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1 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Wealth management at tipping point
Adapt business models
Exit business
Performance Imperatives Tipping
Point
Tsunami of regulations
Market turbulence
7 1
2
3 4
5
6
More precise understanding and targeting of client
segments required
Performance Imperatives
External influencers
KPMG Your thought partner
State of the industry
2 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Reasons for keeping an optimistic view: WM remains attractive
• Opportunity to cross-sell investment banking products (e.g., structured products) to wealthy clients
• Benefits from vertical integration of WM value chain elements, such as investment funds from asset management arms
• Retail clients with growing wealth are potential WM clients
• WM (wealth management) deposits provide cheap funding
• Leverage existing branch network
• Fast-paced growth in the last four years
• Focus on specific activities
• Very little risk exposure to markets (off-balance-sheet activities)
• Safe harbour in crisis time
• Quality of service
Global volume (AUM) is still growing
State of the industry
3 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Wealth management remains a very fragmented industry
• No uniform wealth management model across the world • Different models depending on geographic location (few really global players) • Very fragmented market with a large number a players covering different parts of the value chain
Chart key
Banking and IM products
IM products only
IFAs only
Wealth band Free investable assets:
UHNW
>£5 million
>£0.5–5 million
>£0.1–0.5 million
Affluent
HNW
Balanced Open architecture Own product
Private Client Investment
Management £65bn 18% £200K
Traditional Broker £50bn 16% £120K
IFAs
£500bn 5-35% £50K
UK Private Banks £130bn
21% £400k
Investment Banks £50bn -5% £1.3m
XO Brokers
£75bn 32% £25K
Multi Family Offices(1)
£10bn 5% £20m+
UHNW 9k
HNW 550k
Affluent 1.8 m
Investment proposition
Discretionary Investment Managers >£125bn 23% £350k
FUM, pre-tax profit margin and average portfolio size
Case example: UK market In Focus
(1) Data based on MFOs sourced from Compeer; this doesn’t reflect the whole market value Source: MDRC and Compeer data; KPMG analysis
State of the industry
4 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Largest private banks, globally
1,671.0
1,554.5
1,300.0
1,219.0
,843.3
,573.3
,377.0
,348.6
,316.2
,291.0
,262.1
,227.0
,208.0
,190.0
,182.7
,178.8
Bank of America
UBS
Wells Fargo
Morgan Stanley
Credit Suisse
Royal Bank of Canada
HSBC
Deutsche Bank
BNP Paribas
JP Morgan
Pictet
Goldman Sachs
Citigroup
ABN AMRO
Barclays Wealth
Julius Baer
(5.4%)
3.3%
(10.1%)
4.3%
23.0%
1.4%
13.1%
16.3%
3.8%
(0.9%)
30.6%
3.4%
0.1%
9.8%
3.8%
Largest private banks by AUM, globally (US$ billion) 2011 2010 2009 CAGR (%) 2009−11
1,944.7
1,559.9
1,398.0
1,628.0
,865.1
,435.2
,390.0
,368.6
,340.4
,284.0
,267.7
,229.0
,140.7
,220.1
,185.9
,181.7
1,866.4
1,463.3
1,218.0
1,508.0
,775.4
,379.0
,367.0
,272.4
,233.7
,270.0
,243.2
,231.0
,121.9
,177.8
,182.4
,148.4
3.1%
1
2
3
4
5
• The total AUM of the top-10 industry players has grown at a CAGR of 2.9 percent since 2009, despite the market setback in 2H11
• The top-five
players have significant lead over the rest of the market constituents; however, small players have a good hold over the markets in key locations.
