The Deloitte International Wealth Management Centre Ranking 2021 Proving its worth in today’s turbulent world
While the full impact on the international wealth management industry is yet to be felt, wealth managers are preparing for the challenges ahead. In particular, technology-driven interactions between clients and their banks are becoming the 'new normal'. The required digital transformation will be costly, and there will be questions about whether investments in digitalisation, differentiated propositions and partnerships are spent in the right way and lead to an improved top- and bottom line performance. New models of cooperation with clients and local partners, enhanced product offerings and robust but flexible technological platforms are emerging as business priorities in the competition among global private wealth managers located in wealth management centres.
This fourth edition of our ranking report focuses on four main questions: How has the competitiveness of each wealth management centre changed since 2018? How have the centres performed in terms of volume from international clients? What are the key characteristics of leading international wealth management centres? What are the business priorities of international wealth managers and the business capabilities needed to succeed in the future? We hope that this report provides you with useful and interesting insights into this industry sector. Download the full report
Competitiveness ranking The assessment of competitiveness provides information on the characteristics of the leading wealth management centres, such as: How competitive are different locations from the perspective of wealth managers and offshore clients? Where do wealth managers find the best business location for delivering services and attracting clients, and where do clients find the best locations for their wealth? What are the strengths and weaknesses of different centres? The competitiveness ranking offers a perspective for wealth managers and clients on where to base their business and their wealth. It also gives some indication to different centres about which areas they might want to improve, which strengths they might want to build on, or which areas of innovation they might want to explore. Competitiveness ranking 2021: Switzerland maintains lead, UK falls back The top three centres are strong overall, with few serious weaknesses. However, given the highly competitive international wealth management landscape, further improvement should be a priority. Switzerland is well placed overall, with a slight weakness in comparison with other centres such as the US and the UK, owing to its smaller domestic market size and lower profitability of wealth management providers. A clear opportunity for Switzerland would be to modernise its banking secrecy and financial privacy laws for the 21st century. The increasing obligations for private banks to collect and analyse information about their clients partly contradicts the growing importance of privacy regulations. Maintaining compliance with regulations and making full use of digital innovations, while safeguarding clients' privacy and personal data, will be crucial to the success of the Swiss WM industry going forward. Combined with the traditional stability of the Swiss government and the national economy, this approach may have the potential for Switzerland to develop a truly unique selling proposition, namely the global 'platinum standard' for secrecy and privacy in digital WM. Singapore follows closely in second place. It is a highly competitive, neutral business hub, with a strong track record for innovation, as shown by its first place in the ranking for Fintechs. There are a few comparative weaknesses, relating mostly to the domestic capital market and taxation. Furthermore, taxation could be made even more competitive for the specific needs of wealthy investors, not least in the area of philanthropy. Hong Kong has been ranked consistently in the top three since 2013. A leading wealth management executive sees Hong Kong’s strengths in its superior talent pool and broad capital market. It could however benefit from ensuring tax competitiveness for family offices and HNWIs, not least in comparison with regional competitors such as Singapore, which still has the edge in this regard. Due to recent developments another weak point, especially in comparison to Switzerland and Singapore, is political stability. While Hong Kong dropped in the rankings for political stability, its overall ranking for 'stability' is unchanged due to its high rankings for monetary and financial stability. The UK has dropped from fourth to fifth place in the competitiveness rankings. The decline is due to several factors, which are linked to the lengthy, but now concluded, Brexit process. It is particularly visible in the ‘stability’ dimension with setbacks caused by currency volatility, rising public debt, and political uncertainty. A lower ranking in the ‘stability’ dimension was avoided only because Bahrain experienced a worse decline in this regard. Brexit will also have a more subtle impact in other areas, namely talent availability (which is included within the ‘provider capability’ dimension). However, the UK now has the opportunity to put the disruptive Brexit transition phase behind it and restore its competitiveness. Figure 1. Overall competitiveness ranking "Hong Kong is very competitive, drawing strength not least from its superior talent pool as well as its capital market." Senior executive at a wealth manager in Hong Kong Asset size ranking In terms of absolute IMV value, Switzerland is still leading with US$2.6tn booked in 2020, corresponding to a market share of 23.7%. Second and third are the United Kingdom with US$2.1tn and the United States with US$2.0tn of IMV. Over the past four years, IMV grew in all wealth management centres, except for Bahrain and Panama & the Caribbean. The clear winners are the United States and Luxembourg, which