A report on the wealth management industry published by Deloitte, the business advisory firm, has highlighted a growing disconnect between high net worth individuals and the wealth management industry.

Calum Thomson, Head of Wealth Management at Deloitte, commented: “The European wealth management industry has been the darling of financial services, achieving around 25% returns on equity after tax.  With the economic environment in a much less favourable state, the big question is ‘Has the industry put the good times to best use?’  Unfortunately, our research shows that not all wealth managers can claim to have fostered better relationships with their clients.  Many high net worth individuals entrust other external advisers to ‘manage their wealth managers’; evidenced by a relative increase in execution-only services over discretionary mandates. This presents a key challenge to an industry where the most profitable client relationship is that of ‘trusted adviser’.”

Tony Cohen, Head of Private Client Services at Deloitte, added: “The research shows that, on average, private clients’ make between 25% and 30% of their assets available to the wealth management industry.  While a significant portion will be tied up in illiquid assets such as property, the figure demonstrates the growth potential for the industry.  It is clear from this research that the industry as a whole needs to regroup and consider the needs of its clients before it can tap into additional wealth.  While diversification, performance and efficiency are the common influencers on the choice of wealth manager by a high net worth individual, wealth managers need to go above and beyond this and consider the detailed needs of each client.  The needs of a financial professional, for example, can be quite different to those of a client with inherited, non-financial wealth.”

Key facts:

• Ultra’ ($30m+) and ‘very’ ($15m-$30m) high net worth individuals are the least likely to grant discretionary mandates yet are worth over $5.5 trillion in Europe;
• Meeting the needs of ultra and very high net worth individuals is crucial: the group comprises 72,000 in Europe but represents almost 50% of all financial assets owned by the whole high net worth group ($1m+);
• Cost-to-income ratios in the wealth management sector have dropped from 75% to 71% in two years;
• Cost-to-income ratios in the wealth management sector were, however, significantly higher than in universal banks (61% compared with 71%);
• High end private clients are multi-banked clients, with on average, 4.7 wealth management relationships. 

Sebastian Cohen, financial services analyst and author of the report, said: “There are a number of key operational areas that wealth managers need to address in order to win back the trust of their clients.  The retention of client knowledge is a real challenge when client-facing employees move on.  Relationship managers may be reluctant to share privileged information with their colleagues so this is often lost when staff leave.  Wealth managers should invest in new operational models which improve client understanding.  They also need to encourage better team work so that their clients can have better access to the banks’ financial expertise.  Wealth managers need to address these issues to demonstrate their commitment to their clients and close the trust gap.” 

This report will be available to the public at the beginning of June. If you would like to receive an advance copy by post, please register here.

Notes for editors

About the survey
Deloitte interviewed 50 high-end high net worth individuals (worth over $15 million each) and senior executives from Europe’s leading wealth management institutions. 

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.  The information contained in this press release is correct at the time of going to press.