veryexpensive in the short term and pay-offs

might arise only in the distant future,if at all.

PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Performance in crisis what to do now?

9

34%

10%

10%

8%

9%

5%

24%

Front office staff

Other internal staff / personnel

IT systems and processes

Other

Property and facilities

Sales and marketing activities

Outsourcing

Figure 1: The cost distribution of an average wealth manager

Source: PricewaterhouseCoopers


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The best way to escape from this costtrap is to grow through acquisition of newclients or increasing the share of walletfrom existing clients. In the currentenvironment, where most markets arecontracting and competition is fierce, thisis something of a predicament. There are,however, still wealth managers that wereable to grow in 2008, mainly through

growth of share of wallet from existingclients. This shows that a good clientrelationship rewards even in difficult times.

The wealth managers with the bestperformance, however, poached CRMstwice as much as the average.

Smaller wealth managers have a uniqueopportunity to profit from the damage tolarge global wealth managers, hit by thecurrent financial crisis. Indeed, across theindustry we see CRMs both moving torivals and starting up their own boutiques.

For most wealth managers, new waysof regaining acceptable levels of

performance have to be found. Whathas determined the winners and the losersof the present crisis? Many things havebeen said in the marketplace. But what ismyth and what is real? Our respondentshighlighted several key elements offuture success.

Figure 2: Average number of clients served per CRM across wealth segments

0

50

100

150

200

250

300

350

More than$50 million

$20 million to lessthan $50 million

$1 million to lessthan $20 million

$500,000 to lessthan $1 million

$100,000 to lessthan $500,000

273

137149

90 83

42 41

518

2

AverageclientsperCRM

Client net worthAll participants Average of the 10% of participants with the lowest cost/income ratio



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Putting the client first

A wealth managers core business is todevelop and cultivate the clientrelationship, but very few firms can trulylive up to that promise. Our Survey showsthat the most profitable wealth managershave significantly lower ratios of clientsper CRM in the different client segments

(see Figure 2), which shows that takingcare of the client really does provide itsown rewards.

In a crisis context, the main concernshould be the sustainability of the clientrelationship. This goal can be achievedmore easily, if the client base is clearlydefined and clients feel emotionally

attached to the CRM. Clients must,therefore, be placed at the core ofbusiness models. Servicing strategiesmust address specific client segments,with differentiated offerings and effectivedelivery channels.

Furthermore, CRMs need to developmuch stronger advisory skills, as well asraising their knowledge in areas such astax and risk. Long-term remuneration andmanagement development packages mustbe redesigned to encourage responsiblebehaviour and delivery of consistentlygood client advice.

Brand is key

Brands in wealth management are usuallybuilt up over time, often steeped in historyand rich with tradition, showing a long andsuccessful track record in the industry.Brands must convey a feeling of securityto their clients that allows them to committheir money to an entity existing for

decades, or even centuries. The majorityof the most efficient and fast-growingwealth management firms in our sample,however, define their brand mainly throughtheir client base (see Figure 3). A strong,brand-defining and marketable clientbase is an important success factor forwealth managers.


11

Taking care of the client pays dividends. The most profitable wealth

managers have significantly lower ratios of clients per CRM in allwealth segments.

0

10

20

30

40

50

60

ProductsOtherClient baseClient relationship

managers

History/tradition

43

14

14

57

1

14

23

17

12

5

%o

fCEOs

All participants Average of the 10% of participants with the lowest cost/income ratio

Figure 3: What are the most important factors driving your organisations brand value?



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Successful wealth managers use astrategy of differentiation and emotionalelements to market their brand, asopposed to only stating who they are andwhat they do. There is a need to be morethan exquisite premises, walnut panellingand crystal it is about trust, security andperformance. In an industry where trust isthe foundation of the business, winning

players consistently rely on a strongbrand. The financial crisis has shown usthe soft underbelly of a strong brand:it takes decades to build but can bedestroyed in a moment.

Size really does not matter

Many claim that economies of scale help

in building a high performance wealthmanagement organisation. Our Surveysuggests very clearly that there is nodirect link between size and profitability(in terms of cost/income ratio). How largean organisation is has little bearing on howprofitable it is and size simply for sizessake does not appear an attractive goalfor wealth managers to pursue.

That said, many wealth managers stillconsider growth attractive. Almosttwo-thirds of CEOs place acquisitions intheir growth strategy for the next twoyears. Interestingly, these acquisitions arelimited to the home markets. Very fewrespondents envisage acquisitions acrossborders, preferring to probe new marketsby sending CRMs on visits. In the new era

of tightened regulations, the fly in/fly outmodel increasingly appears questionable.

Cross-border expansion could alsoexpose wealth managers to additionalregulatory and tax risks. In general,acquiring another wealth manager mightnot always be the best option to takecapacity out of the market, sincesynergies are not always obvious.

