Global Market Overview of Private Banking by Mr. Pathik Gupta

In pursuit of wealthy and wealth
Private Banks A global perspective
Kuala Lumpur
October, 2014
Scorpio Partnership 2014 |
Worlds Leading Wealth Insights Firm

Winner 2007-10 Global Wealth Insights Firm Wealth Briefing; Winner of 2013 Thought Leadership Award Asia Wealth Briefing
Runner-up 2010-2012 Agency of the Year Financial Services Forum, Runner-up 2014 Thought Leadership in North America Wealth Briefing
Currently shortlisted for 2014 Thought Leadership in Switzerland, 2014 Thought Leadership in the United Kingdom, 2014 Thought Leadership in Asia
Triangulating the value proposition for private banks

McLagan advisor productivity and
compensation benchmarking
Advisor
insight
Scorpio Partnership market
research and employee surveys
2
Ongoing strategic
insight, calibration
and practical
implementation
Scorpio Partnership global

private banking KPI benchmark
Business model
insight
McLagan financial institutions
KPI benchmarking analysis
Scorpio Partnership global

HNW/UHNW client journey surveys
HNW/UHNW
Client insight
Scorpio Partnership market entry
strategic research and consulting
1. The state of the global private banking

industry
Banks are shifting capital away from risky institutional

businesses to wealth management but challenges remain
Global
Private
Banks
Brokers
Independent
Advisors
Boutique
Private
Banks
Regional
Banks
UBS has refocused on WM which accounts for 65% of

attributed Equity and 80% of profit
Attributed Equity to
Business Divisions
~35%
~65%
~65%
Expected Pre-tax
Profit Contribution
~20%
~80%
~35%
3Q12
2013
WM business, R&C, Global AM
Investment Bank
CHF 3.4 4.5 billion reduction in Investment Bank expense base by 2015
Private Banking Share of RWA at Credit Suisse Up 9% Points

to 38% and Expected to Grow to 50%
Contribution to
Basel 3 Risk-Weighted Assets
29%
15%
56%
3Q11
36%
38%
Private Banking
& Wealth
Management
26%
Equities
Advisory,
Underwriting
26%
38%
36%
4Q12
4Q13
Fixed
Income
Moving business mix

towards 50/50% split by
gradually growing capital
allocation in PB&WM
Investment
Banking
Consistent earnings
capacity of business
model to generate
substantial levels of
excess capital
Morgan Stanley Has Reshaped Its Business So That Wealth Is

Now The Largest Component
Full Year 2006 Net Revenues
Asset
Management
Asset
Management
Other
Global Wealth
Management
Equity Sales
Fixed Income
and Commodities
(ex-DVA)
Full Year 2013 Net Revenues
Other
Equity Sales
Fixed Income
and Commodities
(ex-DVA)
Global Wealth
Management
Bankable assets have grown at twice the rate of captured

wealth since crisis
CAGR:
4.8%
60
CAGR:
2.6%
52.6
Assets in USD trillions
46.2
39.7
40
35.0
30.8
30
26.7
26.4
20.3
20
10
17.8
18.5
17.4
8.0
0
2002
Total PB market size (USD)
2007
2012
Bankable assets market size (USD)
2013
Total HNW financial assets (USD)
Source: Scorpio Partnership Private Banking KPI Benchmark 2014
50
NNM is positive but slowing down

Average diversified NNM
Average pure player NNM
Average overall NNM
5.87
4.43
3.74
3.39
3.62
3.04
3.02
2.07
2.74
2
0.73
0.86
0
-2
2.74
0.95
1.02
1.06
2011
2012
2013
-0.07
-1.24
-1.16
2008
2009
10
2010
Source: Scorpio Partnership Private Banking KPI Benchmark 2014
Average NNM (USD billions)
while cost-income ratios are growing