Source: Scorpio Partnership Private Banking Benchmark 2012 and 2011; KPMG analysis
State of the industry
5 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Growth fuelled by emerging markets
1
Underlying trends impacting wealth management industry
Regulations to remain on the agenda
2
Changing business models for changing clients
3
IT and operations 7
Cost pressures/squeezed profitability
4
Consolidation of the industry
5
Geographical strategy/ cross-border banking
6
2013 and way forward
Pre crisis
Post crisis
Trends and key developments
Trends and imperatives
6 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Evolution in population of HNWI Growth fuelled by emerging markets 1
2.8 2.4 3.0 3.3 3.4
3.3 2.7
3.1 3.4 3.4
3.1
2.6
3.0 3.1 3.2
0.4
0.4
0.5 0.5 0.5
0.4
0.4
0.4 0.4 0.5 0.1
0.1
0.1 0.1 0.1
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2007 2008 2009 2010 2011
Africa
Middle East
LATAM
Europe
North America
Asia-Pacific 1.6%
(1.1%)
1.1%
5.4%
2.7%
3.9%
% Change in HNWI Population,
2010–11
HNWI Population, by region, 2007–11 Numbers in million
CAGR (2007–11): 2.1%
• Stable worldwide population of HNWIs: 11 million (people having more than 1 million US$ to invest) • Growth of 0.8 percent in 2011 (versus 8.3 percent and 17.1 percent in 2010 and 2009, respectively) • For the first time ASPAC with 3.37 million of HNWIs is higher than North America with 3.35 million • LATAM has the highest growth rate (5.4 percent) • India (-18 percent)and Hong Kong (-17 percent) have reduced their population of HNWIs
• Aggregate investable wealth of HNWIs: US$ 42 trillion
• Average growth over last 4 years in 0.8 percent p.a.
Source: Capgemini and RBC Wealth, World Wealth Report 2012: Capgemini Lorenz Curve analysis 2012; KPMG analysis
7 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Largest UHNWI population in 2011
Number of Ultra high net worth (UHNW) households, 2010–11 ’000s
Number of UHNW households per 100,000 households, 2011
Switzerland Singapore Austria Norway Hong Kong Kuwait Qatar Taiwan UK Netherlands UAE Belgium Israel Sweden Denmark
11 10 8 7 7 6 6 5 4 4 4 4 4 3 3
2,928
1,125
,807
686
648
470
375
366
344
333
301
279
US
UK
Germany
Russia
China
France
Taiwan
Switzerland
Turkey
Italy
Austria
Netherlands
2,989
1,125
,807
607
538
480
369
366
318
319
301
291
2010 2011
Source: BCG Global Wealth Market-sizing Database 2012, BCG Global Wealth Report 2012; KPMG analysis
By the end of 2011, the UHNW households held 5.8 percent of the global private wealth.
Growth fuelled by emerging markets 1
8 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Evolution of aggregate wealth
35.6 38.3 38.0 41.5
33.6 35.3 35.4 39.6
19.0 21.4 23.7
40.1 17.8
18.2 17.8
18.5
2.9 3.2 3.5
5.4
3.9 4.3 4.5
6.1
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
2009 2010 2011 2016E
Middle East and Africa
LATAM
Japan
Asia-Pacific (ex-Japan)
Europe
North America
HNWI Wealth Distribution, by region, 2009–16E US$ trillion
1.8%
2.3%
11.1%
0.8%
9.1%
6.3%
CAGR (2011–16E)
Source: BCG Global Wealth Market-sizing Database 2012, BCG Global Wealth Report 2012; KPMG analysis
112.9 120.6 122.8
151.2 Overall CAGR (2011–16E): 4.2%
Growth fuelled by emerging markets 1
9 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Heterogeneous development of major offshore booking centers Growth fuelled by emerging markets 1
7.37.8
-
2%
4%
6%
8%
-
2.0
4.0
6.0
8.0
2007 2011
% of total A
uM
US
D tr
illio
n
Offshore AuM development 2007-2011
Offshore SwitzerlandOffshore rest of the world% of total AuM
Switzerland
Caribbean and Panama
Luxembourg
Hong Kong and Singapore
United StatesOther
Benchmark bubble = USD 1tn
(25)%
(20)%
(15)%
(10)%
(5)%
-
5%
10%
15%
20%
- 20% 40% 60% 80% 100%
CA
GR
200
7-20
11
% share of emerging markets 1)
Offshore AuM in major booking centres 2011 (USD 7.8tn)
Future growth in offshore banking will be driven by AUM from emerging markets.
