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Global private banking – seeking growth beyond markets

Holger Ackermann Director at Strategy&, PwC Switzerland

Over the last few years, private banks have been experiencing a period of growth. For many universal banks, the segment has therefore become increasingly important. At the same time, a closer examination of financial results and the key drivers of sector performance points to some fundamental challenges in growing the top line. Nevertheless, a few banks have outperformed the competition and offer some best practice examples.

Growth beyond markets mostly driven by acquisitions

Any growth in assets under management (AuM) generated by private banks over the last three years has mostly been driven by favorable market performance rather than new business. Out of the 6.2% average compound annual growth rate (CAGR) between 2015 and 2018, 4.0% was due to an increase in asset value. That is, only approximately one third of AuM growth was self-generated.

1) Market performance estimated based on MSCI ACWI (All Cap World Index) and Bloomberg Barclays Global-Aggregate Total Return Index with 60% and 40% weight respectively Source: PwC Strategy& Private Banking Navigator


Much of this self-generated growth has been achieved inorganically, and this is certainly true for three out of the top five performing banks. In Europe, Switzerland and North America, mergers and acquisitions (M&A) activity contributed to double-digit growth for a number of banks. Major deals were made by Vontobel, LGT, DBS, adding on average more than 40% to AuM volumes.

Chinese private banks have been an exception to this pattern. In their case, unprecedented rates of wealth creation made organic growth possible. According to the UBS PwC Billionaires insights 2018 study, the wealth of Chinese billionaires increased by 39% in 2017 alone, with two new billionaires created each week.


Revenue margins under pressure but a few shining lights have emerged

Despite the favorable market performance, many banks were not able to maintain their revenue margins. What stood in their way were pressure from low interest rates, stricter regulation leading to the elimination of certain revenue streams and a drive for greater price transparency, and a changing portfolio composition with more assets falling into higher wealth buckets (with lower revenue margins).

Source: PwC Strategy& Private Banking Navigator

Nevertheless, a few players have been able to grow both their revenue margins and AuM. For example, Royal Bank of Canada’s strong results can be mainly attributed to a growth in fee-based client assets (more than 1.7 times the peer average), favorable market conditions and continuous efforts to increase revenue per advisor. The DBS income benefited from higher interest rates in Singapore and Hong Kong, and increased sales of investment products, supported by product innovation in environmental, social and governance (ESG), private equity and liquid alternative solutions.

North American banks lead on revenue margins

North American banks lead the way on revenue margin, and are even able to capture double the revenue of Swiss and European banks on their AuM. Their success can be mostly put down to higher interest rates, more transactions and higher absolute price levels. Highly capitalized and growing US and Canadian banks may put additional pressure on Swiss and European competition if they continue to pursue international expansion in the region.

Source: PwC Strategy& Private Banking Navigator

Revenue streams remain volatile

Private banks have been making efforts to generate more stable revenue flows. They have been aiming for income streams that are more predictable and more resilient to market dynamics. Various initiatives have been launched to increase the proportion of fee and commission income while reducing the dependency on fluctuating transaction fees. Increasing mandate penetration (including separately managed accounts) has been part of these efforts, with targets often set at relationship manager (RM) level to migrate execution-only or uncontracted advisory assets into discretionary or advisory contracts. In fact, a number of industry leaders, including UBS, Credit Suisse, DBS and Citi Private Bank, have placed higher mandate penetration at the core of their business strategy.

In spite of these concerted efforts and some success stories, banks’ financial results in general do not show major changes in income composition. Greater mandate penetration has been offset by downward fee pressures and regulatory measures (such as MiFID II and FIDLEG) which have forced banks to reduce or eliminate retrocession fees in Europe and Switzerland. Net interest income rose in all markets thanks to continued strong lending growth and the higher interest rate environment in North America. Increased share of mandates and challenging market conditions have led to a modest decline in trading income from brokerage fees.

Note: APAC not broken out due to limited granular data availability Source: PwC Strategy& Private Banking Navigator

Increasing revenue requires a holistic perspective on markets, products, clients and pricing

In view of the challenges involved in growing revenue, private banks are always working to develop strategies which would allow them to gain competitive advantage. As geographic footprint optimization has already progressed over recent years (through divestment of businesses with no right-to-win, and M&A activity in core markets), banks have been implementing additional revenue growth measures. These measures include client coverage and activation, new products and product mix development (for example, steering assets into higher-yield solutions), and using pricing mechanisms to capture value.

