pwc global banking survey

A New Era: Redefining Ways To Deliver Trusted Advice

Global Private Banking and Wealth Management SurveyJune 30, 2009

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U.S. Launch Event

PricewaterhouseCoopers

Welcome

• Welcome – Thank you for joining us• This presentation is a summary of our 2009 Global Private Banking and Wealth

Management Survey which was released on June 29th• The 2009 Survey contains responses from respondents all over the globe plus

specific points of view from PwC on topics critical to the future ofwealth management

• Similarly, there are other launches scheduled globally. If you would like yourcolleagues to be invited, just send us a note with their details

• Today’s event qualifies for CPE credits and the appropriate forms are outside• We would ask for everyone’s consideration to switch their mobile devices to silent


Introduction and five key themesSteve Crosby

Performance in crisis – what to do now?Jeremy Jensen

Client service - Disciplined segmentation lifts qualitySteve Crosby

The people agenda - A new strategy requiredJanet Hanson

Operations and technology - Delivering client value and cost efficiencyJay Burstell

Products and services – Delivering ‘Nouveau Classic’ bankingLogan Allin

Risk management – Protecting the client promiseSteve Crosby

What to do now?Logan Allin

Wrap upSteve Crosby

Questions for the panel

Reception upstairs in lobby

Agenda

IntroductionSurvey highlights

Steve Crosby


Survey background

• The survey originated in 1993• Continues to be one of our most widely read publications• Data collected from 238 wealth managers in 40 countries• Quantitative data is as of FYE 12/31/08 and qualitative information is through the

end of Q1/09 and reflects a 24 month planning horizon• Input spans all components of senior management as well as client-facing

relationship managers whether they are characterized as private bankers, FAsor CRMs

• Participants ranged from universal global banks, large private client groups inbroker/dealers, specialist boutiques and family offices as well as some high networth individuals

• Our survey is independent, not sponsored by any client or vendor and undertakenin service to the industry by the partners of PricewaterhouseCoopers, LLP


Survey background (continued)

Home region split of global participantsSplit of participants by AuM (US$)

12%

14%

21%

27%

26%

$0-1bn $1-5bn $5-10bn $10-50bn $50bn+

71%

16%

13%

Americas Asia Paciffic EMEA

• Data has been collected, secured and analyzed by our International Survey Unit


PwC’s International Survey Unit (ISU)

Assisting with the Global Private Banking& Wealth Management Survey 2009

Full Service StatisticalAnalysis Toolbox

Survey Professionals

Independent

Survey Design

Robust DataValidation

Deliverables

Trend Analysis

PricewaterhouseCoopers LLP Slide 7


We identified five core themes in our 2009 survey

• Global firms are taking a “nouveau classic banking” approach, going back to basicsand re-focusing on clients and their needs

• Achieving “trusted advisor” status and delivering consistently on key adviceprocesses is the paramount goal for all wealth managers. These are supplementedby additional services such as aggregated reporting

• Firms are focused on a ruthless drive for operational efficiency and cost take-outoften with “creative approaches” to execution. At the same time, they are remainingmindful of market differentiation, capturing flight-to-quality opportunities andpreparing for the eventual upturn through prioritized strategic initiatives

• Transparency is the new “gold standard” in terms of products and client servicing. Itreflects heightened appreciation of risk, an increased granularity and real timeperspective on where client assets are and the integrity of the processes andagents involved

• Government is the new “Elephant in the Tent” placing increasing political, fiscal, tax,and regulatory pressure on wealth managers

Performance in crisisWhat to do now

Jeremy Jensen


Performance in crisis – What to do nowSummary of key findings

• During the downturn, average global firm client and asset attrition was 6-10%• Respondents indicated they expect an economic rebound in Q1/Q2 2010• Size does not correlate to profitability• Sheer size/scale is no longer the goal for wealth managers• Branding strategies are moving away from familiarity and migrating to

differentiation – “brand value” is a key differentiator with “strength of relationships”a close second

• Firms found the $1-20MM segment to be the most profitable, followed by the>$50MM+ segment, but believe that these will change positions and theUHNW/Family Office segment will become the most profitable in 2 years