Note: 1) Emerging markets defined as Asia-Pacific, LATAM and Middle East and Africa Source: BCG Global Wealth Market-sizing Database 2012, BCG Global Wealth Report 2012; KPMG analysis
10 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
While there will be ongoing pressure on offshore booking centres, Switzerland may benefit from its relatively large share of offshore assets from emerging countries.
Switzerland is still the largest offshore booking centre
0.6
0.5
0.6
1.0
1.0
1.9
2.1
0.0 0.5 1.0 1.5 2.0 2.5
Other
Luxembourg
United States
Hong Kong and Singapore
Caribbean and Panama
UK, Channel Islands, and Dublin
Switzerland
USD trillion
North America Europe Asia-Pacif ic Latin America Middle East and Africa
Offshore AUM in major booking centres, by source, 2011
Switzerland has
maintained its share of off-shore AUM
Growth fuelled by emerging markets 1
Source: BCG Global Wealth Market-sizing Database 2012, BCG Global Wealth Report 2012; KPMG analysis
11 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
EU makes it so easy… Regulations to remain on the agenda 2
12 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
EU makes it so easy… Regulations to remain on the agenda 2
Insurance Securities
Pensions (IORP Directive)
IMD Proposal for revision aims to
improve transparency in selling practices for all insurance
products
PD (Prospectus
Directive) would cover some PRIPs
MAD Would cover some
PRIP eg UCITs in the form of ETFs
Com
mon
ES
A
(EIO
PA
). P
ensi
ons
not
excl
uded
from
sco
pe
of IM
D a
nd S
2
UC
ITs
are
finan
cial
inst
rum
ents
un
der M
FID
but
UC
ITs
man
ager
s no
t co
vere
d. N
eed
to a
pply
MIF
ID ru
les
to U
CIT
s di
rect
sal
es to
ens
ure
sing
le
rule
book
for P
RIP
s
IMD revision proposal introduces MIFID-inspired conduct of business
rules for insurance-based PRIPs
Solvency II (S2): Article 185
contains a KIID-type requirement for life
insurance
DGS/ICS Question of eg coverage of structured deposits in
scope of DGS
MIFID MIFID covers sales rules for investment products. Proposed new Recital 26, Art 1(3) imply extension
to PRIPs currently outside MIFID scope but NB Annex I(C) not extended (eg to structured deposits)
PRIPs PRIPs proposal defines scope of PRIPs and lay down provisions for pre-
sale disclosure document (“KID”)
UCITS UCITs legislation governs product
requirements as well as sales regime. UCITs V proposal made at same time as PRIPs proposal but covers other issues (depositary, remuneration, sanctions).
UCITS VI expected in 2013.
UCITs would fall in the definition of PRIPs. UCITs KIID is model for PRIPS KID. UCITS exempt from KID for 5 yrs.
MIFID would cover conduct of business + distribution rules for non-insurance
PRIPs eg structured deposits and UCITs
PRIPS proposal includes ‘3rd pillar’ pensions products in scope of
PRIPs but excludes occupational pensions
KID is additional to PD requirements
Texts
Links
Pensions funds excluded from scope of MIFID. Pension rights
are not financial instruments
• Innumerable of new regulations driving up complexity and costs • New regulations limiting strategic options • Substantial impact on cross-border banking (core markets will need to be defined / critical size)
13 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
The big picture: Set up of a Banking Union
• EU member states have agreed to hand over the key supervisory tasks of their banks to ECB
• The SSM (Single Supervisory Mechanism) will cover the 6,000 banks in the Euro area
− ECB will focus on 150 high-risk banks
− National supervisors will look at the other banks
• The ultimate objective is to organize a Banking Union built on a single rulebook applicable to the 27 member states. It should:
− Have the same criteria for the Capital Requirements
− Ensure each member state is funding the Deposit Guarantee scheme
− Bank resolution: Should stipulate that shareholders and creditors bear the cost of resolution before any external funding is granted
− Provide the structure of the banking sector (Liikanen /Volcker proposes to separate deposit taking from more risky activities)
Regulations to remain on the agenda 2
Council of EU Finance Ministers, December 2012
14 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Client identification and exchange of information
Grand-Ducal Regulation of 1/02/2010 clarifies certain provisions of the amended Law of
12 November 2004
FATF mutual evaluation report for Luxembourg published in February 2010.