managed to grow their IMV at a CAGR in excess of 8%. While the IMV in the UK increased substantially in 2020, it had more or less stagnated between 2017 and 2019. This stagnation was driven by strong asset outflows from UK to Luxembourg and other EU locations in the aftermath of the Brexit referendum. Indeed, during the last years, international banks set up a private banking hub mostly in Luxembourg, also to mitigate the risks from a hard Brexit. The worst performing centres were Bahrain and Panama & the Caribbean, where IMV declined at rates of 4.7% and 9.8% respectively. Panama & the Caribbean has continued to lose relevance in the offshore market – its IMV, which once accounted for over 20% of global IMV, now makes up just 3.2%. After the release of the Panama and Paradise papers in 2016 and 2017, its IMV fell by 17% in 2017 and a further 25% in 2018. However, it recorded a slight increase in IMV in 2020, the first since 2013. While Hong Kong’s IMV grew at a much faster rate than Singapore’s from 2010 to 2016, it slowed down to 3.2% in the period 2017 to 2020, almost half the growth rate achieved by Singapore. The significant inflows from wealthy mainland Chinese that Hong Kong enjoyed in the past has slowed down. Ongoing turbulence in 2019 and 2020 might have encouraged Asian investors to favour other booking centres, such as Singapore. Figure 2. International Market Volume of leading wealth centres (in US$ trillion)* “Other” includes Austria, Belgium, Germany, Guernsey, Ireland, Isle of Man and Jersey Focus on Switzerland Similar to the trend at a global level, Switzerland’s proportion of IMV relative to its total market volume has continued to fall. IMV made up 61% in 2010, but just 52% in 2020. This is the result of a continuing slower growth rate for IMV than for DMV. Boosted by an increase in the average wealth per adult in Switzerland, from US$470k in 2010 to US$620k in 2020, DMV grew on average by 6.9% per year during this period, while IMV grew at only half that rate. This underlines the rising importance of the onshore wealth management market. Figure 3. Development of total market volume in Switzerland (in US$ billion) IWMC overview
Relative revenue drivers Relative cost drivers Switzerland Wealth management in Switzerland has a long and proud tradition of success and stands for trust and discretion, upscale client experience, a stable environment, and deep expertise. However, the recent past has been more challenging. The financial performance of Swiss WMs has been lacklustre overall, and shares of Swiss WMs have significantly under-performed the Swiss stock market index since the beginning of the global financial crisis in 2007. The root causes for this development are mainly erosion in structural fees and margins in the industry, as well as increasing regulation that has led to higher costs, for example the cost of onboarding international clients. In addition, there is a polarisation of performance between market participants, with small and medium-sized institutions and foreign-owned entities typically experiencing much poorer performance. Swiss WMs are responding with attempts to cut their cost base, mostly through headcount reductions (a decline of 18% between 2007 and 2019) and increased automation, technology and operating model modernisation. In addition, leading globally oriented players in Switzerland successfully promoted cross selling opportunities and developed campaigns to boost mandate penetration and advisory offerings.
United Kingdom
Relative revenue drivers Relative cost drivers United Kingdom The wealth management landscape in the UK is dominated by the private banking divisions of universal banks, complemented by independent wealth managers and online brokerage platforms offering execution, custody and research services through digital portals. It is characterised by a broad diversity of international clients, high levels of competition and transparency, relatively large number of self-directed investors, and a strong link between retail and private banking services. Until 2019, uncertainty around Brexit led to short-term disruptions, and the loss of ’EU-passport’ rights (which allow cross-border banking and financial services into Europe) will likely have a negative impact in the long term. In some cases, international WMs which had previously centralised their business in London have moved their European WM business to hubs within the EU, such as Frankfurt, Paris and Madrid by Luxembourg, resulting in a loss of assets under management and revenues in the UK. On the upside, global UK private banks have reduced their costs substantially in recent years through outsourcing and timely investments in technology (enabling process optimisation, automation), improved reporting capabilities to more effectively target reductions in costs-to-serve, standardisation of offerings and streamlining front office related administrative tasks.
United States
Relative revenue drivers Relative cost drivers United States The US is the third-largest wealth management centre in terms of international assets; however, unlike other centres such as Hong Kong and Luxembourg where the main focus is on non-domestic clients, the 'rules of the game' in the US are defined by onshore business. In the prevalent US wealth management business model, advisors have a prominent role. They shield client relationships and use banks mainly as infrastructure providers, which leads to comparably high cost-income ratios for banks. There is an intense war for talent, with advisors benefitting from significantly larger variable remuneration schemes than in other centres. The market is also characterised by high levels of transparency, standardised offerings, low switching costs and intense competition, not only within the industry, but also from adjacent industries. In recent years, leading asset management providers have successfully introduced D2C (direct to customer) offerings targeted at price-sensitive WM clients.
