Lending in Wealth Management 2006: The Case For Providing Liability Management to the Wealthy

Wealth managers have traditionally focused on the asset side of their client's financial position, leaving lending to the retail banks. However, wealth management is becoming increasing competitive, leading some innovative wealth managers to build a proposition around liability management. The result is increased revenues, share of wallet and customer base growth.

• The report draws on the results of Datamonitor's Wealth Management Market Leaders Survey, including responses of 88 European wealth managers
• Extensive research on wealth managers, both in the US and Europe, to determine the extent to which lending products are marketed to high net worths
• In-depths interviews were carried out with European wealth managers that have already implemented lending as part of their service offering

European wealth managers surveyed by Datamonitor do not see strong potential in lending business, despite success in US and Australia. Few of them focus resources on mortgages, margin lending and similar products in the next two years.

Only a handful of firms are capitalizing on opportunities in lending, among them large financial groups such as Barclays, Credit Suisse, HSBC, Merrill Lynch and UBS. They see lending as key part of a holistic wealth management approach that aims to cover all aspects of client needs.

Despite not being part of the wealth management agenda in many markets, lending to the wealthy has strong potential. Industry experts believe that lending as part of a holistic wealth management approach is the way forward and can help to increase both customer base and share of wallet.

• Assesses a very lucrative and underserved business segment that you can exploit
• Identifies innovations in high net worth lending that can be adopted to fit your business model
• Presents key conclusions and expert insights to help you decide whether high net worth lending is right for you

EXECUTIVE SUMMARY

Introduction

Lending to the wealthy

Markets and competitors

Why offer liability management?

CHAPTER 1 LENDING TO THE WEALTHY

Introduction

Key findings

Wealth managers seek to broaden their product and service offering but only a few see opportunity in lending

Wealth managers think new clients and increasing share of wallet will drive revenue

Lending is not seen as effective means of gaining bigger share of wallet

Wealth managers think their clients have no interest in financing solutions

Wealth managers do not see strong potential in lending business

Only a few wealth managers will focus resources on margin lending in the next two years

CHAPTER 2 MARKETS AND COMPETITORS

Introduction

Key findings

Liability management is about to become an important part of wealth management

Only a handful of firms are capitalizing on opportunities in lending

Wealth managers have started to offer innovative lending products and services

Barclays

Credit Suisse

HSBC

Merrill Lynch

UBS

CHAPTER 3 WHY OFFER LIABILITY MANAGEMENT?

Introduction

Key findings

Despite not being part of the wealth management agenda in many markets, lending to the wealthy has strong potential

Specialist forms of lending, such as margin loans, can relatively easily be added to a wealth managers service offering

Wealth managers that offer lending have the opportunity to build long-term relationships with their clients

Industry experts believe that lending as part of a holistic wealth management approach is the way forward

Financial results reflect increased interest in lending among wealthy clients

Lending is part of a holistic approach that seeks to deepen client relationships

A holistic wealth management approach is more than just assets and liabilities

The key to differentiation from lending competitors is service and flexibility

There is increasing demand for lending products from wealthy individuals

Offering liability management is an effective means to increase the client base

Wealth managers that do not offer liability management will lose clients

APPENDIX

Supplementary data

Definitions

High net worth (HNW)

Liquid assets

Liquid asset bands

Mass affluent

Further reading

Global Wealth Management SPP

Interactive Databases

Market Reports

Strategic Insight Reports

Wealth Management Competitor Tracker

Datamonitor Asia Pacific Wealth Management SPP

SPP writing team

List of Tables

Table 1: Simplified example of how margin (Lombard) lending worksą

Table 2: What will most determine revenue growth in your market in the next two years?

Table 3: Please rate the following product areas in terms of their business potential among wealthy clients in your market during the next two years

Table 4: From the product areas just mentioned, which three will your company focus most resources on in the next two years?

Table 5: What is the most effective means of increasing share of wallet?

Table 6: What are clients most interested today?

Table 7: Wealth managers that offer lending products to private clients

Table 8: Debts and mortgages in the US by size of net worth, 2001

List of Figures

Figure 1: Obtaining new clients and increasing share of wallet will most determine revenue growth in the next two years

Figure 2: Only 10% of respondents believe that focusing on the lending business is an effective means of increasing share of wallet

Figure 3: Wealth managers believe that only a few clients are interested in financing solutions such as mortgages and margin lending

Figure 4: Lending products are perceived to have less business potential

Figure 5: Only few wealth managers will focus on margin lending in the next two years

Figure 6: On a global scale, there are only a few firms actively promoting and developing their liability management business

Figure 7: Barclays approach to a complete wealth management service includes banking, investment and credit

Figure 8: Credit Suisse offers different types of Lombard loans to satisfy individual needs

Figure 9: HSBC's Property Vision: specialist advisory service to wealthy clients interested in residential property in the UK

Figure 10: Merrill Lynch's approach to complete wealth management consists of eight key interlinked elements

Figure 11: UBS private financing solution: The client decides how to use the short-term loan component

Figure 12: An increasing number of HNWs are attracted by holistic wealth management that includes their assets as well as liabilities

Figure 13: Wealth managers that do not add lending to their service offering will lose clients and fail to attract new ones