Law of 12 November 2004 on the fight against money laundering and terrorist financing, as amended significantly by the Law of
17 July 2008
3rd European Directive 2005/60/EC of 26 October 2005
European Directive 2006/70/EC of 1 August 2006 European Directives 91/308/EEC and 2001/97/EC
CSSF Circular 08/387 following the Law of 17 July 2008 and replacing circular 05/211 modified by Circular 10/476
Law of 27 October 2010 amending the Law of 12 November 2004
2012 revision of the FATF recommendations
PROPOSAL 4rd European Directive 2013 on the prevention of the use of the financial system for the purpose of money laundering
and terrorist financing
CSSF Regulation 12-02 published on January 9, 2013
• The Anti-Money laundering and Counter Terrorist Financing (AML/CTF) framework has been developing considerably both at international and national level since the last 10 years
• WM should be able to anticipate changing regulatory expectations and standards, quickly adapting their compliance programs to meet these new expectations
Regulations to remain on the agenda 2
Luxembourg example
15 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Client identification and exchange of information
• Players have signed the Charter of Quality designed by the International Capital Market Association (ICMA). This charter complements the Global recommendations of the FATF.
−The three pillars of this charter are: integrity (in business relationships, of markets, financial products and services and of staff), transparency (toward clients and the regulatory environment), professionalism (regarding the primacy of clients 'legitimate interests and efficiency). Luxembourg is the first country to have ratified this charter.
−WM signing the ICMA charter have no other choice, then to adopt a fully transparent business model
The Charter of Quality
Inte
grity
Tran
spar
ency
Prof
essi
onal
ism
Regulations to remain on the agenda 2
• FATF and the EU Directive were adopted in February 2012 and 2013, respectively, to reinforce the EU’s existing AML/CTF rules − Focus on the risk-based approach, with each country performing a in-depth analysis of
its own risks. − Reinforcement of transparency as regards the ownership and control of legal persons
and legal arrangements − Strengthening of the requirements as regards Politically Exposed Persons including
“domestic” PEP and those in international organizations − Explicit reference to tax crime, to be considered as a designated category of predicate
offence for money laundering
No sign of respite in the years to come !
16 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Impact on the industry
• There is increasing pressure to monitor the effectiveness of their AML systems and controls. − According to the 2011 Global Anti Money laundering survey performed by
KPMG and published in 2012, 76 percent of financial institutions in Europe reported that they formally test or monitor their AML controls.
• The quality of Know Your Customer data/information maintained by banks is capital to ensure an ongoing monitoring of the client business relationship as well as an effective screening
• The Politically Exposed Person and Sanctions compliance will remain a key requirements as well as a challenge
• Banks should understand the key risks impacting their business to demonstrate to the regulatory authorities that appropriate measures are in place to mitigate them.
• Banks should consider KYC as a business issue rather than a compliance issue to maintain both data quality and an effective data-collection process
Vision
Processes
IT systems
Review
Manage reputation risk
Regulations to remain on the agenda 2
17 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Client identification and exchange of information Regulations to remain on the agenda 2
• Landscape has changed dramatically since 2009 − Classical banking secrecy countries have concluded
agreements permitting exchange of information on demand
− Update of EU Savings Directive
• The US: “muscling their way through” − UBS and Bank Wegelin affairs in CH
− FATCA
• Swiss “Rubik” agreements − UK + Austria → signed
− Germany → failed
− Future → uncertain
Banking secrecy vs. automatic exchange of information
18 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Client identification and exchange of information Regulations to remain on the agenda 2
Classical
• FATCA in the way of FFI agreements between financial institutions and the US Treasury
Model I Model II
• Intergovernmental agreement between a country and the US − Exchange of
information between governments
− UK, DE, FR, DK, etc.
