Managing the estimated $50 trillion-plus assets of wealthy families and individuals is a huge business for banks, especially now that they are severely limited in investing their own money in financial markets. And despite the growing competition for wealth management, there's no sign that revenues are slowing.
Large U.S. and European banks like Bank of America (BAC) , Wells Fargo (WFC) , JPMorgan Chase (JPM) and UBS (UBS) have long been in the business of managing other people's money, but their interest in doing so has intensified since the 2008 financial crisis.
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Partly responsible are new rules such saw the 2010 Volcker Rule that place limits on activities like proprietary trading and private equity investing. Another factor is a social shift in which workers are increasingly responsible for saving and investing for their retirement rather than being able to count on pension plans.
"Fee-based businesses with low capital requirements are attractive -- I mean they're just attractive for large banks," says Srini Venkateswaran, a director at Marakon, a consulting firm. Among such businesses the two standouts with "strong secular positive trends towards growth" are wealth management and payments, Venkateswaran says.
That has made the business "a lot more competitive for everyone," says Peter Shriver, CEO of Barrett Asset Management, a $1.6 billion investment advisor based in New York.
Shriver and his colleague, Barrett Managing Director Christina Bater, say fees have come down from 3% to 1.5% or even 1.25% at large firms, though they don't feel threatened because they have always been at the low end of that scale.
Despite the competition, everyone's wealth management revenue seem to be growing. That's certainly true of the big banks, which report their numbers publicly (see chart below) and it's also true of all the large independent firms, according to Jodie Papike, a search consultant writing in Investment News.
While firms may be able to survive on their own, they are happy to sell to a larger rival because the offers they receive are so remunerative, Papike writes.
But prices have gotten so high that many potential acquirers would prefer to recruit individual advisers rather than buy entire firms, says Joel Jeffrey, analyst at Keefe Bruyette & Woods.
Firms "would love to go out and buy private client businesses if they were attractively valued. I think at this point though they've become relatively expensive," Jeffrey says.
What is expensive today may look cheap in a few years, however, as the number of wealthy people continues to grow. A report last month from McKinsey predicts the number of millionaires around the world will grow by 7.1% to more than 18 million.
Nonetheless, McKinsey partner Jill Zucker says most large institutions are not too focused on expanding globally
"Of course there's exceptions but there seems to be enough opportunity in individual markets that a lot of the banks are focused on building up the capability and the offering for their clients in their local markets," she says.
Not everyone is so optimistic about the opportunities in wealth management, however.
"The profitability of the wealth management business, in my view, is about to plummet and it's about to plummet because of excessive competition," says Rafferty Capital Markets analyst Dick Bove.
If that happens, Bove and others, such as Marakon consultant Venkateswaran, believe the players that will get squeezed or possibly acquired will be mid-sized wealth managers. For the time being, however, it is hard to figure out who, if anyone, is struggling.