Revealing the true market potential

Scorpio Partnership’s Private Banking KPI Benchmark 2007 heralds the next stage in a drive to monitor the global market. Looking ahead, the ideal scenario is a complete industry review that conforms to measurement by a set range of key performance indicators (KPIs). Naturally, this vision requires an acceptance that transparency is a partner in progress rather than a setback. As private banks continue to increase their levels of financial and performance disclosure, it has been possible over the past few years to construct a database of the vital KPIs that chart the course of the industry so far. Crucially, in light of the breadth of the data now being collated, it is also becoming possible to assess the true scope of the market share for private banking industry players. For too long, the industry has accepted that total market sizing rests on top-down market analysis and that this in turn equates to market share. The alternative view is that this model can now be challenged. While there is no dispute over the importance of top-down total market sizing, doubts arise over how appropriate and realistic it is for the calculation of private banking market share. The basis for this challenge is that the industry is widely thought to be operating close to capacity, particularly with respect to staffing. Growth strategies are almost all focused on growing the business through the recruitment of existing teams or the acquisition of existing businesses. Thus, the true market share is in fact a bottom-up calculation. With that in mind, it is now becoming more appropriate to model the real market opportunity relative to total top-down market sizing. This modelling suggests that the world’s top 10 private banks by fee-based assets under management account for around 28 per cent of the HNW assets that realistically fall within the scope of the private banking industry. There is a further $9,100bn (e6,750bn) in the fragmented realm of the rest of the existing private banks, and $8,400bn that is banked, but not by private banks. Based on this year’s World Wealth Report estimate of a HNW market size of $37,200bn in liquid wealth, this means around $12,800bn of this top-down total lies outside the current grasp of the asset management industry. According to this analysis, the true potential private banking universe is thus $24,400bn. In real terms, this means that those private banks that focus their attention on growth through cannibalisation of the staff or HNW books of other private banking groups are limiting their growth potential to around $9,100bn of bankable assets. Those that start to aim their guns outside of the private banking market will see their market share potential expand a further $8,400bn. But to attract the $12,800bn of HNW assets that are currently outside the asset management market will require a substantial change of attitudes in the HNW and the wealth management communities. For this new paradigm, HNWIs will need to be convinced to rebalance their total wealth portfolios in favour of the industry, which for its part will need to display the ingenuity necessary to inspire a new level of confidence in its ability to handle ever-broadening classes of assets. Certainly, this presents the industry with a long-term challenge, but a realistic view on the likely market potential should address many of the strategic planning problems faced by the industry today. Ted Wilson is managing partner at wealth management straegy thinktank, Scorpio Partnership