• Intergovernmental agreement between the country and the US − Exchange of
information from financial institution to the US IRS
− Followed by exchange of information group requests by US to Country for “recalcitrants”
− CH, JP
Three possibilities
Model I could trigger most-favored-nation clause, obliging EU member states to grant the same to other EU member states
FATCA
19 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Client identification and exchange of information Regulations to remain on the agenda 2
• General philosophy − pay your fair share of tax
• Product optimization − Analyze portfolio for non-tax-efficient products
− Select tax-efficient products per country and type of client
− Consider returns after tax rather than pre-tax
• Structure HNWI clients − Use financial engineering to optimize taxes, not to
evade taxes
• Tax reports − Provide customers with detailed tax information
− Assist client in preparing tax returns
Tax transparency is the “name of the game”
20 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
MIFID II Regulations to remain on the agenda 2
• If you claim to provide an independent advisory service to your client − You shall assess a range of financial instruments available
on the market, which should be sufficiently diverse (not limit yourself to your own firm/close investment horizon)
− You shall not accept and retain fees, commissions or any monetary and non-monetary benefits paid or provided by any third party (trailer fees, rebates, other advantages)
• If you claim to provide a portfolio management service to your client − You shall not accept and retain fees, commissions or any
monetary and non-monetary benefits paid or provided by any third party (trailer fees, rebates, other advantages)
• If you do not claim to be independent, you need to state it and you need to be 100 percent transparent on what revenues/advantages you have received
• Remuneration of staff: no arrangement to incentivize staff to recommend a particular financial instrument to a retail client, when the firm could offer a different financial instrument that would better meet that client’s needs
Impact on WM/private banking: Transparency
MIFID II
OTC derivatives and commodities
trading
Investor protection and
provision of investment
services
Transparency
Miscellaneous Supervisors
Authorization and
organizational requirements
Development in market structures
Aims to update and build on the reforms introduced by the 2007 directive
21 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Clients behaviors and feelings Changing business models for changing clients 3
“At the same time, banks are feeling more pressure on the
fees. This includes clients wanting more service for
less money, and wanting to be in touch more often.”
Swiss-based interviewee KPMG Survey 2012
• RDR’s transparency regime will fuel a rise in client’s bargaining power
−Result in a trend away from “ad valorem” fees for advice to fixed and hourly tariffs
• Customer loyalty is decreasing
− Increased readiness to switch providers and an appetite to split portfolios between firms
• Price transparency is key
−More price sensitivity to Total Expense Ratio and active desire to understand more precisely what they are paying for
−Greater use of low-cost asset classes (ETFs)
• Open architecture remains essential
−Less-passive acceptance of products sourced from the wealth manager’s parent institution
• Clients seeks the opinion of other clients (social media)
Highlights
22 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
New services required
“Luxembourg’s financial engineering toolbox of legal vehicles, the EU passport,
and the international diversity of our employees… are the key enablers for us
in servicing our clients effectively on a cross-border
basis.”
