uk wealth management report scorpio partnership may 2012

Public distribution: UK Wealth Management Steering Committee Coordinated by Owen James, Scorpio Partnership, and Lansons

1 © Scorpio Partnership 2012 |

UK Wealth Management Sizing and valuing the full sector – 2012

Developing a common understanding for the industry



Contents of the report

� Project introduction Slide 3 � Ten segments of review Slide 4

� Headlines and key data Slide 5

� Waterfall sizing and valuations Slide 6

� AUM, revenue, profits, corporate taxes, headcount Slide 7

remuneration, personal taxes

� Individual sector review and analysis Slide 17

� Wealth Managers Slide 17 � Service Providers Slide 31

� Appendix Slide 52

� Methodology – AUM market sizing Slide 53 � Sources Slide 54 � Remuneration levels Slide 55



The aim of this research project is to put forward a sector valuation and economic contribution of the UK wealth management industry to the UK economy so as to allow the sector the opportunity to create and deliver a structured message of value and input to the relevant influencing and decision making bodies in the UK such as the regulators and politicians. This will see the sector establish what is common practice for other areas of commerce and financial services. The contents of this document and following work are therefore intended to become the backbone of the industry’s statement of value which can then be utilised in its interaction with the regulatory community as well as the wider public arena. Following this first valuation the sector can then build on this analysis to deliver an on-going message around its value and future contribution. In terms of the research focus sitting at the centre of this scoping project, the aim has been to provide both a quantitative sizing and assessment of the sector and its lead data points backed by a qualitative evaluation of the sector’s shape and activities. This work and its outcomes will be the first such pan-industry sponsored assessment prepared in the context of becoming the industry’s public statement. As such UK wealth management can start to establish its voice in the manner of other financial services industry sub-sectors such as insurance, banking and fund management. The research has been developed by the Scorpio Partnership team with the support, guidance and contribution where required from the steering committee and its stakeholders. The steering committee concept and solution has been co-developed and managed by event solutions specialists Owen James and public relations advisor Lansons Communications alongside Scorpio Partnership.

Project introduction



Introduction In order to arrive at a full valuation of the UK wealth management sector the research divided the market into ten lines of business which can be seen as the leading wealth management product and service providers to the end HNW and affluent client base. Each segment has been looked at individually to understand its individual size, participants, activities and so on to arrive at an estimation of value. Each valuation then forms part of the complete UK wealth management whole. Those ten segments break down into two overarching groups: Wealth Managers – the businesses that manage the assets of the end individual through various products and strategies. There are four providers in this group – the HNW Private Banks, the Mass Affluent Banks, the Private Client Investment Managers (PCIMs) and the Independent Financial Advisers (IFAs) Service providers – the businesses that provide specific services whether advisory or through a product offering to both the Wealth Managers and the end client. There are six providers in this group – Insurance, Platforms, Lawyers, Accountants, Trustees, and ancillary service providers such as IT, consultants, information and research and so on.

Ten segments of product and service

HNW Private Banks

Platforms

The wealth managers Key The service providers



UK Wealth Management: So what?

Headlines The UK wealth management market is a major contributor to the UK financial services landscape and wider national economy. In total the sector is responsible for the employment of in excess 124,000 often highly educated staff, who collectively are paid almost GBP8 billion in annual remuneration at an average of almost GBP63,000. The industry manages assets in excess of GBP2 trillion for an international client base, produces over GBP30 billion in annual revenue, reports profits of almost GBP5 billion, and contributes in the region of GBP7.6 billion to the exchequer through all forms of taxation. Based on this data it is clear, that this is a huge sector of the UK economy. Particularly when the data is considered in comparison to other sectors and the UK government’s other income. Employees and remuneration – the national context Well, with 124,000 employees, looking at other areas of financial services the sector is 31% of the size of the UK retail banking market (400,000 employees), 43% the size of the UK insurance market (290,000 employees), 248% of the size of the UK’s fund management sector (50,000) employees. All-in the sector is 12.5% of the size of the entire UK financial services sector by headcount. Looking outside of the pure financial services market place, the sector is 146% the size of all private practice solicitors in the UK, And the sector’s employees are far better remunerated on average than other workers in the UK. The UK wealth management sector average is near to GBP63,000 per year while the average worker in the UK receives between GBP25,000 and GBP30,000. Taxation – the national context With a total contribution to the UK government of up to GBP7.6 billion through all forms of business and personal taxation the sector contributes approximately 1.6% of all government tax receipts based on the Exchequer’s 2009/2010 income. And that is based on some conservative estimates. A more aggressive estimate, or performance based on the removal of certain barriers to business, could see the sector perform two, three or four times stronger for a far greater contribution. In comparison, the full financial services contributed GBP53 billion in taxation for 2009/2010 for 11% of all government tax receipts. Insurance pays in the region of GBP10.4 billion or 2.1%.



