Impact of regulation onthe UK wealthmanagement industryand London’s position

www.pwc.co.uk

PrivateBanking:London 2013London 2013

2 July 2013

Agenda

What are the key trends that will shape thefuture of the industry?

1

What has been the impact of regulationsincluding RDR to date?

2

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

Slide 2June 2013

including RDR to date?

What will wealth managers and Londonlook like going forward?

3

What are the key trends that willshape the future of the industry?

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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The combination of external regulatory and other shocksare now driving the UK wealth industry to an inflectionpoint

• Regional shifts in wealth generationleading to more diverse client base

• Harder to win client’s trust and tobecome their trusted advisor

• Demanding better service and value

• Increasing sophistication

• Greater awareness of risk

1Client

evolution

• Greater focus on client and investorprotection (RDR, MifiD II,FAIR,FINMA Distribution rules)

• Retrocessions under challenge

• Greater transparency (FATCA, doubletax treaties)

• Supervisory actions (Swiss supremecourt on retrocessions, mis-sellingrelated in UK, HK and Singapore)

2Intrusive

regulatorsand tax

authorities

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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• More industry consolidation due tochanging economics, driven byregulatory, technology and clientdemand changes.

• Many players reshaping throughrestructuring, divestments andacquisitions

• Industry push towards distribution3Value chain

transformation

• Proliferation of digital devices, drivinggreater DIY client behaviour

• Increasing sophistication and DIYbehaviour

• Increasing sophistication of clientdata and analytics for unlockingopportunities and efficiency

4Technologydisruption

Strategicinflection

point

What has been the impact ofregulation including RDR to date?

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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Increased divergence in the UK between local (core affluent/HNWI) and global (UHNWI/Family Office) client segments

Client

• Strongly anchored in home country• Requires broader advice and

increasingly protected byregulations

• Global footprint and investmentbehaviour

• Strongly and increasingly selfdirected

Local (Core Affluent/HNWI) Global (UHNWI/FO)A B

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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Businessmodel

Operatingmodel

• Local booking centre with strongdomestic capability

• Global booking centre footprint withstrong off-shore/multi shorecapabilities

In the local UK core affluent/HNW segment, relationshipmanager capacity has fallen significantly due to RDRrequirements to raise standards and provide transparency

4,043

40,000

50,000

Total number of advisors has declined

(43%)

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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8,6584,809 2,671

25,616

20,453

15,953

3,718

3,383

0

10,000

20,000

30,000

Dec 2011 Dec 2012 Dec 2013 (est.)

Bank advisors Investment advisors Wealth managers/stockbrokers2

Just under half of advisors time is non client facing. Withfewer advisors and tougher compliance standards,removing legacy complexity in the front office will be key

10.2

5.4

11.1

4.8

80%

90%

100%

How often do you personally contact your ‘core’ clientsper quarter?

How do you spend your time each month?

Av

er

ag

eo

fr

es

po

nd

en

ts

35%

40%

Av

er

ag

eo

fr

es

po

nd

en

ts

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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38.6

15.5

14.3

10.2

0%

10%

20%

30%

40%

50%

60%

70%

Contact with existing clients Marketing

Administration and error resolution Portfolio management

Compliance Investment research

Training

Av

er

ag

eo

fr

es

po

nd

en

ts

0%

5%

10%

15%

20%

25%

30%

Less than 5times

5-9 times 10-14 times 15-20 times More than 20times

Av

er

ag

eo

fr

es

po

nd

en

ts

Source: PwC 2011 Global Banking and Wealth Management Survey NB. 2013 survey underway

In the global UHNWI segment there are 10 key cities andLondon currently has advantage as top centre of UHNWI life

LondonBerlin

Geneva

Beijing

Paris

1. London

2. New York

3. Hong Kong

4. Paris

Top 10 2010

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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Singapore

Hong Kong

New York

Miami

São Paulo

Shanghai

Beijing

1. Personal safety andsecurity

2. Economic openness

3. Social stability

Key 5 criteria

What will wealth managers andLondon look like going forward?

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

Slide 10June 2013

UK regulations set the gold standard for consumerprotection and are influencing regulatory developmentsacross the globeUK• RDR : post 2012• Commission ends, Adviser Charging introduced• Client Clarity : Independent/restricted/no advice

choice• Higher adviser qualifications(Level 4) required• Commission ban on platforms likely in 2014

Germany

Netherlands

EU• MiFID II and MifiR – potential ban on

commissions for discretionary portfolios andindependent advice.

