UK wealth management revenues remained very resilient during 2008 despite market traumas say ComPeer's 2009 industry report - 28.07.2009
Wealthnet
The UK wealth management sector performed in a very resilient manner during 2008 despite the emergence of a financial tsunami of global proportions during the third quarter, according to the UK Wealth Management Industry Report 2009 produced by ComPeer, a London-based research and consultancy firm.
ComPeer found that investment assets under management at the participating 148 firms fell by 16.9 percent from the £403 billion recorded at the end of 2007 to £335 billion at the end of 2008, a 16.9 percent decrease. But overall revenues remained very resilient at £4.0 billion, a 1.9 percent fall on the £4.12 billion registered in 2007.
Although investment management-related fees and commissions (-6.00 percent), and wealth planning fees (-10.1 percent) both fell these were largely compensated for by a big increase in treasury revenue (12.3 percent) and banking fees (5.7 percent).
Indeed treasury revenue continued its growth in importance, increasing its share of total revenue to 24.34 percent in 2008 from 21.24 percent in 2007. Nonetheless, because interest rates tumbled at the end of 2008 to stand at 0.5 percent at the beginning of 2009 it will be imperative for wealth managers to find new sources to compensate for a much reduced reduction from this revenue source.
Moreover, despite relatively robust revenues and just a modest 1.4 percent increase in costs, pre-tax profits in the sector fell from £1.12 billion in 2007 to £998 million during 2008, a 10.8 percent fall.
Despite the traumas experienced during 2008 net new money flows remained positive at £7.6 billion. This was considerably lower than the £26.1 billion of net new investment money recorded in 2008.
ComPeer found that 59.2 percent of investment assets continue to be held in direct equities, down from 61.4 percent at the end of 2007. However, it notes that the slow move towards collectives and alternatives continues, with investors opting for lower risk investments.
The sector also continued to attract clients, especially in the execution only stockbroking segment, which recorded a 12.3 percent increase in online clients. Trading levels increased by 10 percent to 10.6 million, although the constituent parts varied significantly. Cash market trades fell by 1.8 percent. But spreadbet trades (134 percent), contract for difference (CFD) trades (30.5 percent) and collectives and other trades (16.9 percent) all increased significantly.
Overall, UK wealth managers restricted cost increases to just 1.38 percent. Indeed, staff costs, which accounted for 64.4 percent of all costs during 2008, actually fell by 1.7 percent from £1.99 billion to £1.96 billion despite a 1.2 percent increase in total numbers employed. But non-staff costs increased by 7.4 percent during 2008 from £1.01 billion to £1.08 billion.
Some segments of the market experience particular success in reducing costs. Execution only stockbrokers reduced costs by 5.2 percent. Private banks, however, increased costs by 5.3 percent.
UK wealth managers continued to recruit front office qualified staff despite a deteriorating operating environment for much of the year. Front-office staff numbers increased from 8,398 in 2007 to 8,614 at the end of 2008, a 2.6 percent increase.
ComPeer, which has produced its survey for the past sixteen years, expects UK wealth creation to slow during 2009. Nonetheless, its says that very rich clients at the top end of the market will be affected less than other market segments (although they appeared to be particularly badly hit during 2008).
It also identifies continued growth opportunities from the potential to access pension assets, especially given the continued closure of defined benefit schemes.