Valuations



The assets under management picture

AUM commentary The UK wealth management market, as sized by the Scorpio Partnership Wealth Distribution Model, controls assets in the region of GBP2.195 trillion. This assets under management total is the base by which the market extracts a revenue, profit, pays taxes, employs staff and contributes to the wider economy in many and varying forms. The following results and valuations for each segment are ultimately extracted from products and services supplied against this asset pool. By segment the HNW Private Banks are the lead market participant by AUM with 40.4% of the whole or GBP886 billion. The market’s large base of IFA businesses is second with GBP591 billion for 26.9% share, followed by the mass affluent banks, mostly business lines of the large retail banks, with GBP501 billion or 22.8% of the AUM base. Lastly in this analysis come the PCIMs with GBP217 billion or 9.9% of the total AUM figure.

40.4%

22.8%

9.9%

26.9%



The revenue picture

Revenue commentary A conservative conclusion across the ten segments of product and service proposition to a HNW and mass affluent client base creates a revenue total of just over GBP30 billion. The four Wealth Manager segments deliver 63.7% of that revenue at GBP19.1 billion with, interestingly, the mass affluent banks able to extract the greatest value from their asset base. The service providers create a collective revenue stream of GBP10.9 billion, dominated by the insurance segment with GBP7.9 billion in revenue attributable to HNW and affluent client premiums.



The pre-tax profit picture

Pre-tax profit commentary The pre-tax profit data for the segments reveal a mixed bag of performance both within and between segments. This tells a story of cost pressures, particularly around employee costs, technology requirements and regulation. With these mostly conservative conclusions, the sector collectively is performing below 50% of its potential. However, across the ten segments here we calculate a collective pre-tax profit total in excess of GBP4.9 billion. The Wealth Managers contribute 73% of that total profit pool with, again, the mass affluent banks leading. Among the service providers insurance and ancillary produce the largest profit pool.



The corporate tax and employer NIC picture

Corporate tax and employer NIC commentary Translating the pre-tax profit pool into corporate tax paid to the government, the effective tax rate jumps about and is extremely hard to calculate across firms and segments. Therefore, the date below is reflective most often of a 15% corporate tax estimation based on limited data. This is true for all segments. This analysis is again a conservative valuation yet still presents a collective contribution on the corporation tax side of GBP730 million. Interestingly, due to the high salaries of many of the professionals in the ten segments, employer national insurance is often greater in value than the corporate tax, particularly when estimated at 15%. In fact employer NIC totals GBP942 million.



The headcount picture

Headcount commentary The UK wealth management sector has a total headcount of approximately 124,000 according to this analysis. 83,211 of that number work within the Wealth Managers while 40,803 are counted within the Service Providers. The biggest employers by number are the HNW Private Banks, the Mass Affluent Banks and the IFAs, each with 20,000 or more in total headcount. For each segment, where relevant and possible the total headcount has also been split into client facing and non-client facing staff. Naturally, in most cases, the former will be more highly paid than the latter but the split is nevertheless relevant.

* The headcount total for trusts refers to only those employed by offshore firms not double counted elsewhere in the analysis



The total headcount remuneration picture

Headcount remuneration commentary Across a total headcount of 124,014 the sector pays total remuneration of GBP7,802 million for a total average remuneration across all jobs of GBP57,106 per annum. Of that full market total GBP5,042 million, or 64.6% of the total, is paid by the Wealth Managers to their 83,211 staff at an average of GBP60,666 while the GBP2.760 million paid by the Service Providers to their 40,803 staff comes in at an average of GBP67,642.