Luxembourg-based interviewee KPMG Survey 2012
• Is a commodity in retail banking • Adoption of this technology in private banking is slow • Some bankers fear its capacity to usurp the CRM’s role • In practice, mobile banking is fully adapted to a new generation of
HNWIs • Mobile banking is a pre-requisite to penetrate high-growth emerging
markets
Mobile banking
• Additional services for on-shore clients with tax transparent assets • Capability to understand the different tax legislations • Capability to structure the corporate vehicles • Capability to produce tax reporting
Financial engineering
• Private equity/real estate • Be part of a club
Capability to offer alternative investments
Changing business models for changing clients 3
23 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Tax IM
Trust Pension
• Sell advice and planning proposition • Relationship-led, client-centric model • Ongoing fees • Control planning and asset allocation • Use of platforms and outsourced solutions • Focus on 50–75 profitable clients • Multi-channel client access
• Sell product/product-led relationship • Transactional revenue model • Initial commission dependency • Fund picking • Dependency on product providers • 300–500 clients coverage • Face-to-face advisory
The emerging model
Old model Emerging model
Changing business models for changing clients 3
24 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Costs continue to rise
-
4.0%
8.0%
12.0%
16.0%
FY2007 FY2008 FY2009 FY2010
Return on Equity - Swiss Private Bank 1)
ROE before extraordinariesROE on extraordinaries
Private bank’s cost-to-income ratios %, 2010−11
2011 2010
Key
play
ers Top 20 79% 78%
All banks 80% 79%
Swiss 83% 81%
Key
geog
raph
ies
Western Europe 72% 71%
North America 67% 68%
Asia 86% 84%
Decline in margins and increasing cost base leading to profit squeeze
Cost pressures/squeezed profitability 4
Source: KPMG PB Benchmarking Database; McKinsey Private Banking Survey 2012; KPMG analysis
• “Industrialization” of the private banking industry is continuing − In the past (at least in offshore banking) it was possible to earn high returns very easily − In the new environment this is not the case anymore
• There is a lot of competition and margin pressure • Banks need to adapt (HR Cost, processes, sourcing modes, IT, etc.) otherwise they will disappear
(this has happened in most industries a long time ago)
25 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Benchmarking database: Cockpit snapshot Cost pressures/squeezed profitability 4
Technology and data mining to track behaviors of individual client types, to fine-tune client segmentation and identify the most suitable products and services for each segment
Source: KPMG PB Benchmarking Database; KPMG analysis
26 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Private wealth management M&A deal trends
Development of the 222 global private wealth management M&A deals by major country (2006 to 2011)
Note: US deals = US target or US bidder involved; Swiss deals = Swiss target or Swiss bidder involved; non Swiss/US deal = neither US nor Swiss countries are involved
Cross-border transactions between the US and Switzerland are considered US deals (one in 2006 and one in 2007). Source: Mergermarket.
Deals increased by 17 across the US,
Switzerland and other countries driven by a favourable economic
climate and increasing asset appreciation.
Slight deal decline driven by the 11 deal decrease in Switzerland partially offset by pre-crisis transactions
in the US and other countries.
Swiss deal increase driven by distressed sales of private banks owned by European banks receiving state aid; the financial crisis slowed
M&A activity in other countries.
Strategic deal activity returned in Switzerland
while the US deal decline continued in 2010 which
drove the global deal decrease.
Trend of increasing M&A deals in countries outside of Switzerland
and the US.
10 14 18 17 15247
1416
125
10
10
16 510
9
10
27
4439 39
29
44
05
101520253035404550
2006 2007 2008 2009 2010 2011
Num
ber o
f dea
ls
Non Swiss/US deals US deals Swiss deals
• Swiss & US private wealth M&A activity has driven global deal volumes over the past 6 years • Increasing trend of M&A deals outside of Switzerland and the US • Price depends heavily of the nature of the AUM (size of portfolio’s, tax transparency, …)
Consolidation of the industry 5
27 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
• More deal activity in domestic markets to maintain market positions • Larger players will use cross-border M&A to capture global wealth growth in
emerging markets • Exit/merger of smaller offshore players where not economically viable • Consolidation to offset higher regulatory and tax compliance costs through
scale economies
• Bank of NY’s merger with the Mellon Financial Corporation in 2007 (deal value >US$16 billion)
• Bank of America’s acquisition of Merrill Lynch in 2008 (deal value >US$44 billion)
• AMP limited’s acquisition of AXA Asia in 2010 (deal value >US$13 billion) • Julius Bear’s acquisition of BoAML’s non-US business in 2012 (deal value
>US$800 million)
Activity in the M&A market is
expected to accelerate
Mega deals will strongly influence
wealth management deal
values in each year
Private wealth management M&A deal trends Consolidation of the industry 5
Observations Expected M&A trends
28 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Asia ME
Bef
ore
mar
ket s
trat
egy
impl
emen
tatio
n Af
ter m
arke
t str
ateg
y im
plem
enta
tion
LATAM
Bank B
ME
Others
• Quick – no regulatory approval is required.