• Expansion plans have been scaled back except for leading Americas-based firms -Middle East, and Asia are top expansion sites

• CFO key metric forecasts for ’09: Return on capital (10%), total new AUM (15%),cost/income ratio (52%), revenue growth (13%), and profit before tax growth (0%)


The current crisis has taken its toll on wealth managers and their clients in ourSurvey. Wealth management profits have plummeted since 2007 across allregions

Regionally, we see signs of recovery, first in Asia followed by the Americas

Profit before Taxes

Americas

-9

-7

0

-8

-10 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150

EMEA

AsiaPac

Global

20072009 2005


2007 20092005

0 10 20 30 40 50

Brand value

Personalrelationships

Quality ofstaf f

Brand value continues to be a key differentiator in 2009 with strength andcharacteristics of client relationships becoming increasingly more important

0 10 20 30 40 50

Quality of CRMs

Provision ofcomprehensive,

integratedw ealth

Brand value

0 10 20 30 40 50

Quality ofCRMs

Strength ofclient

relationships

Brand value

% % %


Leaders of wealth management organizations clearly saw the effects of thecrisis on their businesses. There were a number of stress points across thebusiness landscape

0 20 40 60 80 100

We weren't affected as adversely as others, we have taken thisopportunity to strategically grow

We benefited from a flight to quality

Head count reduction

Client attrition

Asset attrition

Across-the-board budget cuts

Business divestitures

Some of the more common points highlighted by our respondents included:

%


Size vs. Profitability

Our survey suggests that there is no direct link between size and profitability.Size simply for size’s sake is not an attractive goal

20 40 60 80

500

0.5

100 120

10

1

50

5

100

AuM

inU

S$

bn

Cost/Income Ratio

Client serviceDisciplined segmentation lifts quality

Steve Crosby


Client service – Disciplined segmentation lifts qualitySummary of key findings

• Focus on achieving trusted advisor status – firms seek to drive disciplined clientsegmentation, tiered services, and channel strategy. Firms are micro-segmentingbeyond investable assets around demographics, source of wealth, and risk-appetite

• Increased strategic initiatives for targeted firm strategies for specific clientsegments, especially family offices, entrepreneurs (cross-sell from commercial),retirees and their beneficiaries (younger generations), and professional groups(e.g., accountants, lawyers, and doctors)

• Firms are focused on client retention with the primary strategy being increasedtouches by FAs and the on-line channel as well as heightened transparencythrough reporting (particularly aggregated reporting) and market research

• Communication and measuring satisfaction/“pulse” with both clients, front office andfirm talent has become a constant focus for firm leadership

• Achieving trusted advisor status demands a disciplined client segmentation, tieredservices, and channel strategy as well as effective delivery on advice processes inthe front office. However, only 40% of FAs feel they have achieved “trusted advisor”status with their key clients

• Firms believe their ratio of client to CRM should be 10:1 ($50MM+), 22:1 ($20-50MM), 47:1 ($1-20MM), 75:1 ($500K-$1MM), and 80:1 ($100-500K)


Over 55% of wealth managers have increased interactions with clientsIn the current economic environment direct, proactive contact from CRMs ishighly valued by all clients

0 20 40 60 80 100

Other

Investment in online channel servicing to clients

Marketing / advertising around the 'safety/flight to quality' of ourorganisation

Educational events for clients

Increase in reporting and research information to clients

Increase in frequency of advice to clients

Investment in services to clients

Reduction in fees charged to clients

Increased call centre contact to clients

Increased client contact directly by CRMs

% of participants

Given the current global economic crisis, what tactics has your organization used toretain clients


Acquisition and retention of clients is the number one CEO focus area

Which of the following are the most important strategic areas where you as CEO spend time?

0 50 100 150 200 250 300 350 400 450 500

Post merger/acquisition integration

Operational stability, including outsourcing

Managing risk

Managing through economic downturn

Investment performance

Improving profitability

Entry into new markets

Corporate mergers and acquisitions

Cost reduction/business refocusing

Acquisition and retention of key staff

Acquisition and retention of clients

Sum of weighted ranked responses


Many wealth managers are starting to apply behavioral criteria such as‘investment style’ or ‘attitude to risk’, giving CRMs a far more complete andmulti-dimensional picture of clients’ values and behaviorsIn segmenting your organization’s client base, what criteria are you currently using?

