Eat your heart out, Paradeplatz. Rich people are less tied than they once were to their wealth managers in Zurich’s banking epicentre. No surprises there: UBS’s financial crisis travails not only triggered client outflows; they risked undermining the credibility of Switzerland’s otherwise healthy private banking industry. But as Swiss bankers and their UK and US counterparts have discovered, rich clients from emerging markets want advice and service closer to home. Indeed, with Asian wealth management revenue expected to grow by up to 20 per cent this year – more than twice as fast as developed markets – Singapore could become the leading global wealth management centre by 2013, PwC estimates.
Traditional European wealth managers have tried to entrench themselves, opening “onshore” outposts in Asia to capture a share of Chinese and Indian entrepreneurs’ wallets. Beyond the lure of Asian wealth, there are other compelling reasons for banks to look east. Regulatory intrusion is lower in Asia. Moreover, away from old money’s intricate referral networks, the pickings are easier to harvest – and richer.
Globally, wealth managers earn an average gross margin of 72 basis points on assets under management, expected to rise by 6bp over the next two years. For universal banks, the incentive to expand wealth management businesses will be greater under looming Basel III capital standards: wealth managers consume more intellectual than financial capital. But the banks have trouble managing their own costs. Nearly three-quarters of the 275 institutions surveyed had cost-to-income ratios of more than 60 per cent. The industry average is 71 per cent. And the main outlay is ever harder to control in Asia: whereas banks in Switzerland, the UK and US can draw on a pool of experienced talent, eastward expansion has meant either costly poaching or expensive training. The rewards may be irresistible, but going east comes at a price.