Figure 4: Number of segments within the wealth pyramid served by wealth managers

31%46%

1%

4%

18%

1 client segment served

2 client segmentsserved






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The crisis shows us that high-marginproducts, often produced in-house, canbe too complex for both CRM and client.If complex and specific products (eg,absolute return products) have a verynegative performance, not only the client,but also the wealth manager can suffer,since reputation is ultimately at stake.

Open architecture combined with quality,independent advice increasingly seems tobe a value-adding proposition for both theclient and the wealth manager. If productsare manufactured in-house, they mustaddress a specific market or client needand should be fully aligned with thestrategy and the specific client baseof the organisation.


0 10 20 30 40 50

> 20%

10% 20%

5% 10%

0% 5%18

28

40

50

36

18

10

All participants Average of the 10% of participants with the lowest cost/income ratio

Figure 6: In your opinion, as CEO, by what percentage can your organisation cut itsoperating costs?



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15

Among the most profitable respondents, CEOs consider they can cut

more than 10% of their operating costs.

Attacking your cost structure

The easiest way to address challenges toprofitability seems to be an increasedemphasis on cost cutting. Most CEOsreport the potential to cut costs by 5%or more in their own organisations(see Figure 6). Among the most profitablerespondents, 60% of CEOs indicate they

can cut more than 10% of the totalcost, which would increase theirprofitability even more.

However, just saving cost is not enough.A crisis is a unique opportunity to rethinkthe array of issues surrounding servicesand clients, and to decide which onesadd value to the business and which onesdo not.

It is an opportunity to manage outactivities and services that do not addvalue and to focus more consistently onthe needs of profitable clients. In addition,it is an opportunity to address thecyclicality of the wealth business.Cost structures need to be made moreflexible, allowing wealth managers toadapt quickly not only to market upturns,

but also to downturns.Given the cyclicality of financial markets,one can be sure that fortunes will alwaysebb and flow. Attacking the structure ofcosts is not easy, but it could be the bestway to be prepared for whatever the futurehas in store.


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16PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Client service disciplined segmentation lifts quality

Client service disciplined segmentation lifts quality

02 After a slump in asset prices and anumber of investment scandals, many

wealthy clients have lost significanttrust in their customer relationshipmanagers (CRMs) and their institutions.Clients are demanding higher standardsof service from their wealth managers.If they do not receive this service, they arefar less forgiving.

Indeed, indicating the clients degree ofscepticism about the quality of CRMsadvice, 53% of the private clients wesurveyed said that their primary sourceof financial advice was now their ownindependent research and knowledge.

Faced with such difficult clientperceptions, wealth managers need tosignificantly raise their standards.They must focus on placing clients at the

very heart of their business models.

Disciplined segmentation of the clientbase, accompanied by tiered service

offerings, is an ideal way to do so.By differentiating between the needs ofthe diverse wealth segments, andthoroughly understanding them, wealthmanagers can significantly improve theirability to give clients the high levels ofservice they require. Yet while our Surveyshows wealth managers are becomingincreasingly more sophisticated whensegmenting their clients, only 19% matchthis with distinct tiered offerings clearlythis provides an opportunity for furtherevolution in the quest to meet clientsexpectations.

Servicing strategies must define and address specific client segments, with differentiated offerings designedto support clients needs throughout all stages of their lives. Disciplined segmentation will not only helpwealth managers tackle todays client service challenges, but also allow services to be offered to specificclients in a more cost-effective manner.


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18PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Client service disciplined segmentation lifts quality

This highlights the difference between anAsia-Pacific market mostly driven by firstand second generation wealth and thematurity of the US and EMEA wealthmanagement markets. Correspondingly,

we also observed differences in theinvestment goals of the wealthy accordingto their geographical origin.

With client acquisition and retention nowtopping Chief Executive Officers (CEOs)agendas (see Figure 8), we contend thatrigorously defining client segments andproviding tiered service propositions that

are profitable and of high quality will helpwealth managers to tackle todays clientservice challenges.

0 10 20 30 40 50 60

Business divestment

Client attrition

Head-count reduction

We benefited from a flight to quality

Across-the-board budget cuts

We have taken this opportunity to strategically grow

Asset attrition 58

49

43

43

26

25

6

% of participants

Figure 9: How has the current economic crisis impacted onyour organisation?

0 50 100 150 200 250 300

Entry into new markets

Acquisition and retention of key staff

Investment performance

Cost reduction/business refocusing

Improving profitability

Managing risk

Managing through economic downturn

Acquisition and retention of clients 268

246

152

134

103

73

64

40

Sum of weighted ranked responses

Figure 8: Which of the following are the most important strategic areas onwhich you as CEO currently spend time?

Source: PricewaterhouseCoopers Source: PricewaterhouseCoopers

P i t h C Gl b l P i B ki d W l h M S 2009


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Clients are rewardinghigh-quality and trustedservice

For all wealth managers reviewing theirgo-to-market strategies, our Surveyindicates that CRMs are struggling toprovide sufficiently high levels of clientservice. With our participants rankingreputation and word of mouth as theprimary reasons why new clients join themand the source of 53% of net new clients,there is clearly scope for improvement.

