The Private Banking Conference and Awards

Towards Tomorrow’s Leaders

www.pwc.co.uk

JUNE 2014

Agenda

1

PwC 2

Introduction

2Industry now at inflection point driven by

external forces-towards a new world

3Securing a place in the new world will

mean turning challenges into

opportunities

4Some perspectives on what it will take to

win and managing the change agenda

February 2014

1 Introduction

2Industry now at inflection point driven by

external forces-towards a new world

3Securing a place in the new world will

mean turning challenges into

opportunities

4Some perspectives on what it will take to

win and managing the change agenda

PwC 3

PwC

Introducing PwC and our Financial Services and Private Banking &Wealth Management practice area…

A recognised global leader in assurance, tax, deals and consultingPwC Consulting supports our Financial Services clients to grow revenue, enhance their client research and experience, leverage digital and technology investments ,assure cybersecurity, remove complexity in operations,address talent, remuneration and cultural change and navigate their complex risk and regulatory agendas.

4

36,000+Financial Services Specialists

9,000+Technology Specialists

PwC 2013 Global Private Banking and Wealth Management Survey represents the 20th anniversary edition across 200 organisations in 51 countries

Within PwC, we have a dedicated Global Private Banking and Wealth Management practice to serve our clients. We are committed to investing time and effort in valued industry research ,insight and thought leadership and providing co creation frameworks and tools to accelerate performance improvement and change .These all form part of adding value as advisors. Recent related publications include Asset Management 2020 and Retail Banking 2020

1

PwC

Introduction

2Industry now at inflection point

driven by external forces-towards

a new world

3Securing a place in the new world will

mean turning challenges into

opportunities

4Some perspectives on what it will take to

win and managing the change agenda

The PBWM industry now at inflection point as tougher regulators, new technology innovation and clients seeking greater value all drive change. For some players, this will be a survival issue

Capitalisers

•Distinct client focus and value propositions•Aligned risk and compliance•Enhanced client engagement•Technology enabled•Adept at change

• No tangible differentiation• Product-centric approach• Fragmented risk and

compliance• Retrocession legacy• Variable client service• Legacy technology

Laggards

Time

Complex regulatory, tax and cost challenges .Revenue migration to advice, clients more demanding of value

Advisors require support to ramp up advice, meet compliance , improve service delivery and address opportunity gaps

Players investing in better client engagement ,value proposition and service delivery improvements

Not all players will succeed .Existing players transform & new entrants emerge

Source :PwC research

PwC 6

What growth in your organisation's revenuewas achieved in 2012 and what are you“targeting for the next 2 years?

In this new world, delivering revenue growth and controlling costs are key performance challenges given costs and complexity of regulations and maintaining traditional vs adopting innovative new systems

Revenue growth is variable Cost/income ratios remain stubbornly high

What are your organisation’s cost to income-ratios?

” “ ”UK UK

17% 14% 15%

2012 2013 2014

69% 65% 64%

2012 2013 2014

Increased regulation/tax transparency

TCF RDR CASSConduct Risk

MIFID II

Others FATCA, MMR…

Source: PwC GPBWM Survey 2013

PwC 7

13% 11% 14% 76% 74% 69%

2012

Global

2013 2014 2012

Global

2013 2014

PwC

Regulation such as UK RDR regulation drives a shift to distribution and to delivering better client engagement and value. Potential lessons for other jurisdictions likely with MiFID II and other conduct regulations coming

Increased RDR transparency shifts market dynamics across the UK value chain

Client engagement now the key battleground going forward. Needs to be tailored to what

clients actually value and are willing to pay for

Industry view on what will matter most in 2 years’

time

Sources: PwC Analysis, PwC RDR Research Phase 1+2

Shifting industry value chain with clear distribution and client value opportunity

Client service model and approach

Relationship manager quality

Provision of high quality advice

Investment out performance

Comprehensive, integratedwealth mgt planning

solutions

Reputable Trusted brand**

Risk management

Active management

Tailored service & specialist knowledge

Whole of market perspective

Client engagement view on what matters

most?*

Top 5 client demand attributes / preferences from an industry and client engagement perspective

Sources: PwC Global Private Banking WM Survey 2013,PwC RDR Research Phase

1+2* This represents the maximum upside opportunity

** Wealth brands are expected to command a higher premium 8

201311

Standard Life buys Newton’s private client business

Early movers strategically acquiring, reshaping and migrating closer to distribution and advice. Non legacy innovative new systems based players with disruptive models also now emergingManufacturing Platforms Distribution & Advice

Credit Suisse refocuses Asset management into Private Banking

Credit Suisse buys Morgan Stanley’s European Wealth Management arm

Credit Suisse sells JO Hambro Investment Management

Schroders acquires Cazenove

Union Bancaire Privee acquires Lloyd’s International Private Banking Business

Quilter merges with Cheviot

L&G acquires Cofunds

Integrators

Niche players

InnovatorsLaunch of nutmeg – an online direct to client discretionary management service