Pure player
160
Diversified
Global Financial
Crisis
Overall
138
140
Gross margin in bps
127
119
100
120
117
120
113
110
107
104
102
2011
2012
2013
98.5
112
102
98.2
80
60
2007
2008
2009
Diversified
2010
Pure player
Overall
100%
88%
87%
85.6%
86.1%
75.1%
75.0%
74.6%
75.4%
2009
2010
2011
2012
81%
88.3%
CIR
80%
66%
60%
70.6%
78.3%
61.9%
40%
2007
2008
*Gross margin is defined as operating income divided by AuM

Source: Scorpio Partnership Private Banking Benchmark 2014
11
2013
Sustained
increase of costincome ratios
and flattening
gross margins
form a
challenging
environment for
both type of PB
and WM firms.
Key highlights
Global Banks have realized the importance of focusing on Wealth
Management as a sustainable and less riskier business
Growth in wealth and high % of untapped wealth provides good

impetus for PBs to consider it as a future oriented business
High cost business model compared to institutional business means

that scale & breadth is needed for success
12
2. Looking at Asia through the Global Lens
13
The rising APAC HNW + wealth world

2012 Total HNW Wealth
2015 Forecast Total HNW Wealth
Total HNW Wealth (USD trillion)
20
15.9
16
15
13.1
12
12.7
12
APAC will
dominate global
wealth by 2020
based on
forecasts.
10.9
8.3
7.5
4
1.8
1.3 1.4
2.2
0
Africa
Middle East
Latin
America
Europe
North
America
Asia Pacific
Notably, regional
HNW growth in
APAC HNW
wealth is 9.8%
compares with an
average of 5.5%
GDP growth rate
in APAC exJapan.
Source: RBC Capgemini 2013 World Wealth Report

14
The offshore fund flows for HNW+ assets

Source of total HNW offshore wealth market, USD trillion
At USD2.4trn
APAC is the
second largest
market region for
offshore business.
1.9
0.6
2.4
0.9
2.6
Destination of offshore wealth market by booking centre, USD trillion

Switzerland
Hong Kong and Singapore
Channel Islands and Dublin
Caribbean and Panama
United Kingdom
United States
Other
Luxembourg
15
USD2.2trn
USD1.2trn
USD1.1trn
USD1.1trn
USD0.9trn
USD0.7trn
USD0.7trn
USD0.6trn
Equally, the
growth in the
regional key
booking centers is
significant.
In sum, wealth
management in
Asia is not just the
future, it is the
now.
Source: Scorpio Partnership analysis, BCG
Assets-switching velocity is impacting the attitudes

APAC M&A
momentum is likely
to grow based on
continued operating
model pressures.
6yr Total USD102.0bn

6yr Total USD314.0bn
6yr Total - USD575.2bn


UK
Switzerland
Europe exc. UK and Switzerland
Asia Pacific
Middle East and Africa
Latin America
Source: Scorpio Partnership Deal Tracker 2013
North America
16
Private Banks in Asia experienced double-digit % asset

growth
Asia-Pacific AuM in 2012 (US$ Bn)
UBS
Citi PB
Credit Suisse
HSBC
JP Morgan
Julius Baer
Morgan Stanley
Deutsche
DBS
Bank of Singapore
BNP Paribas
Standard Chartered
Barclays
Pictet
EFG
ABN AMRO
J. Safra Sarasin
Societe Generale
Coutts
UOB
215
201
117
115
75
60
58
50
46
43
43
35
30
30
16
15
15
15
14
13
0
50
100
150
200
250
Private banks are growing at 16% in the region but wealth is also growing at the same pace
17
Source: Private Banker International
PBs in Asia are at a low point on pre-tax margins with a

median cost-to-income ratio at about 70%
Cost-to-income (%)
90
80
70
60
50
40
30
20
10
0
81
79
75
Profit Margins* (bps)
80
71
61
2007
2008
2009
2010
2011
2012
45
40
35
30
25
20
15
10
5
0
39
Global Financial
Crisis
41
39
36
32
20
16
18
20
15
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Cost to income ratio have been running north of 70% with some boutique firms reporting CIR of 90% and above.
Effect of such high CIR will be felt in the moderate to long term
Compensation expense in boutique PB firms are at level of 70%+ of total compensation expenses while for bulge
firms, it is at 50% levels
Profit margins in Private Banking industry have continued to decline since the global financial crisis and have
reached a very low level of almost 20 basis points
*Profit margins are defined as (revenue-cost)/AuM