Hong Kong
Relative revenue drivers Relative cost drivers Hong Kong Hong Kong is a highly developed financial market and (together with Singapore) a key Asian wealth management hub. Its strong growth over the past decade has been largely driven by its strategic geographical location for attracting Chinese clients and its prime position for brokering renminbi transactions. Wealth managers actively leverage Hong Kong’s role as an offshore hub for domestic Chinese capital markets. The goal is to enable investors to participate in an ever-improving onshore offering, including increasing deal flows from fundraising in primary and secondary listings of Chinese mainland companies. The centre itself is characterised by one of the highest HNWI concentrations in the world, a business-friendly low-tax environment, and a fragmented supply side of diverse market players with a range of differentiated capabilities. The local market environment is highly competitive: domestic private banks have a strong position in both the HNW and mass affluent space, and regional arms of global WM firms focus on UHNW investors. In spite of the COVID-19 pandemic, Asia’s wealth is expected to continue growing at a faster rate than anywhere else. Rising wealth in Asian emerging markets is leading to further development of local offshore hubs, and Singapore and Hong Kong are well positioned as international finance centres in Asia. For mainland Chinese WM clients, Hong Kong provides access to more sophisticated products and services. However, it is expected that the rising importance of Chinese onshore WM hubs such as Shanghai and Shenzhen will reduce Hong Kong’s attractiveness to Chinese clients in the medium term.
Relative revenue drivers Relative cost drivers Singapore Singapore is actively promoting its asset and wealth management industry with the aim to become ’the Switzerland of Asia’. For many years it has been Asia’s most mature wealth management centre, benefitting from international clients who value its stable political and regulatory environment. This has resulted in a highly competitive WM market with well-established players both in the mass affluent and HNW segments. It is a hub servicing South-East Asian HNWI clients and it can also leverage its status as a major business and lifestyle destination for Chinese clients. From a regulatory perspective, strict AML/KYC controls and suitability rules have levelled the playing field with other wealth management centres and have increased the burden of onboarding new offshore clients. In addition, a shortage of qualified RMs with appropriate language and advisory skills has led to a talent war between global wealth managers, resulting in higher RM compensation as a proportion of total revenues compared to other WM centres.
Relative revenue drivers Relative cost drivers Luxembourg Luxembourg is one of Europe’s main financial centres with a strategic location and access to the EU market, and a business-friendly and low tax environment; and it is well regulated. Luxembourg’s wealth management players have transitioned towards operating in several European countries, leveraging the country’s modern private banking infrastructure. In this regard, Luxembourg is typically used as an EU hub and used by foreign banks to manage their operations. Luxembourg’s WM providers, which traditionally also have extensive fund management activities, have been challenged by the emergence of passive investment schemes and restrictions on retrocessions as a result of regulatory-driven transparency. To counter these developments, Luxembourg’s leading private banks and wealth management players are giving priority to cost-cutting measures such as outsourcing, automation and IT rationalisation.
Strategic priorities and business capabilities to succeed The need to develop future-proof business capabilities is clearly recognised by offshore wealth managers. There is an imperative to comprehend the future needs of clients and technological opportunities, and to adapt business priorities. We conducted a series of interviews with business executives of some of the leading wealth managers and industry professionals, to discuss trends in offshore banking and their implications. The aim was to identify strategic priorities and the critical business capabilities required to succeed in the future. "The sole booking centre perspective has become less important compared to the breadth and depthmof services provided to clients actively invest their wealth globally." Paul Arni, CEO of VP Bank Figure 5. Strategic business priorities translated into critical business capabilities
Client & sales analytics Partner platform integration Talent attraction & development Product development & innovation Process digitalisation
Conclusion and outlook The success of wealth management centres can be measured both quantitatively and qualitatively. Qualitative factors determine competitiveness, which drives size and profitability, albeit with a time lag. While the challenges facing international wealth management centres have been increasing, the leading centres continue to meet them more successfully, increasing the gap between them and laggards. Outlook for wealth management centres Competition among the world’s top wealth management centres is fierce. To be in the top rankings, a centre needs a well-rounded profile. The example of the UK – slipping one place compared to the 2018 rankings – shows that even one event can drive the loss of competitiveness. Moreover, the competition is dynamic, with new areas such as ESG investments and digitalisation growing in importance. Centres therefore need not only to cultivate their existing strengths, but also to develop new capabilities and new offerings. Decision makers need to be equipped to deal with future challenges and to operate amid ever-present uncertainties. Although IMV is growing at a much slower rate than the general accumulation of financial wealth, offshore banking retains its relevance for investors, especially when they seek economical and financial stability in turbulent times. The increase in IMV following the outbreak of COVID-19 represents an opportunity for booking centres. By rethinking their value proposition, they need to retain their newly-attracted assets and develop propositions to pull in flows of international assets. Outlook for wealth managers The top priority for wealth managers is to develop a differentiating client, product and technology strategy that will drive improvements in client experience and business performance. Wealth managers should therefore assess their current capabilities and identify gaps and opportunities to exploit them, based on their strategic priorities. To attract a sustainable flow of international assets, wealth managers require skilled employees in key locations, and they also need to form partnerships and alliances with other providers of financial services and distribution channels. In order to align technology capabilities with business strategy, the business ambition will need to be mapped to the IT components and technology strategies required. A strategic roadmap should comprehensively portray how technology and talent needs to evolve in line with business needs.