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Saturday, 20th April 2024 |
| Irish private banks to exceed growth of European counterparts |
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| With new money the key source of Irish wealth, Muriel Moroney and Denis Cremins predict that the growth rates for revenues and assets under management for the next three years for Irish private banks will be well in excess of the growth rates predicted for their UK and European counterparts. |
IIreland’s Celtic Tiger has spawned a nouveau riche group which has Ireland’s private banking and wealth management industry clambering for their business. Ireland’s place in the industry relative to its global counterparts came under the spotlight when Ireland featured for the first time this year in the PricewaterhouseCoopers Global Private Banking/Wealth Management Survey. Although this is the tenth year in which PricewaterhouseCoopers have surveyed wealth managers in various geographical territories, this is the first time the survey has been consolidated globally to include results from 20 countries in Asia, North America and Europe, with over 100 wealth managers participating.
So how do the Irish wealthy compare with their European and global counterparts? New money is the key source of Irish wealth, making up a massive 85 per cent of wealth here. In the US, new money accounts for only 55 per cent of wealth, whilst in Europe the nouveau riche are far outweeighed by those with traditional family money which represents almost 65 per cent of European wealth.
And exactly how rich are the rich? The survey categorises the wealthy into four tiers based on the value of their cash and near liquid assets (i.e excluding primarily the family home and pension funds) :
- The affluent - those with $100,000 to $500,000. This accounts for just 25 per cent of assets under management by the Irish wealth managers compared to 44 per cent of global managers clients.
- The high net worth individuals - where assets range from $500,000 to $5million;
- The very high net worth individuals - with $5million to $50million in wealth and
- The ultra high net worth individuals - those worth over $50million.
Interestingly, almost 50 per cent of the assets managed by Irish wealth managers are those of clients in the super-rich top two tiers. This compares to a global average of 40 per cent. There are clear indications from the survey both on a global level and in the Irish industry that wealth managers intend to focus their efforts on increasing their percentage of ultra high net worth individuals, with some 49 per cent of wealth managers globally expecting an increase in this client band but only 14 per cent planning to increase their percentage of affluent clients. Competition is, therefore, expected to be intense for the super rich clients at the top of the wealth pyramid. As these are the most sophisticated clients with the most complex needs, wealth managers will need to sharpen their focus on tailored products and services.
To this end, Irish private banks are expanding their product range to meet the increasing needs of these top tier clients. Single strategy hedge funds and funds of hedge funds are emerging as products of choice and the demand for family office services, heretofore only really a product for traditional family wealth, is now growing in the context of the new wealth. Tax sensitive investing and estate planning is critical and the ability to devise ways for clients to efficiently pass on their wealth to the next generation will become a differentiator. PwC are actively involved in devising such strategies for Irish private companies and their shareholders.
Irish private banks clearly are planning for substantial growth and are optimistic that this can be achieved, with the survey predicting that the growth rates for revenues and assets under management for the next three years for Irish private banks will be well in excess of the growth rates predicted for their UK and European counterparts.
In line with maximising revenue growth, wealth managers are conscious of the need to devote time to monitoring and controlling cost structures. Remuneration and changes in employee incentives are the top two concerns of wealth manager globally, when controlling their cost base. This is particularly so in Ireland, where the average cost profile of Irish wealth management operations indicates over 70 per cent is attributable to staff personnel costs compared to the global average of just under 50 per cent.
The industry appears to be making efforts to focus costs on client service delivery, but realises that the cost of product development and systems requirements will continue to weigh heavily on the cost base. Depending on the wealth managers’ particular operational structure, there are opportunities to reduce costs further through greater use of technology, joint ventures and outsourcing, particularly in the middle and back offices. Cutting costs whilst still meeting regulatory requirements will be a particular challenge.
The regulatory framework which wealth managers face has undergone a seismic shift in recent years. The survey revealed that risk management and corporate compliance are major concerns for both Irish and global wealth managers, with compliance, anti-money laundering and new regulatory developments being the top issues currently on the agenda. There is evidence of increasingly sophisticated approaches to risk management.
However, some wealth managers still do not have an adequate risk management framework in place, leaving them highly exposed. In the Irish industry, it is clear that Irish private banks are taking action to address new regulatory demands and are aligning policies and procedures to address risk management and corporate compliance concerns. Irish banks are fully conscious of the potential impact of not doing so. Indeed their clients also need to be mindful of the new Irish tax regime for wealthy individuals. Revenue’s new large case district will mean a very focused scrutiny of the financial affairs of Ireland’s wealthier people.
The 2003 survey recognises that the period since the previous survey has been tough for wealth managers across the globe. The downturn in the market heralded by the 2001 survey hit even more deeply than anticipated and has lasted longer than expected. However, there are signs of recovery and looking forward, there is a good deal of optimism. On average, in three years, European wealth managers expect to achieve revenue growth at levels above their predicted market growth rates. This suggests that either these predictions are over optimistic, or the industry will become highly competitive over the next few years as players seek to outperform the market. It has become evident that focus is critical and how wealth managers target and serve clients in the different bands of the wealth pyramid is fundamental to success. It will be interesting to look back in three years time and see how accurate the predictions have been... |
Denis Cremin is a partner for high net worth clients and Muriel Moroney is a director, tax and legal services, at PricewaterhouseCoopers.
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| Article appeared in the November 2003 issue.
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