Source: BCG Wealth Report; McLagan database
18
Key Challenges Faced by Private Banks in Asia

Internal Challenges
External Challenges
Organizational Setup:
Demand for RMs:
Lack of alignment of front, middle and back office and

leadership challenges in teams and markets
High demand for RMs who can move assets leading to

overcompensation and reduced productivity
Performance Management:
Client Behavior:
Weak performance management methodology and pay

for performance approach
High price sensitive clients who want control and have

mismatched expectations on risk-return
Front Support Cost:
Quality of Advice:
Increasing cost in front and selected middle office

functions (e.g. ARM, Business Managers etc.)
Ineffective advisory process of RMs with focus on sales

orientation rather than advisory orientation
Platform Inefficiency & Regulatory Cost:
Changing Regulations:
Lack of holistic platform to support increased regulatory

requirements (e.g. AML, KYC, FATCA)
Growing sophistication of regulators and increased

scrutiny on sales process and pricing policies
19
just
Wealth management is not about the money

all
all
Wealth management is about the people
All working together

20
3. The HNW mind
21
HNW routes to wealth are forcing change

Greater control /
influence over
investments.
Selfdirecting
Durability of financial
suppliers and
protection of assets
Risk
awareness
Value
sensitivity
Delivering value for

money.
Rise of
digital
Segment
complexity
Offering of real-time
wealth management.
Age and attitudes,

wealth level, type of
wealth.
Source: Scorpio Partnership
22
The starting line is the value point this is recalibrating

Q: How would you rate the industry in terms of value for money today?
The issue of
value and its
variance among
the demographics
is possibly the
single most
important
planning factor for
the future of
wealth
management.
23
Source: Scorpio Partnership, Sungard
Client view of the wealth managers performance

Factors performance, global
Factor performance, APAC
90
82
78
80
76
75
75
71
70
70
70
68
74
68
60
67
65
64
69
65
63
62
61
58
63
62
61
55
50
65
57
51
56
56
55
55
55
51
40
42
42
41
APAC
respondents tend
to assess
performance of
wealth managers
7.9% lower, on
average
30
Source: Scorpio Partnership Futurewealth 2014

24
APAC HNWs hold WM to a high standard

WM performance
Client minimum tolerance

63.5
Asia-Pacific
59.9
61.8
Europe
65.3
Middle East & Africa
56.3
69.1
Latin America
57.4
77.9
North America
50.2
Analysis based on the following:
Q: Wed now like you to imagine that you are giving your wealth manager an exam mark. Thinking about your overall relationship with your
main wealth manager, what performance score would you give them ?
Q: And, at what level of overall service would you consider moving your relationship to another firm?
25
Source: Capgemini, RBC WM, and Scorpio Partnership

Global HNW Insights Survey 2013
53.0
HNWs are searching for the core relationship
Q: (on a 10-point spectrum): Please indicate your preference for working with multiple wealth management firms (who each have a specific area
of expertise) vs. a single firm (that can meet your full range of needs)
Single firm
Global
41.4%
Even in the emerging

markets where the
complexity of assets
may be high, the
trend is toward
working with a single
firm. Notably, in Asia,
the clients most want
a single firm with the
ability to access
multiple experts
53.1%
Latin America
52.8%
North America
26
14.4%
19.6%
11.8%
APAC (excl. Japan)
49.2%
16.6%
MENA
43.2%
21.9%
Europe
35.4%
19.0%
Multiple firms
Japan
18.1%
6.9%
Source Capgemini, RBC WM, and Scorpio Partnership Global HNW Insights Survey 2013
The global HNW market is transforming in the debate around engagement.
HNWs in APAC are more focused on wealth preservation