Client referrals have, traditionally, been thereward for excellence in relationshipmanagement and their importance willcontinue to rise, especially as clients

continue to seek asset protection andtrusted relationships. Clearly, failure tounderstand client needs today is likely toresult in a loss of market share tomorrow.

Client attrition has been reported by 25%of respondents, while 43% claim to havebenefited from a flight to quality over theperiod surveyed indicating that some,but not all, wealth managers have sufferedfrom a combination of brand attrition andineffective client service (see Figure 9).Gains in some cases are a result of

unannounced transfers of assets byconcerned clients. Indeed, followingrecent investment scandals, referralnetworks have become somewhat brittlein the face of greater demand fortransparency and increased due diligence.

More contact with the client is todaysmost common retention tactic.More than 90% of wealth managerssurveyed have seen their CRMs increaseinteractions with clients and for 69% oforganisations the frequency of advice toclients has increased (see Figure 10).Some 49% are providing clients withadditional insights on market trendsand product performance, while just13% have reduced fees confirming thatin the current market pricing is not aprimary differentiator.

PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Client service disciplined segmentation lifts quality

19

Client attrition has been reported by 25% of respondents while 43%have benefited from a flight to quality.

0 10 20 30 40 50 60 70 80 90 100

Reduction in fees charged to clients

Educational events for clients

Marketing the flight to quality of our organisation

Investment in services to clients

Increase in reporting and research information to clients

Increase in advice to clients / portfolio rebalancing

Increased client contact directly by CRMs 92

69

49

44

41

40

13

% of participants

Figure 10: Given the current global economic crisis, what have been yourorganisations tactics to retain clients?



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22PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009


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22PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Products and services delivering Nouveau Classic banking

Products and services delivering Nouveau Classic banking

03Respondents recognise that becoming

the clients trusted advisor is the bestway to acquire and retain assets in todaysvolatile environment. Some 60% ofChief Executive Officers (CEOs) anticipatemoving to an advice-led modelwith a full open architecture for externallysourced products within the next twoyears, contrasting with the 53% that usethis approach today (see Figure 11).

With open architecture increasingcommoditisation and driving down feelevels, CEOs are doing what they can toprotect profitability. For this reason, 26%of CEOs believe they will still leverage acombination of producer/distributormodels. By bundling proprietary andthird-party products together assumingin-house investment performance allows

this CEOs can avoid paying awaymargins to third-party product providers.

Wealth managers are seeking to redefine trusted advisor status. In the wake of investment frauds,transparent product offerings, together with robust suitability and due diligence processes, are critical notonly to drive customer value but also to protect the reputations of wealth managers. Product and serviceofferings need to be clearly aligned with client preferences and financial goals, while also being operationallyefficient for the wealth manager.

0 10 20 30 40 50 60

Primarilydistributor-led model

Primarilyproducer-led model

Both producer anddistributor models

Advice-led model(fully open architecture)

53

2426

127

117

60

% of participantsNow In two years

Figure 11: Which of the following best describes your business model, now andin two years time?



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26PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009The people agenda a new strategy required


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04People management practices need to be

reviewed to ensure that appropriatetraining is provided and, where possible,experience can be hired to help navigatethrough these turbulent times.If quality of advice is to be the realdifferentiator, wealth managers need toprovide CRMs with relevant tools andskills and do so quickly.

The people agenda needs to remain one

of the priorities of senior management toensure a sustainable foundation forgrowth. Success will depend on how wellbusinesses can adapt to the neweconomic environment and provide theirCRMs with the right incentives to developand deliver client-centric behaviours overthe long term.

Demand for CRMs becomes

less urgent in the short termWith Chief Executive Officers (CEOs)fighting to salvage the reputations of theirorganisations and retain disillusionedclients, the people agenda is no longer atop priority in the short term at least.Acquisition and retention of talent hasfallen from being their number two priority

in 2007 to seventh today (see Figure 8 onpage 18).

Falling profits have dulled demand forCRMs in the front office. As a result of theincreased need for CEOs to focus onoperational issues, such as improvingfinance and risk functions, there is a needto hire better quality middle- and back-office staff to manage these functions.

Making these functions increasingly robustwill support credibility with clients in thelong term.

Todays economic crisis presents challenges for which Client Relationship Managers (CRMs) have neitherthe experience nor the training. If quality of advice is to be the real differentiator, CRMs need to developstronger advisory skills, as well as expanding their knowledge in areas such as tax and risk. As governmentsand regulators drive change in reward structures, long-term compensation and development packages mustencourage client-centric behaviours and CRM loyalty.

PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009The people agenda a new strategy required

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There is no longer a danger that aninability to recruit sufficient CRMs will slowbusiness growth. Consequently, demandfor CRMs is expected to fall by 24%globally over the next two years(see Figure 15). Regionally, EMEA andAsia Pacific are anticipating falls of 45%and 17% respectively, while the Americas

are expecting a negligible increaseof 1%. This is in stark contrast to 2007,when demand for CRMs globally wasexpected to grow by 32% over two years.

Generally, the fall in EMEA can be

explained by the fact that recruitment ofCRMs there was more aggressive thanelsewhere during the boom years, thus the

economic slowdown has created a fargreater need to reduce headcount.That said, evidence from the industrysuggests recruitment is not following anyregional trend but is firm-specific atpresent, reflecting an organisations abilityto perform through the crisis.

Clearly the balance of power haschanged, and currently rests withemployers and potential employers.For those wealth managers still hiring,and many are, the focus is on selectivepoaching of CRMs who have the talentand experience needed to navigatethrough these difficult times. From adefensive perspective, wealth managersneed to be careful to retain suchvaluable individuals.

The CRM perspective:re-skilling is essential

Many CRMs have neither the experiencenor the training to deal with the challengesthat todays economic crisis brings towealth management. Aside from theobvious difficulties of managing volatile

investment portfolios, their communicationskills have been found wanting as theyhave to deliver bad news to clients and


Global

EMEA

Asia Pacific

The Americas

Decrease of 24%

Decrease of 45%

Decrease of 17%

Increase of 1%

Figure 15: Expected average increase/decrease of CRMsover the next two years




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p p g gy q

respond to mounting frustration andincreasing demands for greatertransparency.

Given this backdrop, it is perhaps notsurprising that wealth managers identify

the three most common areas ofweakness for CRMs as an inability toadapt to change, lack of client

relationship skills and poor appreciationof risk (see Figure 16).

Indeed, CRMs realise they haveshortcomings. They identify clientrelationship skills and taxation as the two

areas where they would most like toreceive additional training (see Figure 17).Considering that CRMs expressed the

same view in our 2007 Survey, it is clearwealth managers need to review theirtraining programmes.

CEOs recognise the weaknesses of theirCRMs, with only 20% considering their

CRMs of high calibre in meeting the needsof clients. Indeed, more than a quarter ofCEOs confess that their CRMs are of only

average ability. Given that CRMs are thepublic face of their organisations and that,after history and tradition, even CEOsrecognise them as the most importantdrivers of brand value, this is a verytroubling statistic. Evidently, this is anotherindication that CRMs training anddevelopment programmes needto be revised and strengthened.

0 50 100 150 200

Philanthropy

Compliance and regulatory updates

Strategy update

Product training

Financial markets updates

Inter-generational wealth transfer

Taxation updates

Softer skills including client handling

40

62

105

129

135

166

170

195


Figure 17: In which of the following areas would you, as CRM, like to receivefurther training over the next 12 months?

0 20 40 60 80 100 120

Lack of ability to collaborate

Lack of understanding of tax issues

Lack of ability to lead others

Lack of product knowledge

Lack of business experienceLac

kof global experience

Lack of understanding of risk

Lack of client relationship skills

Lack of ability to adjust to change quickly

45

57

64

79

8491

92

93

112


Figure 16: In your opinion, as business head, what are the areas of greatestweakness for your organisations CRMs?



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in the current market and take steps tomeasure their CRMs against a new,more relevant set of criteria.

Having defined performance measurementcriteria, the next step is to ensure thatindividuals are rewarded for theirperformance against these criteria.Wealth managers continue to struggle withremoving or minimising discretion from

individual reward. The objective is to havea transparent system where CRMs areobjectively assessed and this assessmentdirectly affects their levels of reward.

With so much emphasis on long-termclient relationships, the HR function needsto focus on building long-term careerpaths for CRMs. When those who had left

a wealth manager in the past two yearswere asked for their two top reasons forleaving, CRMs stated the need for a freshchallenge, and the lack of career path they ranked remuneration only a distantfourth (see Figure 19).

For 47% of wealth managers, theaverage length of CRMs service is fewerthan five years. CRMs need to stay forsignificantly longer if they are to developlong-term client relationships, particularlyat the higher levels of the wealth pyramid.Similarly, as graduate recruitmentbecomes a more popular way of hiringCRMs, there is a greater need to buildcareer paths that retain talent and buildexperience over the long term.

Only 25% of CRMs have personalmedium-term career and developmentplans in place that have been agreed withmanagement. Unless CRMs understandwhat their objectives are, and these arealigned with the strategic aims of theirorganisations, they are unlikely to stay for

long periods of time. In fact, just 39% ofwealth managers have formal employeeretention programmes.