0 20 40 60 80 100

OtherNo segmentation criteria used

Distribution channel usageProduct mix usage

Client attitude to riskGeography

Profitability by clientIncome levels

Liquidity requirementsEthnic grouping/cultures

LanguageLifestyle

Reference currencyOld/new moneyAge (life cycle)

Investment stylePotential assets

Current assets (wealth bands)

% of participants


Not all wealth segments are equally profitable, yet 45% of wealth managersprovide services across all 5 of the segments. Organizations need to refinetheir approach to profitability

Ultra highnet worth>$50 million

Very high networth $20 million< $50 million

High net worth$1 million < $20 million

Wealthy$500,000 < $1 million

Affluent$100,000 - $500,000

2 years

• Currently, the HNW $1-20MMsegment was viewed as themost profitable

• In 2 years, firms see a shiftto the UHNW as the mostprofitable segment

The people agendaA new strategy required

Janet Hanson


The people agenda – A new strategy is requiredSummary of key findings

• There is little confidence from management in CRM capabilities (with less than 25%having “High” confidence) and firms will thus need to look to rectify recentdecreased training spend and provide training on key domain topics (trust/estate,tax issues, etc.), relationship management, portfolio management, businessprocess adoption, succession planning, and soft skills

• Firms are focused on remuneration that is tied to long-term performance. Abalanced scorecard approach to client relationships aligned to driving keybehaviors in the front office that are client-centric and attuned to risk and morefiduciary-driven actions

• Firms are seeking ways to be higher touch with clients, reduce the ratio of CRMs tokey clients while managing cost-to-serve – demands a team-based “wealth wheel”(quarterback plus specialists – increasingly virtual) approach, optimized throughfront-office tools, training, and support centers


Today’s economic crisis presents challenges for CRMs – New skills arerequired which calls for new training and support centers

Please rank the top 3 weaknesses of your CRM population…

0 50 100 150 200 250 300 350 400 450 500

Lack of ability to lead others

Lack of ability to collaborate

Lack of ability to adjust to change quickly

Lack of understanding of tax issues

Lack of understanding of risk

Lack of product knowledge

Lack of global experience

Lack of client relationship skills

Lack of business experience



How important are each of the following criteria in the measurement of your performanceas CRM?

Revising performance measurement metrics and linking these directly withindividual and team rewards, will help create clear career paths for CRMs

Number and volume of transactions

Complaint levels


Cross-selling of other products/services

Client retention levels

Client satisfaction with service of the CRM

Number of new clients

Meeting revenue targets

Growth of assets under management


0 50 100 150 200 250 300 350 400


Reward is now under the microscope. Firms are focused on stock options andother long-term incentive plans. Additionally, 60% of firms are planning oninstituting claw back provisionsHow does your organisation plan on changing its remuneration structure in the next 2 years?

0 20 40 60 80 100

Individual performance bonus

Bonus linked to the overallresult of the organisation

Team/local office bonus

Fringe benefits

Stock options and other longterm incentive plans

Become less important No change in importance Become more important

%


Average number of clients served per CRM across wealth segments (U.S. participants)

The most profitable wealth managers have significantly lower ratios of clientsper CRM in the different wealth segments. Taking care of the client reallydoes pay

0

50

100

150

200

250

300

350

$100,000 -$500,000

$500,000 - $1million

$1 –$20 million

$20 - $50million

More than$50 million

Ave

rage

clie

nts

per

CR

M

Average All participants Lowest C/I ratio participants


Talent needs to be nurtured for the long term. For 47% of wealth managers,the average length of CRMs service is less than 5 years. Furthermore, only39% of wealth managers have a formal employee retention programPlease rank your top reasons for leaving your previous employer

0 20 40 60 80 100

Other

Corporate ethos and culture

Unrealistic expectations/pressure to meet targets

Insufficient training and educational prospects

Lack of product range

Did not agree with corporate strategy

Did not feel contribuion was recognised

Uncertain future

Disagreement with management

Needed fresh challenge

Size/structure of remuneration package

Lack of career path

%


Client Relationship Managers:What does the future hold for them?