than growth
Emerging markets
(APAC-based) HNWs
are almost in the
balance between
preservation and
creation.
Crucially, global
average is 26%
(growth) and 33%
(preservation).
Compared to RoW
APAC investors are
more bullish on
equities. Rebalancing
cash is key.
27
APAC HNWs have strong multi-shore tendencies

Whether it is preservation or growth, emerging markets (APAC-based) HNWs
are nearly twice as likely to consider they have complex needs (linked typically
to offshoring and re-shoring)
Perspective on financial needs

APAC
Global
42%
41%
40%
35%
30%
33%
26%
23%
20%
10%
0%
Complex needs
28
No strong preference
Straightforward needs

50%
4. Onwards What next in wealth

management for APAC?
29
Pre
During
Global
Post
Asia Pacific
Source: Scorpio Partnership Futurewealth 2014, which aimed to determine globally clients requirements from
different stages of the customer experience in order to do more business.
30
Source: Scorpio Partnership analysis
Investment performance
Quality of research
Product innovation
Frequency and quality of advisor contact
Recognition of loyalty
Invitations to non-financial events
Invitations to financial events / seminars
Fair pricing and fees
Solutions and services that meet my

needs
Relationship manager who understands

their needs
Market knowledge of advisor
Efficiency when executing trades
International outreach
High quality reporting
Professional premises
Brand values
Products & services
Online experience
Advertising
% importance
The future is benchmarking the tangible experience

Q: In your opinion which of the following factors would you rank as the most important attributes when considering
a wealth management firms?
APAC importance features
90%
80%
70%
60%
50%
40%
30%
20%
APAC HNWs have priorities on what wealth means

Having sufficient wealth to secure your own
and your familys future
Having sufficient wealth to choose what you
do in life
Not worrying about money every day
Having a disposable income (in excess of

what you require for financial security)
Having sufficient wealth to buy or invest in

whatever you wish
Being able to enjoy a luxury lifestyle
% of respondents
31
Other
Having a level of wealth that commands

political or economic influence
Source: Futurepriority (Research program produced by Scorpio Partnership)
The route to winning new business not whispering

Q: How were you first introduced to your primary wealth manager?
Introduction reason
Global
APAC
Referral from family or friend
24%
20%
Through my own research of the market
17%
16%
Through a relationship manager at the firm
12%
17%
Referral from a trusted advisor (e.g. attorney, accountant)
11%
11%
Other
9%
5%
Through the website of the firm
8%
11%
Referral from another part of the business
8%
8%
In response to an advertisement
6%
6%
Referral from another client at the firm
6%
6%
Percentage of clients introduced

through the website
Independent assessment
33%
Note: This increases with wealth
32
<US$500,000: 8.7%
US$500,000-US$2m: 8.5%
US$2m-US$4m: 13.9%
US$4m +: 13.2%
APAC HNWs are financial shoppers wealth managers need

to constantly innovate to succeed
USD4m+
Q: How many providers do you

currently work with regarding your
personal investments?
APAC
6.6
USD2m-4m
5.1
USD500,000-2m
3.4
<USD500,000
2.6
average
average
4.7
4.9
7.2
USD4m+
5.3
USD2m-4m
3.2
USD500,000-2m
2.5
<USD500,000
4.9
USD4m+
3.3
USD2m-4m
1.9
USD500,000-2m
1.9
<USD500,000
Rest of the world
USD4m+
4.8
USD2m-4m
3.2
USD500,000-2m
2.1
<USD500,000
2.0
33
average
average
2.6
2.5
Source: Scorpio Partnership Futurewealth 2014
Q: How many other firms did you