* The remuneration total for trusts refers to only those employed by offshore firms not double counted elsewhere in the analysis



The personal income and NI tax picture

Personal tax and employee NI commentary The personal tax paid by the UK wealth management sector is high in comparison to many other sectors of business due to the high level of remuneration received by many in the ten segments. From the total headcount of 124,014 the total tax result is GBP2,624 million of which GBP2,134 million is paid in personal income tax and GBP490 million is paid in employee NIC. In other areas of financial services, particularly retail, there is a closer relationship between the amount of income tax paid and that of employee NIC. However, as many employees in this sector are high earners the amount paid in personal income tax far exceeds that paid in Employee NIC.

* The personal taxation total for trusts refers to only those employed by offshore firms not double counted elsewhere in the analysis



The full taxation contribution of UK WM

Commentary on the full tax contribution According to this analysis, the total tax contribution of the UK wealth management market, when considering corporation tax and employer national insurance on the business side and employee PAYE and employee national insurance on the employee side, reaches to GBP4.3 billion. The employee part of that totals GBP2.624 billion while the business part totals GBP1.672 billion. On the employee side that can be seen as a realistic figure based on headcount and remuneration levels. On the business side, however, this analysis has assumed a conservative performance for the most part and an effective corporation tax contribution of just 15% and therefore, for that element, the real amount is very possibly far higher. However, using analysis from PWC in a report called The Total Tax Contribution of UK Financial Services from 2010 that looked into the full taxation contribution of financial services firms, we have sought to apply the PWC analysis to estimate the full taxation effect for UK wealth management market. Using that, we can see that while the total tax calculation of GBP4,296 million within this analysis is in itself a large contribution, the full effect totals GBP7.6 billion once the other forms of relevant UK taxation on business in financial services is applied. That is GBP3.593 billion for all business taxes and GBP4.028 billion for all employee taxes. While a full analysis of the elements that form the tax payments of the UK wealth management market is not possible here, and no doubt some elements of the PWC analysis would not be relevant for all of the segments included here, the above result nevertheless reveals a sizeable contribution to the UK government’s coffers. Even if it were discounted by 10% or 20%. In terms of the application of PWC analysis, for both business and employee tax we have based the comparison on the main tax, corporation tax for business, and PAYE for employees. For business tax, therefore, we have assumed the UK wealth management total of GBP730 million equals 16.6% (see charts on next slide). For both we also retain the UK wealth management market employer national insurance total rather than using the PWC percentage.



The full corporate tax take

Contributors to UK FS sector corporate taxation Applied to UKWM

Based on the PWC analysis of financial services corporate employed against the corporation and employer national insurance data collated for the UK wealth management market, the potential corporate tax result equals GBP3.593 billion. Of that the largest contributor is irrecoverable VAT at GBP1.051 billion. That is followed by the employer national insurance and corporation tax data and then business rates at GBP620 million. Stamp duties at GBP180 million and other taxes at GBP70 million complete the full market.

Source: PWC

Total: GBP3.593 billion

Source: PwC, Scorpio Partnership



The full employee tax take

Contributors to UK FS sector employee taxation Applied to UKWM

For the employee-related taxation, the potential tax result equals GBP4.028 billion. Of that the largest contributor is PAYE or personal income tax at GBP2.134 billion. That is followed by tax deducted at source at GBP713.9 million, employee national insurance at GBP490 million, net VAT at GBP343.3 million, IPT at GBP226.3 million and SDRT at GBP120.9 million.

