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Affluent Investing - UK - November 2012

INTRODUCTION
Report scope and definitions
Abbreviations
Key sources
EXECUTIVE SUMMARY
The market
Revenue growth expected to slow
Figure 1: Forecast of wealth management industry revenues – fan chart, 2007-17
Sub-sector performance
Growth in assets under management slowed in 2011
Figure 2: Number of client accounts/portfolios and value of assets under management, 2007-12
Portfolio composition
Market factors
Difficult economic and regulatory backdrop
Companies, brands and innovation
Product innovation
Leading players in the market
Continued growth in discretionary services
Figure 3: Investment assets held by wealth managers, by mandate type, 2007-11
The consumer
Identifying and profiling the target audience
Investment approach
Figure 4: Segmenting the target wealth market, by approach to investment management and decision-making, July 2012
Level of contact with professional advisers and wealth managers
Figure 5: Frequency of contact for advice or to trade investments, by type of firm, July 2012
Reaction to economic downturn and market volatility
Figure 6: Impact of economic downturn and eurozone crisis on investment attitude/approach, July 2012
Current financial situation and prospects
Key financial and investment objectives
Figure 7: Top six financial goals over the next 12-18 months, July 2012
Expected investment activity over the coming year
Figure 8: Assets expect to buy, sell or maintain over the next 12 months, July 2012
What we think
ISSUES IN THE MARKET
What is the value of the wealth management market?
What’s the size of the target audience?
How will new charging transparency rules affect the market?
How are clients likely to react to the introduction of advice fees?
Do incumbents have anything to fear from DIY wealth management?
TREND APPLICATION
Use new devices to connect and communicate with clients…
…and develop interactive tools to help them monitor and meet their financial goals
2015: Brand Intervention
MARKET DRIVERS
Key points
Prevailing economic uncertainties engender greater investor prudence
Figure 9: Investor responses to wider market trends, 2012
Greater market turbulence undermines confidence
Figure 10: FTSE 100 and FTSE All-Share – daily index movements, January 2004-September 2012
Global market cap fell by 14% in 2011
Figure 11: Market capitalisation of global stock exchanges, by region, 2008-12
Lower trading volumes
Overview of macroeconomic factors influencing investor behaviour
 KEY LEGISLATIVE AND REGULATORY DEVELOPMENTS
Regulatory body to be replaced in early 2013
Government backs proposals to separate retail from investment banking…
…which will have particular implications for the HNW
Regulator describes the wealth management sector as an “emerging risk”
Basel III requires banks to hold greater capital
RDR poses a major challenge for wealth managers
Figure 12: Value of compliance-related costs, 2010 and 2011
Reduction in supply
Potential winners and losers: passive versus active funds
Recent tax changes affecting wealthy clients
MARKET SWOT ANALYSIS
Figure 13: Wealth management market – SWOT analysis, 2012
WHO’S INNOVATING?
Key points
New technology is driving new innovation
Wealth managers starting to explore social media banking potential
Figure 14: Usage of social networking sites, by wealth tier, July 2012
New ‘online’ wealth managers are emerging in the US and the concept could easily migrate here
LBG and RBS reposition their wealth management divisions
MARKET SIZE AND FORECAST
Key points
Revenues increased by a respectable margin in 2011…
Figure 15: Size of the UK wealth management sector, by number of client accounts, value of investment assets managed or administered and total revenues, 2007-12
…but growth will slow in 2012, due to a more subdued trading environment
2011 sees fall in net new business
Figure 16: Investment asset growth and net new business for wealth managers, 2008-11
Looking ahead: steady growth forecast
Figure 17: Forecast of wealth management industry revenues – fan chart, 2007-17
Figure 18: Forecast of wealth management industry revenues, 2012-17
Forecast methodology
Fan chart explanation
SEGMENT PERFORMANCE
Key points
PCIMs and full-service stockbrokers marginally outperformed the private banks in 2011
Figure 19: Number of accounts and the value of assets managed, by type of firm, 2007-11
PCIMs have grown their share of revenues over the past five years
Figure 20: Total wealth management industry revenues, by type of firm, 2007-11
Investment management fee income is the top revenue stream
Figure 21: Proportional distribution of revenue streams, by type of firm, 2010 and 2011