Fidelity launches its guided, direct to client offering

Handelsbanken acquires Heartwood

Lloyd’s realises more than expected on sale of 20% stake in SJP

Standard Chartered acquires Morgan Stanley’s India WM Unit

Life & Pension Companies

Fund Managers

Portfolio Management

Advice, Guidance & Financial Planning

PwC 9

External Trends

Some early capitaliser firms starting to drive to the new world of increased regulation,innovative systems and client value through addressing challenges and opportunities

Target Objectives

Current Situation

•Private Banks & Wealth Managers

Early capitalisers firms revising

Source: PwCPwC 10objectives?

• Client centric/ service excellence

• Market leading advice and/or investment knowledge/conviction

• Strong brand/trust• Innovative IT systems

client engagement, advisor support

• Meeting new regulatory standards

1 Introduction

2Industry now at inflection point driven by

external forces –towards a new world

3Securing a place in the new world

will mean turning challenges into

opportunities

4Some perspectives on what it will take to

win and managing the change agenda

PwC 11

External Trends

So where are some of the current big industry challenges and the big opportunities?

Target Objectives

Current Situation

• Private Banks & Wealth Managers

• Client centric/ service excellence

• Market leading advice/or investment knowledge/conviction

• Strong brand/trust• Innovative IT systems

client engagement, advisor support

• Meeting new regulatory standards

Current big industry

challenges and opportunities?

Source: PwCPwC 12objectives?

Early capitalisers

firms revising

Advisors need support as multiple relationships now the norm. Achieving trusted adviser status remains challenging. Battle for client relevance underway and some clients in play

12

With what percentage of your organisation’s clients do you currently believe you have achieved trusted adviser status and what do you think the percentage will be in 2 years?

Now: In 2 years:

On average, with how many financial institutions do your clients have relationships?

Five One

10% 10%

20%

40%

Three

20%

56% 66%

TwoFour

70% of clients have more than 2 relationshipsThe industry recognises there is an opportunity in

regaining trusted adviser status

Source :PwC GPBWM Survey 2013 PwC

2013

13

More time fact finding and internal admin and training

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Internal admin and training Fact findingProactive contact with existing clients

Internal client administration Existing client management Marketing and Prospecting

Advisor client engagement time has decreased from increased regulatory demands at a time when clients want greater value e.g. proactivity and knowledge. This highlights advisor capability gaps and need for support

Client facing time is being eroded by fact finding, internal admin and training

13

In a typical month, what is the approximate proportion of time CRMs spend on each of the following activities?

2011 2013

Source :PwC GPBWM Survey 2013 PwC

2013

14

Client facing time reduces from 55% to40%

Source: PwC analysis

Automated / Remote

DIY DelegatedGuided Advisory

Combined Advisor /

Automated / Remote

Advisor Led + Specialist

Regulators are reshaping advice,suitability and risk, tracking of investment portfolios, reviews and evidence. Transformational impact on advisors, client value and systems innovation is now underwayHigher Perceived

Advisor Led + Multiple Specialists

Execution Only

Lower Delivered Cost

Added Value

Platforms

PwC 15

Digitally Guided

Digitally with limited Advisor contact

Investment Advisory &Mandates

Sophisticated

Transactions

Complex Banking

Discretionary Mandates

UHNW Family Office Services

FP Advice / Holistic ALM

1 Introduction

2Industry now at inflection point driven by

external forces – towards a new world

3Securing a place in the new world will

mean turning challenges into

opportunities

4Some perspectives on what it will

take to win and managing the

change agenda

PwC 16

External Trends

What will it take to win in this new world and how to manage the change agenda?

Current Situation

• Private Banks & Wealth Managers

What are some of the big challenges and opportunities?

What will it take to win and how do we manage the change agenda ?

Early capitalisers

firms/laggards?

Target Objectives

• Client centric/ service excellence

• Market leading advice and/or investment knowledge/conviction

• Strong brand/trust• Innovative IT systems

client engagement advisor support

• Meeting new regulatory standards

Source: PwCPwC 17

10,000

8,6584,810 3,556

25,616

20,453 21,881

4,043

3,478 3,693

0

20,000

30,000

40,000

Dec 2011 Dec 2012 Jan 2014

Bank advisors Investment advisors

UK in forefront of client regulatory standards. RDR has driven significant adviser/relationship manager capacity reduction at speed and also started enhancement of their capabilities through accreditation standards

Total number of advisors has declined

50,000

2013PwC

18

Disc. Inv. Managers & Stockbrokers

38,317

29,130

Source: FCA

28,741

What are the top 5 key skills and attributes you expect to see from your CRMs in the next two years?