0 5 10 15 20 25 30 35 40

Unrealistic expectations / pressure to meet targets

Size /structure of remuneration package

Did not agree with corporate strategy

Lack of career path

Needed fresh challenge

16

19

21

22

36

% of participants

Figure 19: Please rank your top three reasons for leaving yourprevious employer


PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009The people agenda a new strategy required

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When it comes to leadership, thereare similar shortfalls in development.While building leadership capabilities iscited as the third most important peopleissue, it is telling that 71% of wealthmanagement organisations do not haveformal succession planning even at thecorporate board level. Indeed, 61% do nothave it in place for middle management.Regulation could likely enforce formalsuccession planning at board level, butfailure to plan for continuity createslong-term risk and at worst it can leadto serious business issues and result inloss of clients.

Reward comes underthe microscope

With CEOs recognising that quality ofadvice is increasingly the key differentiatorfor wealth managers, only long-term

compensation structures can rewardCRMs for the kind of behaviours thatfoster long-term relationships. Indeed,wealth managers increasingly recognisethe misalignment between rewardstructures and business objectives only29% of HR managers agree that the waytheir people are rewarded contributes todesired business outcomes.

Governments and regulators are fastbecoming a key driver for change inreward structures across financialservices. They are demanding improvedcompensation structures in response tothe perception that short-term bonusschemes partly contributed to the financialcrisis by encouraging excessive risktaking. Aside from the make-up of

compensation, regulators are also pushingfor a much stronger alignment betweenbusiness and client objectives andcompensation.

Only 25% of CRMs have personal medium-term career developmentplans agreed with management.



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Some wealth managers realise theyshould change compensation structures todrive more client-centric behaviours andto encourage CRM loyalty. Theseorganisations will focus on aligning bonusand remuneration with desirableorganisational behaviours, and rewardinglong-term client service, rather thanfocusing strictly on revenues and assetsunder management (see Figure 20).Remuneration structures with long-termpay outs will also encourage CRMs to stayin place at organisations, reducing theamount of CRM poaching.

By changing reward structures,organisations can achieve real benefits.Of the wealth managers who changedcompensation structures in the past twoyears, 81% saw an improvement instaff motivation and 78% reported agreater ability to retain high-performanceemployees. Obviously, this helpswealth managers to provide clients withexcellent service.

Disappointingly, though, the appetite forchange is mixed, with 55% of wealthmanagers having no plans to change theirreward structures over the next two years.There is a strong sense of first moverdisadvantage. We should not, though,underestimate the possibility thatregulatory pressure will force

organisations to act.

0 10 20 30 40 50 60 70 80

Increased one-off retention payments

Increased use of equity awards

Move from discretionary to more formulaic bonusschemes

Larger long-term incentive awards to fewer employees

Greater percentage linked to long-term goals

Amendment of current bonusstructure

10

19

38

47

48

78

% of participants

Figure 20: How does your organisation plan on changing its remuneration structurein the next two years?



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36PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Operations and technology delivering client value and cost efficiency


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Investment in systems can deliver much-needed functionality to front-office staffsuch as enhanced portfolio management orperformance analysis tools, as well assupporting major efficiency gains throughthe automation of legacy manual processworkarounds.

Reengineering and reorganisingfor efficiency

While growth is the top priority for COOs,unsurprising yet somewhat of acontradiction, is that short-term costcutting is their next-highest priority. CEOscertainly believe that there is ample room

for costs to be reduced, with 36% of ourrespondents estimating that 10% to 20%can be eliminated, and 18% estimating thatreductions greater than 20% can beachieved with more aggressivenon-traditional programmes (see Figure 6on page 14).

Process reengineering is an obvious placeto start, with 84% of Finance Directorsexpecting process efficiency projects to bea cost-control strategy, and processautomation appearing second in our COOslist of top operational strategies (seeFigure 22). This trend is present globally inevery region. It is present even in AsiaPacific, where arguably systems are

Adopting e-platforms to allow clients to service themselves

Rationalising systems

Integration of new systems

Ensuring legal and regulatory compliance

Client segmentation

Improving performance-tracking metrics

Improving investment planning and management

Improving client reporting systems

Process automation

Reviewing and improving CRM front-office systems

0 20 40 60 80 100 120 140 160


157

145

125

114

82

72

70

70

53

48

40%

16%

10%

8%

5%

4%

17%

Contact with existing clients

Marketing and prospecting

Administration and error resolution

Compliance

Portfolio management

Investment research and analysis

Training

Figure 22: What are the top key operational strategies that you, as COO, currentlyemploy to support your business objectives?

Figure 23: In an average month, what proportion of time do you, as CRM, spend onthe following activities?



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38PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Operations and technology delivering client value and cost efficiency


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Entering a period ofinorganic growth

While wealth managers plan to reduceoperating costs, a level of industryconsolidation in the sector appearsinevitable. Some 88% of CEOs expect atleast some consolidation in the sector inthe coming two years, with 34% expecting

substantial consolidation. Indeed, 63% ofCEOs regard acquisitions as part of theirgrowth strategy over the next two years;more than double the projected rate ofacquisitions in our previous Survey.

Inorganic growth through mergers andacquisitions can be a reasonable approachto growth. It can provide the acquirer witha complete package consisting of new

clients, their accounts, CRMs and theoperational environment necessary toservice them.