Expected average increase/decrease of CRMs over the next two yearsby region and globally

Global

EMEA

Asia Pac

Americas

Decrease of 24%

Decrease of 45%

Decrease of 17%

Increase of 1%

All relationship executives are not created equal either in terms of the clients segmentsserved or geography

Products & servicesDelivering ‘Nouveau Classic’ banking

Logan Allin


Products and services – Delivering “nouveau classic” bankingSummary of key findings

• Responsibility shifts back to the firm in terms of product transparency and riskownership – with emphasis on “vanilla” vs. “complex” productdevelopment/distribution

• Firms are focused on delivering advice with a fiduciary standard of care as the newtarget – comprehensive advice through profiling, financial plan, proposal/IPS, andclient reporting – to meet regulatory requirements, improve the client experience,and serve as a key differentiator for increasingly discerning clients

• Firms who focus on delivering advice - leading with financial planning for example,have realized significant increases in productivity. Anecdotally, a leading firm foundthat FAs who embraced financial planning had 65% more investment production.Clients with financial plans in place generate twice the annual revenue with lessthan half the attrition rate

• Continued push to hybrid (proprietary and open) architecture supported byoperationally efficient packaged, transparent, and client preference-driven products(e.g., sustainability, retirement, etc.)

• Robust and aggregated reporting is the #1 services focus, driving transparency,institutionalization and stickiness in the client relationship, and improved MISreporting for firms


Currently offered products and services vs. go-forward focus for next2 years…

0 20 40 60 80 100

Structured products

Hedge funds

Philanthropy

Sustainability investments

Trust and fiduciary services

New investment alternatives

Shariah products and advice

Family office

Tax and estate planning

In 2 years Now


Firms continue to leverage a hybrid architecture approach with a mix ofproducer (proprietary) and advice (open) architecture models

Which of the following best describes your business model, now and in two years’ time?

0 20 40 60 80 100

Both producer and distributormodels

Primarily distributor led model

Primarily producer led model

Advice led model (fully openarchitecture)

In 2 years Now


How important do you rate the following product and service offerings in terms of serving yourclients over the next 2 years?

Products and service offerings need to be clearly aligned with clientpreferences and financial goals

Shariah products and advice

Philanthropy

Sustainability investments

Family office

Hedge funds and structured products

Intergenerational products

Retirement products

Important Very Important

0 10 20 30 40 50 60


Increasingly, we see custom-tailored offerings which reflect the unique wealthmanagement needs of clients

Emerging products and/or services global firms plan to offer within the next 2 years?

0 20 40 60 80 100

Other

Philanthropy

Real estate management

Islamic finance

Information aggregating andreporting

Concierge services

Collectible management

%

Operations and technologyDelivering client value and cost efficiency

Jay Burstell


Operations and technology – Delivering client value and cost efficiencySummary of key findings

• Firms are looking to drive efficiencies internally, shore up capital bases, but alsoseize the opportunity to capture additional market share, differentiate, invest for themarket upturn, and/or benefit further from total balance sheet flight to quality

• Firms view a 20% reduction in their cost base as the new hurdle for efficiency andcost take-out initiatives, driven by non-traditional (non-FS) approaches coupled withrevised operating models, rationalized product portfolios, open architecture andoverlay portfolio management, divestitures and consolidation

• Anticipated expenditure on IT will decline on a global basis over the next2 years; however, U.S. firms indicated that they are increasing IT spend in“high impact” areas:- Client online channel- Advisor tools- Enterprise data management- Strategic outsourcing


Continued investment in new technology and streamlined processes that areclient-centric is required for all growth strategies to work

As COO, what are your top 3 objectives for your business?

0 50 100 150 200 250 300 350 400 450 500

Risk management (reputational, credit, market, ops)

Ensuring legal and regulatory compliance

Integration of new/expected acquistions

Integration of prior acquistions

Setting up new operations/branches

Increasing organisational change agility

Cost reduction through enhanced efficiency

Becoming a more customer oriented operation

Supporting and enabling business growth

In 2 years Now


Which of the following front office tools do youexpect to have in place in 2 years’ time?