Source: PWC Source: PwC, Scorpio Partnership

Total: GBP4.028 billion



The Wealth Managers



Wealth Manager summary

HNW Private Banks � AUM – GBP886 billion

� Revenue – GBP6.64 billion to

GBP8.86 billion

� Profit – GBP664 million to GBP1.77 billion

� Corporation tax – GBP100 million to GBP496 million

� Headcount – 22,700

� Total remuneration – GBP1.83 billion

� Average remuneration – GBP81,000

� Personal taxes – GBP885 million

Mass Affluent Banks � AUM – GBP501 billion


GBP7.5 billion

� Profit – GBP1.565 billion to GBP2.63 billion



� Total remuneration – GBP765 million



IFAs � AUM – GBP591 billion


GBP5.9 billion

� Profit – GBP310 million to GBP887 million






PCIMs � AUM – GBP217 billion


GBP2.2 billion









The HNW private banks

Introduction � The HNW private banks offer the broadest and most full-service proposition from the widest international orientation to the HNW and

wealthier mass affluent clients. The proposition does not just cover investments but often banking, trust and fiduciary, financial planning and a whole host of other specialist services from art investing to philanthropy to business succession and so on

� Among the service providers in this segment are numerous historical names such as those from the old merchant banking dynasties such as Rothschild Wealth Management & Trust and Schroders and other old and entrenched names such as Coutts and Kleinwort Benson. However the segment is also deepened by the presence of numerous international providers from the universal and investment banking world such as BNP Paribas, Deutsche Bank, Merrill Lynch, Standard Chartered and UBS plus many more of their competitors

� Market participants target clients at varying levels of wealth from right down at GBP100,000 to GBP250,000 in investable assets through to GBP10 million and upwards. Market size and participants

Scorpio market sizing analysis puts the HNW private banks at the head of the market in terms of assets under management. Among the 70 providers that fit into this segment of the market the AUM total sits at approximately GBP886 billion and, based on historical analysis, growing at approximately 8% per year.

Service overview The HNW private banking market offers the deepest and widest service and product set often structured across client segments. The offering may consist of: - Banking (deposits, standard savings products, mortgages, lending, leverage, custody, FX, letters of credit, credit cards) - Investments (discretionary and advisory portfolio management, execution only, across all asset classes) - Trust and fiduciary (estate planning, tax mitigation, company incorporation, succession planning) - Financial planning (retirement, succession, property) - Other services such as asset allocation and risk profiling, philanthropy and charity, art and collectibles advisory, real estate, family office, family governance




Commentary on market revenue � The Scorpio Partnership wealth distribution model sizes the AUM controlled by this

segment at GBP886 billion or 40.4% of the GBP2.19 trillion of assets managed by all wealth managers in the UK. As such it is the largest sub-segment of the four wealth managers as measured by AUM

� In terms of the revenue the industry is able to extract from the AUM it manages, traditionally it has looked to take approximately 100bps or 1% of assets per annum. Achieving that performance on today’s AUM base would deliver a revenue for the segment of just under GBP8.9 billion

� However, current market data would suggest a performance drag due to factors such as increased regulation, pushing average revenue extraction closer to 75bps. Based on that performance the segment is extracting approximately GBP6.64 billion in annual revenue from it AUM base.

Commentary on profit and corporate tax � Based on the above revenue figures, Scorpio research and received industry

submissions suggests that on approximately 75bps average income the market is able to extract in the region of a 10% margin or profit. At that level the segment is therefore delivering an annual profit figure of GBP664 million

� That relatively low profitability is again a reflection of tightening margins and pressure on the cost base

� Looking more optimistically, if the market can relieve some of its cost pressures and move to a profit margin of 20%, segment profit jumps to GBP1.32 billion

� The corporation tax contribution of the segment is difficult to establish due to the complexity of the calculation. Therefore, for this segment and others we have taken two levels – 15%, as the data analysed suggests an effective rate for the segment around that level, and the standard rate of 28%

� Therefore, on revenue at 75bps and profit at 10%, the corporation tax total comes to GBP100 million at 15% and GBP186 million at 28%.