For COOs, mergers and acquisitions posean increased challenge. This is a reflectionon the way operating models have beenengineered. Expectations upon or after anacquisition might start with wanting tocross-sell products and services, and lateron combining front-, middle- and back-office teams in order to combine strengthsand gain economies of scale. The reality,however, is that current operatingmodels are highly individualised.Integrating live business functionsis a risky, time-consuming andcomplex exercise.

The work of COOs is perhaps harder nowthan it has ever been before. Needing tosupport growth, while also makingsignificant cost reductions will be a strain

on project resources. COOs must obtainand direct resources wisely and avoid firefighting in order to best position operationsfor the medium- and longer-term.


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40PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Risk management protecting the client promise


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Risk management protecting the client promise

06 Following the financial crisis and recentinvestment frauds, wealth managers areconcentrating more than ever on managing

risk. For Chief Executive Officers (CEOs),risk and its consequences has becomethe third most important strategic areaon which they are currently spendingtheir time.

At the same time, the focus of riskmanagement is changing. Today, Surveyrespondents view counterparty risk as

their number one concern, with client andproduct suitability as their number threeconcern. In two years time, client andproduct suitability is expected to rank first,with counterparty risk sliding to numberfour (see Figure 25). Once the immediatecrisis has passed, wealth managersanticipate concentrating more than everon whether they are selling clients

appropriate products which is highlyrelevant considering the overwhelmingimportance of appropriate advice today.

Wealth managers have gained a farbetter understanding of the overallimportance of risk management. They are

naturally becoming more cautious andtending towards extra layers of control.When doing so they must improve onyesterdays risk management shortfallsbut also anticipate the risks that willaccompany tomorrows opportunities.Strong risk management is a process ofmaking informed decisions across theentire spectrum of risk to which a client

and the institution are exposed.

Risk-based frameworks needto evolve continually

For those working in financial services, thepast 18 months has been a rollercoasterride. As management now turns to focuson how to improve risk management and doing so while minimising constraintson the business there is a need to be

Robust risk management is the guardian of every wealth managers reputation. Poor risk management whenselecting products for clients has been an evident weakness undermining many established wealthmanagement brands. In this new era, risk management must come of age. Its application must be holisticand driven by clients expectations.

PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Risk management protecting the client promise

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proactive. The past has proven that aimingsimply to ensure regulatory compliance isnot enough. Risks around liquidity,operations and third-party productselection have not been mitigatedsufficiently across all industry players.

Risk management needs to be embeddedin the wealth managers overall business

strategy. While the majority of wealthmanagers have invested in strengtheningtheir risk management processes over thepast few years, only 27% of CEOs arevery confident that they have appropriaterisk frameworks in place to identify,

monitor and measure risk across theirorganisations. Wealth managersneed to gain better control of risk

management on a holistic basis in order tocapture and manage all business risks.

Those that continue to operate risk,business planning and performancemanagement in silos are particularly

vulnerable to unforeseen or misjudgedrisks. With 62% of Survey respondentsreporting that their risk management

frameworks are less than five years old,it is clear that risk management needsto be continually evolved.

The most common method of riskmanagement reporting remains loss

prevention and governance reporting(see Figure 26), as was the case in ourpast two Surveys. Yet, significantly, 36%

0 20 40 60 80 100 120

Fraud risks

Data security

Market risk

IT risk

Investment performance

Counterparty risk/Credit risk evaluation

Mis-selling/Inappropriate advice

Operational processing errors

Client and product suitability 106

91

85

78

74

73

72

61

59


Figure 25: What do you, as risk officer, believe will be the key areas of riskneeding to be addressed by your organisation in two years time?

Figure 26: Which of the following best describes your organisations approachto risk management, now and in two years time?

0 10 20 30 40 50 60

CEO sponsors and promotes enterpriserisk management programme

Focus on stakeholder value and integrated riskand value management focusing on linking

performance and capital efficiency

Riskquantification (value at risk)and alignment to objectives

Loss prevention and governance reporting55

20

19

26

12

18

14

36

Now In two years % of participants


42PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Risk management protecting the client promise


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of risk officers expect that in two yearstime their approach to risk managementwill focus on stakeholder value andintegrated risk and value management.

What has now become clear through thiseconomic crisis is that the risk and controlinfrastructures across the financialservices industry are operating with a setof decision metrics that were conceived

and implemented in an environment that isno longer present. The resulting exposureto unplanned losses and systemic risk willcontinue and these will further shake theconfidence of wealth managers clientsand stakeholders alike.

In our view wealth managers also need tofocus on responding to increasing

customer expectations and sophistication.As such, they need to develop riskmanagement frameworks that reflect anddeliver on customer expectations in thecontext of the institutions legal,constructive and reputational obligations.

There is a need for risk managementframeworks to become increasinglyholistic. Risk management needs to beviewed as an integral part of gooddecision making, and not simply as anafter-the-event back-office function.While 70% of wealth managers possessboard-approved risk appetite statements,only 44% say these are fully cascadedthroughout their organisations.