In which of the following areas do you, asCRM, spend your time?

CRMs currently spend 16% of their time on administration and errorresolution. The increased use of technology tools should better support CRMsand their productivity

4%8%

5%

16%

10%

17%

40%

Contact withexisting clients

Marketing andprospecting

Administration anderror resolution

Portfoliomanagement

Compliance

Investment researchand analysis

Training

0 20 40 60 80

Financial Planning tool

Client profitability tool

Account aggregation tool

Portfolio management tool

CRM software & databases


Off-shoring and Near-shoring – True cost, privacy and operational risk arecausing reflection on sourcing decisions

Off shoring to India, China, Eastern Europe and Singapore seems to be in decline asorganizations focus on Latin America and the Middle East

0 10 20 30 40 50 60

China

Africa

Middle East

Hong Kong

Eastern Europe

Latin America

Singapore

India

2007 2009 %


Sourcing trends for IT capabilities

Offshore continues to be critical but near-shore options are gaining momentum whenviewed from a total cost perspective including tax

How is your current IT capability predominately sourced and how do you, as COO, expect thisto change in two years’ time?

3220

27

22

18

21

9

19

1 513 13

0

10

20

30

40

50

60

70

80

90

100

Now 2 Years

%of

Par

ticip

ants

Departmentally Nationally Regionally Global hub Third party off-shore Third party on-shore

Risk managementProtecting the brand delivering the client promise

Steven Crosby


Governments as the new “Elephant in the Tent” driving increasing firm focuson capital, enterprise risk and regulatory requirements

• Less confidence that the appropriate enterprise risk framework is in place – a keygo-forward focus, with majority looking to focus on stakeholder value, integratedrisk, and linking performance with capital efficiency

• Firms focused on automated, centralized and proactive compliance monitoring,exception/business rule-driven to address changing regulations – especially withrespect to AML/BSA and sales practices/fiduciary standards


Risk is the third most important area on which CEOs are spending their time.Wealth managers are working to update and evolve their frameworks

Which of the following best describes your organization’s approach to risk management, nowand in two years time?

%

0 20 40 60 80 100

Focus on stakeholder value and integrated risk and valuemanagement focusing on linking performance and capital

efficiency

CEO sponsors and promotes enterprise risk managementprogram

Risk quantification (value at risk) and alignment to objectives

Loss prevention and governance reporting

In 2 years Now


Global operational and counterparty understanding and proactive riskmanagement are key elements of transparency which is required forfuture success

0 10 20 30 40 50

IT risk and technology advances

Operational processing errors/Compliance risk

Mis-selling/Inappropriate advice/Mandate breaches/Complaints

Data security

Client and product suitability

Counterparty risk/Credit risk evaluation/Liquidity management

Market risk

2005 2007 2009

Market risk appears to havebecome the key area thatneeds to be addressed

%


Information security, transparent product offerings and robust due diligenceprocesses are critical, not only to drive customer value, but also to protect thereputation of wealth managersWhat do you believe will be the key areas of risk needing to be addressed by your organisationin two years’ time?

0 50 100 150 200 250 300 350 400 450 500

Human resources

Third party failure

Operational processing errors/Compliance risk

Counterparty risk/Credit risk evaluation/Liquidity management

Mis-selling/Inappropriate advice/Mandate breaches/Complaints

Capital requirements

Service and supplier management


Client and product suitability

Development of inappropriate business strategy

Internal or external fraud risks

Market risk

IT risk and technology advances

Data security


Following the financial crisis, regulators want extra layers of control. This willdrive wealth managers to change their approach to risk management andthus, significantly increase their costsWhat do you believe will be the top drivers for change to your approach to risk managementover the next two years?

