Global study highlights challenges, opportunities for Australian private banks post-GFC
  • Asia-Pacific region expected to be home to one third of world’s high-net-worth individuals by the end of 2011
  • Lower risk appetite, increased customer scepticism and regulatory clampdown put new pressures on global private banking model
  • Asia-Pacific region expected to be home to one third of world’s high-net-worth individuals by the end of 2011
  • Lower risk appetite, increased customer scepticism and regulatory clampdown put new pressures on global private banking model
  • Push underway for “open” private bank product platforms

Sydney, Thursday, 22 July 2010 – A study from global management consulting firm Booz & Company has revealed new pressures on private banks following the global recession and a dramatic shift in global wealth distribution. The Asia-Pacific region has surpassed North America as the dominant source of the world’s private wealth, giving Australia’s major banks
pause to consider stepping up their private banking presence in the region.

The study, Private Banking after the Perfect Storm, finds a transformed global marketplace for private banks following the financial crisis, with banks having to adjust to increased client scrutiny, new financial regulations and reduced demand for the most profitable banking services as wealthy customers shift to less risky assets.

According to Booz & Company, private banking customers – typically high-net-worth individuals, with more than $1 million in investible assets - bruised by the financial crisis are now less trusting of their bank, and sceptical of the integrated model under which banks offers mainly proprietary investment products to their customers.

In Australia, this trend is reflected in a growing clamour among private bank customers for “open” platforms offering investment options from a wider range of asset managers, including competing financial institutions if necessary.

In a key finding, Booz & Company forecast that by the end of 2011 almost one-third (33%) of the world’s high net worth individuals will reside in the Asia/Pacific region – surpassing North America, with 30%. Almost 3.6 million high-net-worth individuals are expected to live in the Asia/Pacific region by the end of 2011, up from 2.6 million in 2008.

Sydney-based Booz & Company Principal, Bernadette Howlett, said Australian banks considering expansion plans in Asia would be heartened by the growth in pools of private wealth in the region, as it represented a growth opportunity for their private banking divisions.

“This shift means that global private banks will have to commit to emerging private wealth markets such as China and India,” Ms Howlett said.

“It also presents a rationale for Australian banks to strengthen their participation in Asia’s private banking market, through this would most likely be as part of a larger corporate expansion into the region. However, they will need to take a hard look at their service capabilities before doing so, as the requirements of high-net-worth individuals in Asia are
different to those in Australia,” Ms Howlett said.

Ms Howlett said wealthy individuals in Asia – though more risk-averse following the financial crisis - were as a rule more likely to invest in highly structured instruments, while their Australian counterparts tended to be more conservatively invested.

This helped explain why private banking operations in Australia were not as affected by the downturn as their global counterparts. A survey by the Australian Private Banking Council earlier this year showed the proportion of high-net-worth individuals investing for capital growth fell from 37% in September 2007 to 12% a year later, before increasing steadily again. The proportion not willing to expose any of their portfolio value to riskier assets rose over the same period from 6% to 24%.

“While local private banks saw customers make adjustments to their portfolios during the downturn, there was less of the wholesale review or liquidation of portfolios - and subsequent impact on private bank revenues - that was common in some markets overseas,” she said.

However, Australian banks were not immune from the wider ramifications of the global downturn, which include heightened scrutiny from clients and new global regulations that could limit product flexibility and increase costs. Wealthy customers were increasingly averse to higher-risk – and more expensive - investment products, which in turn put pressure on banks’
profit margins.

Based on in-depth interviews with 140 senior private banking executives, financial advisers andregulators in 15 different countries, the Booz & Company study revealed 90% of respondents saw the trend toward open product architecture – giving clients access to the best financial products in every asset class, regardless of the supplier - as inevitable.

“At the global level there is mistrust of investment advisory and product distribution being integrated under the one private banking roof, and many institutions have moved to separate these two arms,” Ms Howlett said.

“It is hard to imagine Australia’s private banks will escape this trend. Indeed, we are seeing signs of new, advice-oriented entrants seeking to disrupt the integrated models of Australian private banks,” she said.

Looking at the Australian market, where growth in numbers of high-net-worth individuals is relatively modest, Ms Howlett said the battle among private banks was now primarily for market share, and being fought around capabilities.

“High-net-worth customers in Australia are notoriously sticky and hard to dislodge from competitors. To establish a point of difference, private banks are looking closely at their advice models and seeking to inject more innovation in their products and platform. We are also banks invest in more detailed customer risk-profiling as the basis for a risk-adjusted service offering,” she said.

Private Banking after the Perfect Storm: Methodology
The Booz & Company study is based on interviews with 140 financial advisors and leaders of the regulating authorities from 15 key markets worldwide, including Austria, Brazil, China, Germany, Hong Kong, India, Italy, Japan, Liechtenstein, the Netherlands, Saudi Arabia, Switzerland, the UAE, the U.K., and the United States. Participating private wealth managers spanned all business models and regions; 36% were the private banking units of global wealth management companies, 28% pure-play private banks, and 36% from the local or regional banking sectors (including cooperative banks).The information collected through interviews was complemented by Booz & Company research and analysis and the practical experience of about 30 Booz & Company wealth management experts. High-net-worth investor market forecasts are based on a quantitative model built on economic, demographic, and fiscal factors.

About Booz & Company
Booz & Company is a leading global management consulting firm, helping the world’s top businesses, government ministries and organisations. With more than 3,300 people in 60 offices around the world, Booz & Company brings foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. Booz & Company works closely with clients to create and deliver essential advantage. For Booz & Company’s management magazine strategy+business, visit Visit to learn more about Booz & Company.