Evidently, wealth managers havesome way to go before risk managementis properly embedded throughouttheir organisations.

Narrow approaches to risk managementhamper an organisations ability tomonitor critical risk interdependencies.

An organisation is then less able todiscern the consequences of otherdecisions it makes in an increasinglyvolatile business environment.

Risk and performancemanagement must beintegrated

Governments and regulators are rapidlybecoming a driver for change in rewardstructures across financial services andare demanding improved risk alignedcompensation structures.

When setting performance-relatedcompensation, wealth managers mustgo beyond simply ensuring regulatorycompliance which 47% of wealthmanagers say is a very important factor.This is not simply about completingKnow Your Customer checks andsuitability checklists behaviours andperformance need to encompass a broadconsideration of risk.

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Linking business risk indicators with keyperformance indicators can be achieved.Encouragingly, 40% of wealth managershave policies in place that assess whethercompensation policies and practices areconsistent with the organisationscorporate culture, long-term objectivesand strategy. Unsurprisingly, consideringthe regulators increased interest, this is anarea wealth managers are looking to

enhance over the next two years.

Understanding product andpotential mis-selling risksbecomes a priority

Failures and client disappointment withthe array of complex financial products

introduced over the past few years havedamaged the wealth managementindustry. Collapsing markets havesignificantly shrunk clients wealth, whileinvestment scandals have eroded trust.Many clients perceive that the wealthmanagers promise to protect clientswealth today, tomorrow and for

generations to come has beencompromised.

Developing successful strategies forinvesting in such complex investmentsrequires an understanding of their risks.CEOs have clearly identified this as anarea of weakness among ClientRelationship Managers (CRMs). Yet if risksassociated with products are not

adequately understood, then on whatbasis can wealth managers responsiblyinvest their clients wealth in suchproducts? CRMs need to have sufficientknowledge to make informed decisionsabout the structuring of clients portfoliosin the context of their stated objectives,circumstances and risk appetite.

It is not surprising then that the primaryarea of risk that wealth managersanticipate addressing in two yearstime is client and product suitability.Furthermore, this is closely followed bythe risks around mis-selling andinappropriate advice.

Product suitability and mis-selling are set to become priority areas ofrisk for wealth managers.


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46PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Background to the 2009 Survey


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Background to the 2009 Survey

Our Survey questionnaires canvassed thefull range of senior management views.Chief Executives, Heads of Business

Units, Chief Operating Officers, FinanceDirectors, Risk Officers and HumanResource Managers all completedspecific sections. Acknowledging theircrucial role in the client experience, thereis also a section dedicated to ClientRelationship Managers.

By focusing on different areas of a wealth

managers business, these responsesreveal the key issues facing wealthmanagement on a holistic basis.Reflecting this, our Survey is split intosix underlying sections covering:Performance, Client Service, Productsand Services, Talent, Operations andTechnology and Risk Management.We also present Viewpoints that discuss

the key topics we believe will shape thefuture of industry.

The PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009 reflects thecontributions of some 238 wealth managers across 40 countries (see Figure 28). The level of participationand the time invested by organisations is an endorsement of the value the industry places in our Survey andthe analysis and insights that it brings to senior management.

Argentina

Australia

Bahrain

Barbados

Belgium

Bermuda

Brazil

Cayman Islands

Channel Islands

China

CyprusFrance

Germany

Hong Kong

India

Ireland

Isle of Man

Israel

Japan

Liechtenstein

Luxembourg

Malaysia

Malta

Monaco

NetherlandsNigeria

Norway

Poland

Portugal

Russia

Singapore

South Africa

Spain

Sweden

Switzerland

Taiwan

United Arab Emirates

United Kingdom

United States of AmericaUruguay

Figure 28: Survey responses were received from 40 countries


PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Background to the 2009 Survey

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Questionnaires were completed either

online or in face-to-face interviewsbetween December 2008 and March2009. PricewaterhouseCoopersInternational Survey Unit located inBelfast, Northern Ireland, which managesnumerous international surveys includingmany on behalf of clients andgovernmental bodies, built and managedthe online questionnaires and led

the detailed data analysis of theSurvey results.

Our Survey refers to wealth managers in

their broadest sense. Respondentscover the entire spectrum of wealthmanagement, including private banks,boutiques, local onshore wealthmanagers, universal global banks andfamily offices. As such they manageassets under management of varyingsizes (see Figure 29). This diversity ofperspectives provides unique insight

into the activities of all types of wealthmanagers, whatever their size, whereverthey operate and whichever clientsegments they serve.