0 50 100 150 200 250 300 350 400 450 500

Head office/parent requirement

Audit Committee/Non Executive directors pressures

Emergence of e-business/new technologies

Changes in regulatory requirements/developments

Reaction to external loss events

Increased incidence of losses internally

Perceived increase in risk

Perceived source of competitive advantage

Need for increased capital requirements

Reaction to an industry trend

Increasing/changing client expectations and demands

Pre-requisite for delivery of business strategy


Transparency defines how wealth managers keep clients informed on howthey manage their assets

It reflects a high degree of granularity around processing “life cycle” information anddata which will be a challenge for many firms to address

Level 1

Level 2

Level 3 Aggregate ReportingScenario ModelingTrend Analysis

PerformanceReporting Valuation

DescriptionCUSIP/Date

Sophistication/Immediacy Robustness/Reporting

Basic Data

Valuation

Modeling

Transparency: the new gold standard

Source PwC

What should you do nowCritical areas of focus

Logan Allin


As a result of our Survey, we believe the following are some critical areas offocus for wealth managers

• Focus on achieving trusted advisor status – demands disciplined client segmentation, tieredservices, and channel strategy

• Prescriptive front office business processes built around desired client experience and settingfiduciary standards as the target for client deliverables – requires profiling, financial planning(strategic and tactical asset allocation), prudent portfolio construction process, proposal/IPS,and performance monitoring/client reporting

• Front office support centers for planning, client reporting, due diligence support, and overlayportfolio management to optimize CRMs

• Product launch and packaging- Increased transparency, client-preference tailoring (e.g., sustainable, religious-compliant,

etc.) with a focus on operational efficiency- Hybrid (proprietary and open) architecture with increased due diligence and involvement of

the investment policy committee- Move to client-segregated vehicles (SMAs, wrap accounts, etc.). UMA for all packaged

products (open and proprietary models) facilitated by overlay portfolio management.Growing trend for bank-sponsored overlay product offerings providing UMA product viabrokerage channel

- Focus on addressing the pre/in-retirement population and beneficiary relationships tocapture intergenerational wealth transfers

Business/Product


As a result of our Survey, we believe the following are some critical areas offocus for wealth managers (continued)

• Talent management – Increased emphasis on advice–specific sales/portfolio managementtraining, business process adoption and succession planning

• Cost management – Starts at 20% reductions driven by non-traditional (non-FS) approachescoupled with revised operating models, tailored product portfolios, open architecture,divestitures and consolidation

Business/Product (continued)



• Linking front office business processes with advanced technology tools/automation – lookingto leverage a single workstation to support front office business processes

• Key areas of focus and benefits for IT investment:- Optimize on-line client channels (lower cost of service, increased potential client base and

support cross-selling and greater share of wallet across all wealth segments- Front office tools:

• CRM (support integrated, single view of the client and understanding of complex entityhierarchy models in family office segments)

• Financial planning, as well as tax planning/preparation• Underwriting supported by enhanced assessment automation (risk

management/oversight on credit/loan provision)• Overlay portfolio management (portfolio management efficiencies/common platform)• Client reporting (tiered – aggregated reporting for the UHNW/Family office)

• Enterprise data management (normalize/consolidate data and enable advancedIT architectures)

• Outsourcing – overlay portfolio management (especially on brokerage platform/for massaffluent), trust operations, and infrastructure

Operations/IT



• Proactive Enterprise Risk Management (ERM)• Automated monitoring of loan/credit structuring/underwriting and collateral management• AML compliance business rule-driven monitoring• Fiduciary and suitability/KYC risk management and monitoring

Compliance/Risk

ClosingQuestions and open discussion

Steve Crosby

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Trusted advisor to wealth management and private banking…How PwC can help


How PwC can help

For further information, please contact

646-471-4875

[email protected] Meltzer

646-471-8763

[email protected] Crosby

646-471-2422

[email protected] Garvey


Questions and open discussion

Available On Line: www.pwc.com/wealth

© 2009 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers toPricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, thePricewaterhouseCoopers global network or other member firms of the network, each of which is a separate andindependent legal entity. *connectedthinking is trademark of PricewaterhouseCoopers LLP (US).

www.pwc.com

This document is for general information purposes only, and should not be used as a substitute for consultationwith professional advisors.

pwc global banking survey

Documents

survey global firms

survey background

client value

future of wealth management

global participants

client promisesteve

client assets

client servicing