Market revenue

Profit and corporate tax

100bps revenue – historical benchmark

75bps revenue – today‘s performance




Commentary on employees � Based on Scorpio Partnership analysis of the data available via open sources or

that was provided to us we have sized the UK HNW private banking employee pool at 22,700 staff

� 30.5% of that number, or 6,923, are what the sector would call client-facing such as private bankers, fund managers, financial planners and so on. The remaining 69.5%, 15,777 employees, includes management, middle and back office

� The Scorpio Partnership analysis of the available data achieves a ratio of staff to AUM equal to 1 staff member to every GBP39 million in AUM. Applying that ratio to the full segment AUM of GBP886 billion gives 22,700 employees for the segment

Commentary on salaries, tax and NI contributions � Based on Scorpio Partnership analysis of pay levels in the private banking sector

and an estimation of weightings of staff across remuneration levels, total remuneration for the 22,700 segment headcount is GBP1,834 million for an average of GBP80,798

� For the 6,923 client facing staff, total salary cost is GBP678 million, or an average of GBP98,000. For the 15,777 other staff the total spend is GBP1,156 million for an average of GBP73,250

� These totals lead to a total tax contribution of GBP854.8 million – broken down at GBP531 million in income tax, GBP102.3 million in employee national insurance and GBP221.5 million in employer national insurance

� To arrive at that tax contribution calculation, we distributed the total headcount across ten remuneration levels (20, 30, 40, 50, 75, 100, 150, 250, 350 and 500k) and weighted staff according to our analysis and estimations of ratios of client facing to non-client facing staff, management to staff and so on. For instance, on the client facing side, based on our research we have estimated 2% (of the 6.923 allocation) are the high earners and on around GBP500,000 total remuneration

Number of employees

Income tax and NI contributions

Total tax = GBP855 million

531

102.3

221.5

Total headcount = 22,700



The IFAs

Introduction � The IFA market in the UK has long been seen as a provider to the mass retail market and lower end mass affluent but it is clear that a major

part of the segment has a deep and entrenched penetration of both the mid-net worth and high-net worth wealth segments. The one significant difference perhaps between this segment and the HNW Private Banks or the PCIMs is the more domestic nature of the client base

� The product and service proposition is generally quite broad but less sophisticated than its peer group in the HNW Private Banks or PCIMs and is reliant on the coverage and sales skill of the IFA who will work often as his or her own profit and loss

� Significantly, the IFA community in general and a number of its individual firms have far greater geographic coverage than the vast majority of their HNW Private Banks or PCIMs peers who are far more likely to be London-based only.

Market size and participants Scorpio Partnership analysis of the AUM controlled by the leading IFA businesses in the UK, or those with a focus on the HNW and mid-net worth market, attributes GBP591 billion, or 27%, of the assets under management covered in this analysis Further Scorpio Partnership analysis of the UK IFA market puts the number of firms active in targeting the MNW and HNW space today at approximately 3,250. This equates to 8,660 active registered individuals working within these firms and also represents 29% of total number of IFAs working in the UK market Again, this market is national and many of the firms operate either with national coverage or with a specific regional focus Major providers in the market include St James’s Place, Bestinvest, Hargreaves Lansdown, Towry and JM Finn.

Service overview The IFA market has an increasingly broad offer to the HNW and mass affluent market place. Among relevant service providers the offering may consist of: - Banking (deposits, standard savings products, mortgages, lending, leverage, custody, FX, letters of credit, credit cards) - Investment management (discretionary and advisory portfolio management, execution only, platforms) - Trust and fiduciary (estate planning, tax mitigation, succession planning) - Tax and financial planning (income, retirement, inheritance, IHT) - Insurance (general, life, health) - Pensions (retirement plans, SIPPs, stakeholder, annuities)



The IFAs


segment at GBP591 billion or 27% of the GBP2.19 trillion of assets managed by all wealth managers in the UK

� In terms of the revenue the industry is able to extract from the AUM it manages, like other segments, it has looked to take approximately 100bps or more from the assets managed. Achieving 100bps on the current asset base would deliver total segment revenue of approximately GBP5.9 billion

� However, this is a segment under pressure due to the rising costs of business, compliance and regulation and therefore taking a more conservative estimate of revenue the 75bps average on assets is a fairer reflection of current performance. On that basis the sector is producing an annual revenue of GBP4.4 billion.

