North American and European private banks may have had it rough last year as wealth destruction continued, albeit on a smaller scale compared to 2001, but their counterparts in Asia (ex-Japan) were revelling in it as they bucked the trend, results of a Global Wealth Report show.
The Boston Consulting Group (BCG) said along with millionaire investors who were hard hit, in North America they lost US$2tril and Europe 500 billion euros, private bankers shared the pain, as shrinking wealth resulted in lower fees and commissions.
In a report on Global Wealth 2003: Winning in a Challenging Market, BCG said it found significant regional differences in how the wealth market had developed and how wealth managers have responded.
Many Asian private bankers celebrated their best ever year in 2002, with a profit growth of 18% average whilst their US and European counterparts struggled to stay profitable, said its Singapore office vice-president and director Roman Scott, who is also Asia head of wealth management.
Asian millionaires notched in assets under management of 5.3% last year.
Scott pointed to the great combination which allows for Asia's growth - the economic fundamentals that support new wealth creation continues to be strong, and the industry's immaturity, which allows for lots of room for growth.
Underlying economic growth in China and Korea remain high; China is already the largest pool of millionaire in Non-Japan Asia, closely followed by Korea.
South-East Asia is recovering well particularly in Indonesia and Thailand with much of this economic growth driven by new entrepreneurs and private businesses, which are relatively unfamiliar with private banking services.
The regulatory crackdown on offshore tax havens in Europe also benefited Asia, the BCG report found, but noted that most offshore institutions still outperformed onshore players last year.
Regions aside, Scott emphasised that wealth managers can thrive or fail anywhere.
BCG's study found that wealth managers fall into three groups, each with a distinct competitive position and strategy.
The top tier, delivering margins of more than 30% in a tough market, are global, have taken decisive action to control costs, and maintained a selective portfolio of businesses, it said.
A middle tier has cut costs, but still needs to improve its operating model to become truly competitive.
At the bottom some 27% of BCG's sample makes a margin of 10% or less, is without a distinct client value proposition, and has a business model that depends on rising asset prices and trading volumes.
According to Scott, the last tier needs radical change if they intend to stay independent.
He suggested four guiding principles: management that is able to adapt to changing client needs, a culture of cost discipline running from the back-office to the sales force, a clear customer value offering, and effective sales and client service.
Given the spate of fraud cases that have been highlighted in the past few years, BCG's study also found that there is an increased distrust of financial institutions in general particularly of the sell-side advice dispensed by large brokerage firms.