• Standardized KPMG processes bring efficiencies and minimize costs.
• KPMG has contacts with all Swiss Private Banks and Swiss Independent Asset Managers.
• Maximum value can be achieved by selling non-core client portfolios now as opposed to running them down and realizing no value.
Advantages
LATAM
Bank A
Others
Others
Bank B
LATAM
Bank A
Others
ME
KPMG Facilitates
strategic portfolio rebalancing
through its client portfolio solutions
Asia
Bank C
Europe
Others
Europe
Bank C
Others
Asia
Key: Non-core markets
Consolidation of the industry 5
Client portfolio rebalancing
29 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Be focused Geographical strategy/cross-border banking 6
• Banks must articulate a clear vision over which geographic markets they plan to focus on
• Bank may envisage to exit selected market where they have no critical size
• The classical cross-border banking model remains the main way to serve foreign market but is increasingly limited by regulations
• This reinforces the idea to have local presence in certain markets or co-operate with local partners
• Critical mass is becoming more important
Strategic direction
• Banks (especially smaller banks) should be specific about which client niche and countries they wish to reach and are in a position to serve on a long-term basis
• Understanding client segment performance is vital (especially in a period of margin erosion)
• Technology can assist banks in tracking behaviors of individual client types
• Data-mining should allow to identify the best products and services for each segment
Targeted approach is key to success
30 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Cross-border banking services
Bank
Bank
Bank
MiFID Regulatory requirements
Cross-border banking
Local rules Tax
1. Face-to-face contacts at the bank’s offices in Luxembourg
Client’s home country
2. Remote communication 3. Face-to-face contacts in the host country
Client’s home country
Client’s home country
Place of service provision
Place of service provision
Geographical strategy/cross-border banking 6
31 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Cross-border banking manual
Permitted
Conditions apply
Not permitted
Comments
France
Activities
Face to face meeting in
Luxembourg (1)
Place of Service
General principles
Regulation
Legend
Crossborder supply (2)
Face to face meeting in
France(3)
ProspectionClient prospecting
/ /Prospects may be contacted by phone, email, fax and mail provided prior consent has been given. Specific conditions on information apply. Automated phone calls are forbidden.
External cooperation
/ /
/ // // /
Conditions apply for Cross border communication with prospects (see "Cold Calling" above).
"Carte de démarchage" required for clients visits
"Carte de démarchage" required for visit in France.
Cross border communication by mail is conditioned, fax and email are not applicable.
Methods used must not lead to expenses for the consumer.
Proactive prospect contact/Proactive promotion (including advertisement/information) of account openings or bank products or bank services
Carte de démarchage
Article L341-1 of the code monétaire et financier
Article L121.20-14 Code de la consommation
Art L.121-1 to L.121-7, L.122-11 Code de la consommation
Cold-calling
Reverse prospect contact (at the prospect's initiative) without solicitation of account openings or bank products or bank services
Reverse prospect contact (at the prospect's initiative) with solicitation of account openings or bank products or bank services Prospect contact for social events (birthday, Christmas cards, etc.)
Agreements with Finders (introducers of prospects resident in France) aiming at the referral of residents in France to the bank in LuxembourgWith External Asset Managers (ExAM) or investment advisers who are:
Ordonnance no 2005-648 of June 6th, 2005, relative to the distant
commercialization of financial services. Article L121.20-14 Code de la
consommation
Law n. 2006-1770 of 30 Dec 2006
L.341-6 and L.341-7 of the code monétaire et financier
Negotiation of financial conditions (e.g. fees, expenses, interest rate)
in France (dealing with residents in France)
outside France (dealing with residents in France)
Proactive prospect contact/Prospect managing: socializing, including advertisement/general information about the bank, without promotion of account openings or bank products or bank services
Ordonnance no 2005-648 of June 6th, 2005, relative to the distant
commercialization of financial services.