21

Advice, suitability, conduct & client value requires step change in advisor capabilities & behaviours. Drives need for new front office models and tools

What are the top 5 regulatory and compliance issues for your organisation currently?

0 10 20 30

FATCA

TCF (Treating Customers Fairly)/

Customer Outcomes…

RDR or similar consumer regulation related to distribution

of related products

Anticipating and managing increasing regulatory

requirements

Advice and Product Suitability

%

The industry recognises the regulatory issues that organisations face and that responding to client needs remains a priority

Ability to identify and respond to client needs

Communication skills

Ability to retain existing clients

Ability to assess client suitability and risk profile

Ability to identify and respond to client needs

Responsiveness to clients’needs/requests

Ability to gain new clients

Good knowledge of external products (open product architecture)

Ability to assess client suitabilityand risk profile

In 2 yearsNow

Private Banking and Wealth Management Survey • Navigating to tomorrow: Serving clients and creating value PwC

2013

19

Ability to gain new clients

Example: New compliance support: Conduct First* tool – helping to define, measure & change behaviours that result in conduct risk

Scenario based Behavioural Assessment

Helping private banks and wealth managers to define ‘good conduct’ in terms of expected behaviours in key scenarios

Defining Behaviours

A measure of the levels and areas of conduct risk in an organisation – used for executive MI & to provide evidence to the regulator

Reducing the cost and improving the effectiveness of compliance testing & training

Measuring Behaviours

Ability to design a working environment that will encourage behaviours that result in acceptable levels of conduct risk

Changing Behaviours

Reporting Outputs

PwC 20

Increase in sales productivity for mobile

Increase in revenue

Decrease in complaint resolution time

Decrease in on-boarding time

Example : New client engagement models will enable advisors & clients with information advantage e.g. client risk, investment advice, knowledge, greater firm/community collaboration, proactive personalisation andcompliance

Risk & compliance

Source

:PwC with

metrics from

Salesforce.com

2013.

Back office

Investment Strategist

Investment consultant

Portfolio Manager

Investment Specialist

Product Manager

Others

Grow Revenue

•New clients & prospects•Personalise all interactions

Client /Advisor Interaction

Enable Digital & Social Media

• Collaboration tools• Mobile• Analytics

27%

32%

27%

24%

PwC 21

MOVE AHEAD

• ADVISOR INFORMATION ADVANTAGE

• PRO-ACTIVE & PERSONAL

• COMPLIANCE BUILT IN

• CULTURE AND CAPABILITY CHANGE

OPTIMISE & TRANSFORM

• ADVISOR CAPABILITIES/ TOOLS

• SUITABILITY MANDATE, REVIEW

• PROPOSITIONS& INNOVATIVE

TECHNOLOGY APPROACH

• STANDARDS & COSTS

• CONDUCT & CULTURE AWARENESS

ASSESS & SECURE

BASELINE

• MEET RDR

• GOVERNACE

• ADVICE & CONDUCT

• TRAINING & SYSTEMS

• ADDRESS LEGACY

• ADS

External Trends

Participants all at different stages on this journey. Fitness assessment and staged change agenda required to deal with legacy, meet compliance, investin client value and exploit innovative technologies at pace

Current Situation

• Private Banks & Wealth Managers

NEW RESULTS LEVELS

ACHIEVED

• CLIENT VALUE& REVENUE

GROWTH

• SUSTAINABLE COSTS

• NEW RISK & COMPLIANCE STANDARDS EMBEDDED

• PROGRESSIVE CULTURE AND CAPABILITIES EVIDENCED AT ALL LEVELS

• TRUSTED ADVISOR STATUS

Status quo no longer viable?

Assess performance and

Source: PwCPwC 22

opportunity gaps and have options to respond

ready

In summary...

PBWM industry at inflection point and moving to a new world. Tougher regulatory standards and technology innovation combine to drive need for greater client value and relevance. Early movers strategically acquiring, reshaping and non legacy innovative technology enabled disruptive models now emerging.

Securing a place in the new world means turning challenges into opportunities. Regulators shape advice ,suitability risk, tracking of portfolios, reviews and conduct. Transformational impact on business models requires step change in advisor capabilities and behaviours. Drives need for new front office models and tools.

To win in this new world requires new client engagement models which enable advisors and clients with information advantage through investment/advice knowledge, greater firm/community collaboration, proactive personalisation and compliance support. Fitness assessment and staged change agenda required to deal with legacy, meet compliance, invest in client value and exploit innovative technologies.

PwC 23

Thank you

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Ian Woodhouse, DirectorMobile: +44 (0) 7730 733 897Email: ian.woodhouse@uk.pwc.com

Global Private Banking and Wealth Management survey 2013: focus on

UK: http://www.pwc.co.uk/financial-services/issues/global-private-banking-and-wealth-management-survey-2013-

focus-on- uk.jhtml