• May restrict which products could be soldthrough execution only, potential restrictionson bundling products and services

• UCITS VI and PRIPs

Switzerland

• A position paper has been published coveringsimilar requirements as MiFID and SwissGovernment is preparing a proposal for a newfinancial services act.

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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France

India

Singapore

• The Private Banking Advisory group launched a Codeof Conduct for private banks in Singapore

• The Monetary Authority of Singapore has presentedrecommendations related to their Financial AdvisoryIndustry Review, which include cap on commissionsfor life insurance products, creation of an aggregatorsite for investment products and greater disclosurestandards

Australia

Source: PwC AnalysisNB: Some of these regulatory developments areproposals and therefore are directional andthematic, with final rules expected later

For wealth managers, the future direction is becomingclearer. Challenge is to overcome uncertainty and managethe breadth and speed of change to grow revenues

Where we were

• Reactive to regulators

• Under and over servedclients

• Opaque pricing

• CRM as sole contact and

Where we want to be

• Proactive with regulators andcompliant

• Optimally served clients/Good clientoutcomes

• Transparent pricing

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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• CRM as sole contact andproduct oriented

• Under invested systems andcomplexity

• Disparate purpose, poorculture

• Poor/underinvested brandrecognition

• Staff struggle to change

• Transparent pricing

• CRM as conduit to specialists to coverinvestments, advice and banking togrow revenues and margin

• Systems and processes as key enablersto remove complexity

• Shared common purpose, optimalculture and values

• Better, differentiated branding

• Change enabled

Transformation phases

• Profitable growth• Regulatory governance and MI• Values, culture, tone at the top• Balance of run the bank vs. change the bank

• Pricing transparency• Revenue and margin mix

This demands a more joined up transformation agendarather than a piecemeal approach. Client centric focus,conduct compliance and removing complexity will be key

Where we want to be

Leadership

Commercials

PwCPwC

• Excellence in delivering client focused outcomes

• Training and development• Rewards and benefits• Enterprise performance

management

• Re-orient key client facing processes• Talent development• Front end systems and digital• Removing complexity• Improving support function efficiency

Impact of regulation on the UK wealth management industry and London’s positionSlide 13

June 2013

Client centric focus

Processes, People, Systems

Enablers and Balanced Metrics

In the global UHNWI segment, London’s advantage isexpected to continue as the preferred centre of UHNWI lifebut there will be challenges

LondonBerlin

Geneva

Beijing

Paris

1. London

2. New York

3. Hong Kong

4. Paris

Top 10 2010

1. London

2. New York

3. Beijing

4. Shanghai

Top 10 2022

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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Singapore

Hong Kong

New York

Miami

São Paulo

Shanghai

Beijing

1. Personal safety andsecurity

2. Economic openness

3. Social stability

Key 5 criteria

In terms of ability to attract private client assets, London isalso predicted to maintain its position as the third mostattractive financial centre

Present In 2 years

Switzerland Singapore

Singapore Switzerland

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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London London

Hong Kong Hong Kong

New York New York

A new equilibrium of capitalisers and laggards will emerge.Capitalisers will leverage UK and EU regulatory standards,the London advantage and client centricity to win

Valley of Death

Profitablegrowth

Catalyst for change

• Intrusive regulationsand tax authorities

• Demanding clients

• Challenging markets

New equilibrium

Capitalisers

1 23

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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Laggards

Time

• Challenging marketsand macro-economics

• Technology disruption PBWM industryStrategy and execution

• Existing players transform

• Consolidation

• New and disruptiveentrants

In summary…

Capitalisers will invest in enhanced propositions to grow...

1

2

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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...based on a deeper understanding of their local/global clientsto deliver good client outcomes as mandated by UK and otherregulators...

2

...They will leverage the London regulatory and locationadvantages, deliver client service excellence and reducecomplexity to meet the speed of local and global wealthmanagement market changes

3

The latest PwC 2013 Survey provides furtherindustry insight, benchmarks and projections

PwCPwCImpact of regulation on the UK wealth management industry and London’s position

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Thank you. For further information:

Ian Woodhouse

T: +44 (0) 20 7804 3411E: ian.woodhouse@uk.pwc.com

Global Private Banking and Wealth Management

This is a proposal document and does not constitute a contract of engagement with PricewaterhouseCoopers LLP. The information set out in it is an indicationof the terms on which we propose to carry out Perspectives on the UK Private Banking and Wealth Industry and how we can be a valued partner for you but theproposal is subject to the terms of any subsequent engagement contract that may be entered in to between us. In the event that our proposal to you issuccessful, our acceptance of the engagement will be contingent upon the completion of all our internal engagement acceptance procedures.

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