Source: PwC Strategy& Private Banking Navigator

Client coverage and activation

Leading private banks have acknowledged the impact of changing client demographics. As new categories of high-net-worth clients emerge with different needs and expectations, banks are starting to reassess their traditional wealth-band approach to client segmentation. With the rise of successful female entrepreneurs and next-generation clients, banks are developing new approaches to respond to growing trends. Such approaches include investment solutions as a vehicle to create purpose and impact, while also appreciating the importance of social networks, connectivity and mobility in customer interactions.

For the activation of existing clients, banks are turning more to technology in order to create an industry-leading client and advisor experience. Rather than building all digital capabilities internally within the company, a growing number of banks have sought partnerships with innovative fintech and Big Tech players in order to build digital ecosystems, bringing these propositions to clients quickly and efficiently.

Successful integration of digital and personalized offline propositions will be crucial for attracting new money and avoiding asset attrition to more innovative players. In this respect, we have to date observed bolder moves in the United States than in Switzerland and Europe. Large US players tend to bet on fluid hybrid-digital models which combine digital and advisor-based services. For example, Merrill Edge offers clients both a digital investment platform as well as an advisor-led proposition, offering a direct price comparison between automated and human service. Swiss players, on the other hand, tend to focus on serving (ultra-) high-net-worth clients with bespoke solutions in alliance with their investment banks or other partners. European banks (such as Santander and Intesa Sanpaolo) are entering the digital space leveraging their upper-affluent heritage, although they may yet become formidable competitors in the high-net-worth market. Asian players, meanwhile, have been able to rely over the last decade on their fast-growing markets.

New products and product mix

Private banks have been trying to grow their revenue through innovative value-adding products and an optimized product mix, steering assets into higher-yield solutions. In particular, structured lending solutions have become an important part of the growth strategy, allowing banks to expand their lending book and typically generating fees on both sides of the balance sheet. For example, Morgan Stanley have tripled their loans to high-net-worth clients in the past five years, while Goldman Sachs is expanding overseas where it sees significant opportunities for private bank lending.

In addition to lending, private banks have sought to capture value through innovative, tailor-made investment offerings. Private markets and club deals have emerged as particularly attractive propositions, giving individual clients access to asset classes that have traditionally been reserved for large professional investors. These classes include unlisted private equity, infrastructure, land (farmland and timber) and real estate. In addition, offerings outside of banking such as art and sports advisory, philanthropy or foundation management help banks develop differentiated positioning towards (ultra-) high-net-worth clients.

Pricing excellence to capture value

Banks have enjoyed a long history of high margins, but they are gradually learning important lessons from lower-margin industries. For example, constant pressures on revenue are forcing many banks to rethink their pricing capabilities.

Source: PwC Strategy& Private Banking Navigator

Given constant launches of new innovative products, a strategic realignment that creates coherent product positioning is crucial. Value-based pricing and clear communication of this value to clients can help to create an optimal product mix within the portfolio.

However, even with the right product pricing, the discount culture inherent in private banking relationships means that price realization levels must always be managed carefully. Identifying patterns and examining pockets of excellence and underperformance enables banks to attempt targeted improvements. Clear key performance indicators (KPIs) and smart pricing management tools can help RMs direct their efforts to the most promising or urgent opportunities. These tools might include real-time insight into the client book performance, actionable advice on specific improvement levers, and impact simulations.

In order to establish market-leading pricing capabilities, private banks need to embed pricing improvements into the operating model and culture. Large wealth managers, especially in Switzerland and the US, have already made major strides in this respect. Pricing centers of excellence, with a clear mandate and budget, manage strategic price setting, oversee price realization and invest in smart tools and big data analytics to guide decision making.

Source: PwC Strategy& Private Banking Navigator covering more than 30 banks across 4 regions, 12 countries and over €15 trillion of assets.

Key takeaways 

Although the private banking sector has recorded a decade of growth, many players still struggle to manage their top line in an effective way, leaving substantial value on the table. To optimize their growth potential, banks should rethink how they leverage their core capabilities. Banks should make targeted investments by creating differentiated value propositions and a seamless customer experience, while at the same time generating value for the bank.


Contact us

Holger Ackermann

Holger Ackermann

Director at Strategy&, PwC Switzerland

Tel: +41 58 792 3116

Andreas Pratz

Andreas Pratz

Partner, Strategy& Germany

Eliza Zisopulu

Eliza Zisopulu

Senior Associate at Strategy&, PwC Netherlands

Jonas Heydasch

Jonas Heydasch

Associate at Strategy&, PwC Switzerland

Tel: +41 58 792 31 62

Thorben Wegner

Thorben Wegner

Engagement Manager at Strategy&, PwC Germany

Daniel Zeiter

Daniel Zeiter

Director at Strategy&, Technology Strategy and Financial Services, PwC Switzerland

Tel: +41 58 792 15 95