Commentary on profit and corporate tax � Research by Plimsoll puts the average the IFA profitability level as low as 7%. At

that level the segment under analysis here will only produce a collective profit total of GBP310 million from revenue of GBP4.4 billion

� Scorpio Partnership analysis of the MNW to HNW segment, however, suggests a profitability closer to 15%. At that level the segment therefore delivers a total profit figure of GBP665 million, again from 75bps average revenue

� A more positive segment production, one based on a relief of some of the cost burdens currently experienced, would see the market move back to a revenue extraction of 100bps on AUM and a profitability of 15% which would produce total revenue of GBP5.9 billion and profit of GBP887 million

� In terms of the tax take from this segment at the 75bps revenue and 15% profit level, again assuming the two levels of likely corporation tax of 15% and 28%, the total contribution is GBP100 million at 15% tax and GBP186 million at 28%.

Market revenue


75bps revenue

100bps revenue



The IFAs

Commentary on employees � Based on Scorpio Partnership analysis of the data available via open sources or

that has been provided to us by participating firms we have sized the UK IFA segment employee pool at 22,611 staff

� According to the 2011 Owen James Advisory Distributors Benchmark, the average client facing staff to support staff ratio for the IFA sector is 38.3%. At that ratio, the 8,660 figure for client facing figure produces a support staff number of 13,951 staff for a total segment headcount of 22,611 staff.

Commentary on salaries, tax and NI contributions � Based on market analysis of pay levels in the IFA space and a subsequent Scorpio

Partnership estimation of weightings of staff across remuneration levels, total remuneration for the 22,611 headcount is GBP1,173 million for an average of GBP51,894

� For the 8,660 client facing staff or IFAs, the total salary cost is GBP608.3 million, or an average of GBP70,250, while for the support staff the total cost is GBP565 million, at an average of GBP40,500

� These totals lead to a total tax contribution of GBP506.3 million – broken down at GBP282.1 million in income tax, GBP84.3 million in employee national insurance and GBP139.9 million in employer national insurance

� For this segment, based on available research and salary levels, we allocated the headcount across eight remuneration levels (20, 30, 40, 50, 75, 100, 150, 250). On the client facing side, for instance, we estimated 5% (of the 8.660 IFAs allocation) are the high earners and able to pull in a total annual remuneration of GBP250,000. At the lower end we have allocated 20% each to remuneration of GBP30,000, GBP40,000 and GBP50,000.

Number of employees


Total tax = GBP506.3 million

282.1

84.3

139.9




The mass affluent private banks

Introduction � The Mass Affluent private banks are mostly familiar names in the UK retail banking space such as HSBC (Premier), Lloyds, Clydesdale and

Natwest (Private Bank). This service area is typically their proposition between retail banking and full-scale private banking even if the tag lines provide confusion. While there are differences from firm to firm and client qualification is judged by income level or investable assets we view this market in terms of sizing it as GBP100,000 and above in investable assets

� This is a growing market as the large banks have realised the value of segmenting their affluent customers into a “benefit-led” proposition for which they can charge a monthly fee for “membership” or “access” to bundled services as well as typically high fees for packaged products such as banking, investments and insurance

� The growth in the market has been driven by spend on marketing and development of online and remote banking capabilities targeted at their huge retail banking client businesses and other affluent customers seeking a distinct service from standard retail banking.

Market size and participants The Scorpio Partnership market sizing model and analysis attributes GBP501 billion in assets under management to the MA banks. That gives them % of the assets under analysis in this work In terms of providers, there are approximately 20 in the UK market including specific lines of the main retail banks but also competition such as the Co-operative Bank, Citibank, Nationwide and Santander. New providers in this space are few and far between though the specialist service lines such as HSBC Premier are relatively new but have reportedly experienced strong and consistent growth.