Finders require a clear mandate from the bank . Conditions apply
Account opening: providing the prospect with contractual documentation/bank forms and procuring prospect signature
Art L.121-1 to L.121-7, L.122-11 Code de la consommation
Article L341-1 of the code monétaire et financier
Prospect contact
Activities, products and issues to be solved
Places of service
Responses and short comments
Links to the relevant regulations
http://www.kpmgprivatebanking.com Access point
Geographical strategy/cross-border banking 6
32 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Trends and challenges in IT
• Pressure on IT running costs
• Financial institutions have difficulties in defining a renewed business vision and strategy. Consequently, the inherent IT strategy suffers from this lack of direction
• While the existing software in place are old, there is no real business case to change and launch a replacement project
• Banking sector consolidation
− Systems have to be consolidated first
− More and more difficulties to justify dedicated IT platforms for private banking activities. Generally, banking groups tend to share their retail securities and cash processing platforms
Market highlights
15%
85%
0-2 years
2-5 years
Later/No plans
When will you change your IT system?
Source: KPMG Private Banking System Survey 2012–13, Luxembourg and Switzerland; KPMG analysis
IT and operations 7
33 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Trends and challenges in operations
• Outsourcing of back-office to third parties has been developing itself, but unequally in the different markets:
− Well-established with historical players in Switzerland (e.g., Bsource, Wegelin, etc.)
− Success story in Belgium and France (e.g., Procapital)
− No take-off in Luxembourg
− Failure of Ordina in the Netherlands
• Other models are emerging or being confirmed
− Specialized hubs serving group subsidiaries/ branches around the world (e.g., SEB Private Bank or Nordea Bank in Luxembourg)
− Use of mother company’s IT and back-office (e.g., Danske Bank in Luxembourg)
Trends and challenges
In-house development
Own IT Centre
Package
ASP Mode
BPO
Large banks Small banks
Option I
Option II
Option III
Option IV
Soph
istic
ated
so
urci
ng m
ode
Uns
ophi
stic
ated
so
urci
ng m
ode
IT sourcing paradigm for financial service providers
IT and operations 7
34 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Banking software providers consolidation
IT service-provider market composition
Hig
h fr
agm
enta
tion
Ris
ing
cons
olid
atio
n Pr
oces
s of
con
solid
atio
n
• Sopra acquired Callatay & Wouters
• Temenos bought Odyssey
• Oracle acquired I-flex
• Temenos acquired Financial Objects
• Sab acquired SAMIC
Market concentration
• Increasing sophistication of banking processes and regulation have created new entry barriers
−The market of banking ERP software is concentrated in the hands of a few players
−Smaller players disappear or are being absorbed
Entry barriers
IT and operations 7
35 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Growth fuelled by emerging markets
1
Underlying trends impacting wealth management industry
Regulations to remain on the agenda
2
Changing business models for changing clients
3
IT and operations 7
Cost pressures/squeezed profitability
4
Consolidation of the industry
5
Geographical strategy/ cross-border banking
6
2013 and way forward Afterthoughts
and concluding remarks
Concluding remarks
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The view by a market analyst
Wealth management is the most attractive and undervalued business relative to other business lines within global banks.
“ ” JP Morgan Cazenove
Report titled: “Wealth Management - only area of structural growth in banking,” 23 January 2013
• Low revenue environment in wealth management is a cyclical situation
• There are some challenges (Tax treaties, cross border/off shore business) that are manageable by large players
• These challenges can bring more consolidation in a very fragmented wealth management industry
• The global players (UBS, Credit Suisse, Citibank, etc.) are the likely winners in the long-term: − As they have the scale with global booking centers − As they have the means to invest in the new business models: o Increased on-shore presence o IT investments
o New acquisitions o Diversification into higher margin products
Revenue growth
Headwinds
Composition
Criticality of scale
Analyst opinion
Source: JP Morgan Cazenove; KPMG analysis
37 © 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Audience questions and thoughts
Q A &
© 2013 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
Thank you Alain Picquet
Partner Head of Advisory Head of Markets KPMG Luxembourg [email protected]