26%

14%

21%

12%

27%

$0-1bn

$1-5bn

$5-10bn

$50bn+

$10-50bn

Figure 29: Split of participants by AuM (US$)


48PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Background to the 2009 Survey


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With wealth management expanding in

developing economies, there arerespondents from countries such as Brazil,India, China and Russia. Additionally, thisyears Survey has its strongest everparticipation from the Americas, with 13%of total respondents. Asia Pacific,predominantly Singapore and Australia,represents a further 16%. The balance,and the majority, of participants are from

the established wealth managementnations of Europe, including Switzerland,the United Kingdom and Luxembourg(see Figure 30).

Many of the questions are similar to thosein previous years Surveys, to help identifyclear trends and track changes.In order to identify regional differences,

a Global Editorial Board, made up ofPricewaterhouseCoopers wealthprofessionals from different regions, hasworked together to analyse the Surveyskey themes.

Where relevant, findings have been

analysed by geography to ensure thatbroad averages do not obscure underlyingregional themes. Furthermore, many of ourquestions have forward-looking elementsto them, providing invaluable insight intofuture expectations. Our Survey continuesto use the wealth management pyramid(see Figure 31), which segments clientsby wealth band.

PricewaterhouseCoopers also performeda supplementary survey of High Net Worthclients globally in order to establish whereprivate clients perceptions differ fromthose of their wealth managers. Elementsof this data have been included to enrichthe Survey results.

Figure 30: Regional split of global participants

13%

16%

71%

Americas

Asia Pacific

EMEA


PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Background to the 2009 Survey

49

O i l d t ti f th i i l lth


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This report is the first release from our

2009 Survey. We plan to publishsubsequent supplements that will focuson specific topics in greater depth,together with more detailed data analysis.

All participants in the Survey will receivedetailed analysis in return for providingtheir valuable time to complete thequestionnaires and impart information

about their businesses and how theirorganisations operate.

PricewaterhouseCoopers can alsomake further detailed analysis available,including non-attributable industrycomparisons covering: type oforganisation, size, geographic reachand service offerings tailored tospecific client requests.

All Survey information and furtherreleases will be available atwww.pwc.com/wealth

Our survey includes representation from the principal wealthmanagement jurisdictions across the globe.

UltraHigh Net

Worth>$50 million

Very High Net Worth$20 million < $50 million

High Net Worth$1 million < $20 million

Wealthy$500,000 < $1 million

Affluent$100, 000 - $500, 000

Source: PricewaterhouseCoopers. Note: Charts representing the ranking of criteria have been prepared using a weighted average ranking across all participants.

Figure 31: The Wealth Pyramid (US$)

50PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Contacts


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Contacts

We received additional support from asignificant number of individuals, inparticular other members of thePricewaterhouseCoopers Private Bankingand Wealth Management network and

Rupert Bruce.We would like to take this opportunity tothank everyone involved for theirinvaluable contributions and support.

For further information on the findings ofthe Survey or to request data packs,please contact:

Timothy [email protected]+44 20 7212 3344

Rebecca [email protected]+44 20 7212 2036

Global Editorial Board

LuxembourgEtienne Hirsch+352 49 48 48 5459

[email protected] Shiu+65 6236 [email protected]

SwitzerlandPascal Froehlicher+41 58 792 13 16

[email protected]

UKNatasha McMillan+44 20 7804 [email protected]

USALogan Allin+1 213 356 [email protected]

The Survey was principally written by the Global Private Banking and Wealth Management leadership team,together with the Global Editorial Board.


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52PricewaterhouseCoopers Global Private Banking and Wealth Management Survey 2009Contacts


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Jersey

Mark [email protected]+44 1534 838304

KoreaJae-Hyeong [email protected]+82 2 709 0622

Luxembourg

Gian Marco [email protected]+352 49 48 48 4013

MalaysiaJennifer [email protected]+60 3 2173 1828

Mexico

Jose Antonio [email protected]+52 55 5263 6070

Middle EastPrathit [email protected]+971 4 304 3330

Netherlands

Rogier van [email protected]+31 20 568 5697

Norway

Ketil [email protected]+47 95 26 0636

PolandMarc [email protected]+48 22 523 4735

Portugal

Antnio [email protected]+351 213 599 172

RussiaEkaterina [email protected]+7 495 967 6365

Singapore

Justin [email protected]+65 6236 3708

SlovakiaPeter [email protected]+4 21 2 59 350 472

South Africa

Johannes [email protected]+27 11 797 4346

Spain

Jose Luis Lopez [email protected]+34 915 684 445

SwedenSussanne [email protected]+46 8 5553 3273

Switzerland

Jean-Christophe [email protected]+41 58 792 9440

Rolf [email protected]+41 58 792 2432

Matthias [email protected]

+41 58 792 1388TaiwanRichard [email protected]+886 2 2729 6704

ThailandSupavedee [email protected]

+662 344 1340

UK

Jeremy [email protected]+44 20 7804 3801

Natasha [email protected]+44 20 7804 7655

UruguayAna Pereyra

[email protected]+598 2 916 0463

USAC Steven [email protected]+1 646 471 4875


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Documents

Redefining Ways to Deliver Advice