UK wealth management market: Booming and far from saturated - report - 14.07.2006
Wealthnet, 14/07/2006, Ian Orton
ComPeer, a London-based research and consultancy firm is the latest firm to highlight the gap between the 'potential' of the UK wealth market and the portion currently served by wealth management firms.
It points out that according to the Tulip Wealth Model total UK wealth currently amounts to around £1.6 trillion. But according to the firms covered by its survey, the fourteenth in a long running survey, they manage just £308 billion.
The market is far from saturated, a point the ComPeer researchers concede.
"There are clear opportunities both to increase share of wallet from existing clients and to attract new clients," it concludes.
Overall, the £308 billion of assets under management generated £2.6 billion of revenue during 2005, profits of £411 million and employed 24,000 staff.
Assets under management or administration and profits increased by 17 percent and 74 percent respectively during the year. The sector generated £8.7 billion of net new money, a significant increase on previous years, which suggests that clients have decided to return to investment markets.
Nonetheless, the level of trading in underlying equities has not increased in line with market values, as was the case in 1998 to 2000 says ComPeer. More active traders increasingly use contracts for difference (CFDs) and spreadbetting. In addition, less active traders and advisory managers have increased allocations to collectives, including hedge funds and other alternatives.
ComPeer notes that the execution only stockbroking sector restructured its cost base during the bear market of 2000 to 2003 with total costs now half their 2000 levels. However, intense price competition and subdued volume growth means that pre-tax profit margins remain "unsustainably" low at less than 8 percent.
The rest of the wealth management sector has experienced stronger revenue growth but has not achieved the same cost improvements.
"A pre-tax profit margin of 16.6 percent is significantly up on 2004 but fals short of the profit margin of 19 percent achieved when the FTSE was at similar levels, primarily due to cost growth," says the report. "A reduction in client facing professionals has been more than offset by increased support staff and rapidly increasing average remuneration costs."
ComPeer notes that these has been "continued consolidation" and a high level of corporate activity. But this has generated mixed results.
"There is continued and growing disparity between the best performers and struggling firms, through some firms in all sizes are performing strongly in all sub sector," the report notes. "The key to success is the clarity of the serve offering and the efficiency with which it is delivered."
ComPeer concludes that the outlook for the sector is very good. But firms must address a number of very important challenges.
These include:
· "Maximising the opportunities from ongoing consolidation as loss-making and under-performing firms seek exit strategies;
· Investing in more proactive marketing strategies, moving away from traditional referral based models for business development to target new clients and new assets;
· Deploying awider range of instruments and investment strategies to deliver investment products and performance which will meet clients' expectations through a period of increased market volatility;
· Increasing transparency on total fees and, alongside greater transparency on performance, clearly articulating the value of advice;
· Adapting to regulatory change, identifying potential opportunities as well as implementing opportunities efficiently and at minimum disruption to the client;
· Rationalsinig operations and exploiting outsourcing and white-labelling opportunities to improve levels of straight through processing and reduce the time to market for new products."