Banking giants hold high hopes for their wealth management arms as a means to keep the ship steady in volatile times, but many have found themselves pouring money into a sector that is stuck in neutral, buffeted by shrinking profits and wary investors.
Costs are up, revenues are down and with the global economy threatening to lurch once more into recession, a growing supply of newly-minted Asian millionaires may not be enough to recharge the profit base in the coming months.
The struggle to boost profit in this environment will be a key topic next week as the industry's top executives gather in Singapore, Geneva and New York for the annual Reuters Global Wealth Management Summit.
Since the 2008-2009 financial crisis, many wealth managers have suffered a double whammy of rising regulatory costs and increasingly cautious clients keeping more money in low risk — and low margin — investments or cash.
Cost-to-income ratios across the industry stood at nearly 80 percent in 2010, according to specialist consultancy Scorpio Partnership, from less than 70 percent before the crisis hit.
"Houses are realizing that the cost of doing this business is rising, and rising systemically rather than having a spike and then reverting back," said James Fleming, head of international private banking at Coutts, part of Royal Bank of Scotland.
"It's rising in terms of IT, staff, regulation, and these things aren't going to go away."
Private banks and wealth managers are also finding it hard to persuade their clients to put money to work in ways that generate a decent profit after many clients lost faith in their advisers during the last crisis.
Many rich investors lost money after they were advised to invest in complex, illiquid instruments that suffered in the market crash. Others merely saw their wealth put at risk from bank collapses as institutions were exposed to losses accumulated by investment banking arms.
Much of the damage repair since that time has recently been undone by UBS's alleged rogue trading scandal, calling into question the future for banking groups that have private client arms sitting side-by-side with investment banks.
To compensate for the challenges, many private banks have started to focus efforts on the burgeoning wealth of Asia, fueled by the economic booms of India and China.
Singapore is now viewed by many as a potential rival to established financial hubs like Geneva and London as the banking industry migrates east in search of the wealth creation largely absent in the stagnating European and north American markets.
Perceptions that financial services in the west are being regulated out of business have also made bankers look more favorably at the East.
"It always comes back to Singapore. The point is it's well regulated. Not less regulated," said Catherine Tillotson, managing partner at Scorpio.
But booking new business in Asia is not translating into higher profits as the focus on the region has resulted in cutthroat competition between institutions to recruit the best bankers, pushing up staff costs.
"The war for talent is very strong (in Asia)," Fleming said.
Some private bankers see in the latest bout of financial crisis, a chance for the industry to redeem itself and regain the trust of clients by steering them through the turmoil without losing them money.
Luigi Pigorini, head of the Europe, Middle East and Africa (EMEA) region at Citi Private Bank, said investment advisers learned from their past mistakes after many were caught out by events surrounding the Lehman Brothers collapse in 2008.
"Customers are very much aware of the reputational issues of the past. They always keep that in mind," he said.
"All of the big boys we deal with know exactly what they are doing ... They are not pointing fingers. I've not seen our customers saying they are today being offered products by the wealth management industry that are not appropriate."
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