Cost pressures continue to increase
Figure 22: Operational costs as a proportion of revenue, by type of firm, 2007-11
Private banking sector saw an improvement in profitability in 2011
Figure 23: Profit margin, by type of firm, 2006-11
PORTFOLIO COMPOSITION
Key points
A fifth of all client accounts are valued at over £250,000
Figure 24: Number of wealth manager accounts/portfolios, by value band (nominee accounts only), 2011
Asset allocations have remained broadly stable over the past five years
Figure 25: Proportional distribution of assets, by type of asset class, 2007-11
Around a fifth of investment assets are held in some form of tax wrapper
Figure 26: Proportional distribution of assets, by ownership, 2011
MARKET SHARE
Key points
Barclays and Coutts remain well ahead of rivals by AUM
Figure 27: Largest 15 wealth managers, by assets under management and number of client accounts – UK, 2010 and 2011
COMPANIES AND PRODUCTS
Barclays Wealth and Investment Management
Description
Position in the market
Affluent proposition
Distribution
Financial performance
Figure 28: Key interim financial data for Barclays Wealth and Investment management, H1 2011 and H1 2012
Figure 29: Barclays Wealth – key financial data, 2010 and 2011
Recent activity
Coutts & Co
Description
Position in the market
Affluent proposition
Distribution
Financial performance
Figure 30: RBS Group’s Wealth division – key interim data, H1 2011 and H1 2012
Figure 31: RBS Group’s Wealth division – key annual data, 2010 and 2011
Recent activity
UBS Wealth Management
Description
Position in the market
Affluent proposition
Distribution
Financial performance
Figure 32: UBS Wealth Management division (Europe and Asia) – key interim data, H1 2011 and H1 2012
Figure 33: UBS Wealth Management division (Europe and Asia) – key annual data, 2010 and 2011
Recent activity
HSBC Private Bank
Description
Position in the market
Affluent proposition
Distribution
Financial performance
Figure 34: HSBC Private Bank – key interim data, H1 2011 and H1 2012
Figure 35: HSBC Private Bank – key annual data, 2010 and 2011
Recent activity
St James’s Place Wealth Management
Description
Position in the market
Affluent proposition
Distribution
Financial performance
Figure 36: St James’s Place Wealth Management – key interim data, H1 2011 and H1 2012
Figure 37: St James’s Place Wealth Management – key annual data, 2010 and 2011
Recent activity
Hargreaves Lansdown
Description
Position in the market
Affluent proposition
Distribution
Financial performance
Figure 38: Hargreaves Lansdown – key annual data, 2011 and 2012
Recent activity
BRAND COMMUNICATION AND PROMOTION
Key points
Wealth managers spend a relatively small amount on advertising
Figure 39: Top ten advertisers of wealth management products and services, 2010-12
Figure 40: Total advertising expenditure on wealth management and other related products and services, 2010-12
Press and outdoor are the most used advertising channels
Figure 41: Proportional distribution of adspend on wealth management, by media type, 2010-12
Sponsorship activity
CHANNELS TO MARKET
Key points
Discretionary sector is the largest, by number of client accounts…
Figure 42: Number of client accounts/portfolios, by mandate type, 2007-11
…and by assets under management
Figure 43: Investment assets held by wealth managers, by mandate type, 2007-11
Revenue returns under pressure, particularly in the advisory sector
Figure 44: Revenue return on discretionary and advisory assets, 2007-11
ASSETS HELD BY THE TARGET WEALTH MARKET
Key points
Survey background
Segmenting respondents according to level of wealth
Figure 45: Segmentation of total sample, by value of investable assets (wealth tier), July 2012
Size of the target market
Figure 46: Demographic profile of the target wealth market, by wealth tier, July 2012
Asset ownership
Figure 47: Pensions, investments and other assets held by the target wealth market, by wealth tier, July 2012
INVESTMENT APPROACH AND USAGE OF PROFESSIONAL CLIENT SERVICES
Key points
Just over half the sample prefer to take a DIY investment approach
Figure 48: Segmenting the target wealth market, by approach to investment management and decision-making, July 2012
RDR implementation to impact the adviser-reliant
The wealthier an individual is, the more they require the services of an adviser
Figure 49: Approach to investment management and decision-making, by wealth tier, July 2012
The adviser-reliant and discretionary-dependent tend to have the most diversified portfolios
Figure 50: Pensions, investments and other assets held by the target wealth market, by investment approach, July 2012
