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European private banking ‘too optimistic’ Back  
The results of a survey just launched by PricewaterhouseCoopers suggests that there are leaner times ahead for European private banks and wealth managers as competition intensifies in the market.
There are tougher times ahead for private banking and wealth management in Europe because of increasing competition and current market volatility.

According to PricewaterhouseCoopers European 2000/ 2001 Private Banking/Wealth Management survey, European private bankers and wealth mangers are facing tougher competition as an increasing diversity of institutions now offer these services. However respondents to the survey remain optimistic in the short term and most expect their businesses to grow at a faster pace than the market.

Commenting on the survey Bruce Weatherill, partner at PWC warns ‘For the first time in the survey’s history, PWC believes that Europe’s private banking/ wealth management industry may be too optimistic about its growth in the short term, given the fierce competition, current volatile market conditions and participants’ ability to manage the significant changes requires within their organisations.’

Bruce continues ‘We expect to see more mergers, acquisitions and alliances as institutions seek to serve their more demanding clients.’

According to the survey, over 90 per cent of respondents plan to focus their strategies on differentiation rather than cost leadership in the next three years to attract and retain clients. Client service is ranked first or second as a key differentiator by almost half of survey respondents. An organisation’s image and reputation has also significantly increased in importance and, in the future, product innovation and clientsegmenta6tion will become more important as key differentiators.

Bill Cunningham, head of banking services at PWC in Ireland said ‘The success of the Irish economy in recent years has greatly increased the demand for private banking and wealth management services in Ireland. The market however has become very competitive with both existing providers and new entrants offering a wide range of alternative products. In addition, the advent of the internet and new media based services has brought a wider dimension of client service. The winners in the longer term will be those providers who find the most successful blend of products and delivery channels to match the specific needs of their clients.’

Key Survey Findings
Tougher external pressures threaten the private banking/wealth management industry
• Industry is becoming more highly competitive

• There are increased and more co-ordinated governmental, regulatory and compliance pressures

• Margins are coming under pressure

• The market continues to grow, but at a slower pace

• Offshore markets are falling behind onshore markets

• Over 90 per cent of chief executives plan to focus their strategies on differentiation rather than cost leadership
• Differentiation will increasingly centre on distribution, rather than production

Client relationships critical
• Private banks and wealth managers are more vulnerable to increasing client sophistication and reduced loyalty

• Client service is ranked first or second as a key differentiator by almost half of Chief Executives

• On average 46 per cent of the client base will derive from ‘new money’ by 2003. This is an increase from 36 per cent in our last survey

• Image and reputation is the highest ranked criteria for clients selecting a private bank or wealth manager, and is the top ranked measure of success. Strong brand positioning can also offer protection against key client relationship managers leaving

Future growth will be in value-added products
• Products and services will be more personalised

• The largest growth is expected in complex products such as hedge funds, family office services and sophisticated life-cycle and wealth planning

• Respondents are moving towards bundled pricing and more integrated wealth management advisory services to target ultra and very high net worth client bands

• Some organisations are beginning to outsource product provision and form alliances and joint ventures

Severe shortage of skils
• Respondents have recognised that high calibre staff are an essential part of achieving quality service and ranked third as the basis for competitive differentiation

• Competition for staff will become more intense

• Staff costs comprise the largest component of the cost base at 57 per cent ? Nearly half of respondents do not have a formal staff retention policy in place

Pressures on traditional organisational structures
• Organisations will centralise operations for efficiencies and cost savings

• There is an increasing focus on the Client Relationship Officer model ? Risk management within private banks and wealth managers is becoming more sophisticated and more automated

• E-business and new technologies pose an increased risk. Security and anti-money laundering controls are also key concerns.

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