consider working with before making
your selection?
APAC HNWs will pay for premium service

an extra 12%, on average
Asia-Pacific
Rest of the world
80%
% of respondents who would pay extra
66%
67%
64%
61%
57%
60%
57%
60%
55%
53%
50%
50%
46%
45%
38%
40%
27%
30%
20%
20%
10%
Understanding
my wealth
management
needs
34
Staff who are

knowledgeable,
well-trained,
and
professional
Delivering
appropriate
products,
services and
advice
Working with a
firm that has a
solid reputation
Reporting that
allows me to
monitor my
portfolio in
detail
On-going
Communication
account
about the
servicing and
services and
inquiry handling value they can
offer to clients
like me
Account
opening
processes
Source: Scorpio Partnership Global HNW Insights Survey 2013
67%
70%
Premium services are not just products and prices

What your clients want
Consistency
Credibility
Creativity
35
What the industry needs to build
Experience
Knowledge
Empathy
The future is based on better business intelligence

Advisor
insight
Business
model insight
36
Wealth management has

evolved in APAC almost in
spite of itself. But we are now
entering an industrialisation
of the model where future
profits are dependent on
better sustained insight on all
aspects of the business. A
lack of intelligence would be
a great loss .
Ongoing strategic
insight, calibration
and practical
implementation
HNW/UHNW
Client insight

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In pursuit of wealthy and wealth

Private Banks A global perspective

Scorpio Partnership 2014 |

Worlds Leading Wealth Insights Firm

Scorpio Partnership 2014 |

Triangulating the value proposition for private banks

Scorpio Partnership global

Scorpio Partnership 2014 |

Scorpio Partnership global

1. The state of the global private banking

Scorpio Partnership 2014 |

Banks are shifting capital away from risky institutional

Scorpio Partnership 2014 |

UBS has refocused on WM which accounts for 65% of

Private Banking Share of RWA at Credit Suisse Up 9% Points

Scorpio Partnership 2014 |

Moving business mix

Morgan Stanley Has Reshaped Its Business So That Wealth Is

Scorpio Partnership 2014 |

Full Year 2013 Net Revenues

Bankable assets have grown at twice the rate of captured

Assets in USD trillions

Scorpio Partnership 2014 |

Bankable assets market size (USD)

Source: Scorpio Partnership Private Banking KPI Benchmark 2014

NNM is positive but slowing down

Average pure player NNM

Average overall NNM

Scorpio Partnership 2014 |

Source: Scorpio Partnership Private Banking KPI Benchmark 2014

Average NNM (USD billions)

while cost-income ratios are growing

*Gross margin is defined as operating income divided by AuM

Growth in wealth and high % of untapped wealth provides good

High cost business model compared to institutional business means

Scorpio Partnership 2014 |

2. Looking at Asia through the Global Lens

Scorpio Partnership 2014 |

The rising APAC HNW + wealth world

2015 Forecast Total HNW Wealth

Total HNW Wealth (USD trillion)

Source: RBC Capgemini 2013 World Wealth Report

The offshore fund flows for HNW+ assets

Destination of offshore wealth market by booking centre, USD trillion

Assets-switching velocity is impacting the attitudes

6yr Total USD102.0bn

6yr Total - USD451.3bn

6yr Total - USD32.7bn

6yr Total - USD11.8bn

Private Banks in Asia experienced double-digit % asset

Scorpio Partnership 2014 |

Source: Private Banker International

PBs in Asia are at a low point on pre-tax margins with a

Profit Margins* (bps)

*Profit margins are defined as (revenue-cost)/AuM

Key Challenges Faced by Private Banks in Asia

Demand for RMs:

Lack of alignment of front, middle and back office and

High demand for RMs who can move assets leading to

Weak performance management methodology and pay

High price sensitive clients who want control and have

Front Support Cost:

Increasing cost in front and selected middle office

Ineffective advisory process of RMs with focus on sales