Contact with professional advisers tends to be on an irregular or ad hoc basis
Figure 51: Frequency of contact for advice or to trade, by type of firm, July 2012
Over half of the affluent and HNW have never used the services of a wealth manager
Figure 52: Frequency of contact for advice or to trade, by type of firm and wealth tier, July 2012
IMPACT OF EXTERNAL FACTORS ON INVESTMENT BEHAVIOUR
Key points
Economic worries and market turbulence have made many wealthier investors more cautious
Figure 53: Impact of economic downturn and eurozone crisis on investment attitude/approach, by wealth tier, July 2012
Self-directed investors are favouring cash
Figure 54: Impact of economic downturn and eurozone crisis on investment attitude/approach, by investment approach, July 2012
Nearly one in three wealthy individuals feel worse off compared to a year ago…
Figure 55: Current financial situation compared to 12 months ago, by wealth tier, July 2012
…although the ratio falls slightly among the self-directed…
Figure 56: Current financial situation compared to 12 months ago, by investment approach, July 2012
…and there is greater optimism looking forward…
Figure 57: Financial wealth expectations over the next 12 months, by wealth tier, July 2012
…especially among the self-directed
Figure 58: Financial wealth expectations over the next 12 months, by investment approach, July 2012
FINANCIAL GOALS AND INVESTMENT PLANS
Key points
The ‘rich’ are keen on getting richer
Figure 59: Financial goals over the next 12-18 months, by wealth tier, July 2012
Financial priorities vary according to investment approach
Figure 60: Financial goals over the next 12-18 months, by investment approach, July 2012
A large proportion of new client money will flow into cash- and equity-based investments
Figure 61: Assets expect to buy, sell or maintain over the next 12 months, July 2012
APPENDIX – ASSETS HELD BY THE TARGET WEALTH MARKET
Figure 62: Ownership of cash savings products, by demographics, July 2012
Figure 63: Ownership of investment or other assets (top six only), by demographics, July 2012
APPENDIX – INVESTMENT APPROACH AND USAGE OF PROFESSIONAL CLIENT SERVICES
Figure 64: Management approach to investing, by demographics, July 2012
Figure 65: Frequency of using or consulting a high street bank or building society staff/adviser, by demographics, July 2012
Figure 66: Frequency of using or consulting an IFA, by demographics, July 2012
Figure 67: Frequency of using or consulting a sharedealing/stockbroking division of a high street bank or building society, by demographics, July 2012
Figure 68: Frequency of using or consulting a private bank or wealth management company, by demographics, July 2012
Figure 69: Frequency of using or consulting a traditional stockbroker (in person or by phone), by demographics, July 2012
Figure 70: Frequency of using or consulting an online broker/sharedealing service, by demographics, July 2012
APPENDIX – IMPACT OF EXTERNAL FACTORS ON INVESTMENT BEHAVIOUR
Figure 71: Impact of economic downturn and eurozone crisis on investment attitude and approach (top five responses), by demographics, July 2012
Figure 72: Current financial situation compared to 12 months ago, by demographics, July 2012
Figure 73: Financial wealth expectations over the next 12 months, by demographics, July 2012
APPENDIX – FINANCIAL GOALS AND INVESTMENT PLANS
Figure 74: Top five financial goals over the next 12-18 months, by demographics, July 2012
Figure 75: Next six financial goals over the next 12-18 months, by demographics, July 2012
Figure 76: Expected activity relating to cash savings or money market funds over the next 12 months, by demographics, July 2012
Figure 77: Expected activity relating to individual stocks and shares over the next 12 months, by demographics, July 2012
Figure 78: Expected activity relating to collective investments over the next 12 months, by demographics, July 2012
Figure 79: Expected activity relating to government or corporate bonds over the next 12 months, by demographics, July 2012
Figure 80: Expected activity relating to structured products over the next 12 months, by demographics, July 2012
Figure 81: Expected activity relating to property investment over the next 12 months, by demographics, July 2012
Figure 82: Expected activity relating to specialist investments over the next 12 months, by demographics, July 2012
Figure 83: Expected activity relating to alternative investments over the next 12 months, by demographics, July 2012
Figure 84: Expected activity relating to pension funds over the next 12 months, by demographics, July 2012

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