The cutting back begins

Managers are battening down the hatches in preparation for the forecast growth downturn. Yuri Bender reports on their cost-control methods Asset managers in Europe must shift their emphasis from asset growth to cost control, according to a joint report from strategy consultants, Oliver, Wyman and Company and investment bank UBS Warburg. Cost reduction will require an improved approach to centralisation, efficiency, compensation, broker management and non-core costs such as outsourcing. This process is already under way, according to Peter Shireffs, director at Royal Bank of Scotland International (RBSI) in Jersey, who referred to Barclays’ recently laying off of 90 private bankers in the Channel Islands. “Job cuts are unavoidable,” said Mr Shireffs. “There are 78 banks in Jersey and many are going down the same road as we are, which will involve a mixture of mergers, technology rationalisation and an emphasis on new operating platforms.” He said RBSI is training more relationship managers to be experts in every area of wealth management, including trusts, products and portfolio structuring. “This may mean that redundant back office staff will be retrained and put into the front line.” The leaner period of growth forecast by the report means profits are unlikely to return to 2001 levels until 2004. The E15,000bn currently managed in Europe is expected to fall to E14,000bn by the end of the year. But after that forecasts of 11 per cent in asset growth mean that a E21,600bn figure is expected by 2006, with half of this growth from new inflows. Pre-tax profits of E35bn in 2001 are expected to fall to E31bn this year, before recovering to E50bn in 2006. One of the life savers for managers is a change in asset mix, with increased allocation to higher margin alternative investment. Private equity and hedge funds generate an average fee of 300 basis points (compared to institutional passive investments which bring is less than 30bp). Distributors will receive larger fees for gathering assets, claims the report. Private banks and advisers will retain a dominant share in the wealth management market.