Service overview The Mass Affluent private banking market is a generally less sophisticated offering than full-scale private banking, certainly in terms of specialist services, but it largely covers the same areas. The offering may consist of: - Banking (deposits, standard savings products, mortgages, lending, multi-currency accounts, credit cards) - Investments (ISAs, discretionary advisory portfolio management, share dealing, across the majority of asset classes) - Financial planning (retirement planning, tax planning, children) - Insurance (home, life, illness, critical, travel, car, pet) - International (moving abroad, offshore, FX, mortgages) - Other services such online banking, dedicated RM, bundled services (travel insurance, breakdown cover, etc.)





segment at GBP501 billion or 22.8% of the GBP2.19 trillion of assets managed by all wealth managers in the UK. Making it the third largest of the four segments as measured by AUM

� Looking at the revenue this segment is able to extract from its AUM base it is acknowledged that at this level of wealth the providers are generally able to extract a higher basis point rate than in the HNW private banking market. The charging structures for products within this proposition are testament to this point. As such we have assumed average revenue rates on AUM of 125bps and 150bps with the former the most likely for the full segment performance

� At those levels, based on the stated AUM, this segment is producing annual revenues of GBP6.26 billion or GBP7.5 billion with the former the most likely

Commentary on profit and corporate tax � Unlike some of the other segments in the market, the mass affluent banks are

perhaps experiencing greater growth rates and generally less pressure on revenues and margins as they transfer clients from huge retail base into what is commonly referred to as the premier segment. Typically a monthly charge is also added for this “premium service” adding to the revenue generation potential

� Given the mix of asset base, product charges, low touch service model and spend on service development, the segment looks to have achieved a higher level of profitability than the generally higher touch segments such as private banking. As such, Scorpio Partnership data analysis would suggest profitability levels of 25% and 35%

� Taking those profit levels the segment is producing annual profitability of GBP1.56 billion at 25% and GBP2.19 billion at 35%

� In terms of the corporation tax contribution of this segment on those performance figures, again, due to the complexity of the calculation, we assume both a 15% effective rate and the standard 28% rate. At 125bps in average revenue and 25% profit the segment produces GBP235 million at 15% and GBP329 million.

Market revenue


150bps revenue

125bps revenue




Commentary on employees � Scorpio Partnership analysis of the data available via open sources for this segment

puts total headcount at 20,000 � We have not modeled client-facing versus non-client facing for this segment due to

a lack of data. However, the 20,000 headcount assumes an approximate 50% are client facing with each managing 300 clients with an average asset level of approximately GBP167,000 with the institution.

Commentary on salaries, tax and NI contributions � Based on Scorpio Partnership analysis of remuneration levels in financial services

and our estimation of weightings of staff across remuneration levels, total remuneration for the 20,000 segment headcount is GBP765 million at an average of GBP38,250

� The total tax contribution comes to GBP298.5 million – broken down at GBP151.2 million in income tax, GBP61.2 million in employee national insurance and GBP86 million in employer national insurance

� The calculation of that tax figure is based on an assumption of eight remuneration levels (20, 30, 40, 50, 75, 100, 150 and 250k) and the headcount weighted heavily towards the lower remuneration bands. For instance, while 0.5% of all staff are allocated to GBP250,000, 30% of all staff are allocated to each of GBP20,000 and GBP30,000.

Number of employees






The PCIMs

Introduction � The private client investment manager segment of wealth managers is, like its HNW private bank counterpart, the traditional lynchpin of

investment-related financial services to HNW and affluent market. Within its ranks are names synonymous with traditional stockbroking and asset management for individuals such as Rathbone Brothers, Cazenove Capital Management and Smith & Williamson

� Different from HNW private banks, however, this segment is more UK oriented in terms of proposition, client base, ownership and heritage. Also, as its name suggests, the focus is generally on investment capabilities over other product and service areas (though some have notably expanded into complimentary lines such as financial planning)

� Further, within this segment we have included the family office market, single and multi-family office establishments representing the wealth of either a single or multiple families. This market, largely hidden from public view, is large, international and very London-centric. The mandate for individual family offices varies considerably but they are ultimately stewards of very wealthy family or individuals wealth.

Market size and participants Scorpio Partnership market sizing analysis puts the PCIM segment of the wealth manager market at approximately GBP217 billion in assets under management. Once again this market is seen to be growing at approximately 8% per year. On the AUM side we have included only those assets managed by traditional PCIMs rather than the family segment. For the family office element of this market, we have taken the view that their asset base is counted either within PCIM already or within another area of the Wealth Manager segment, most likely HNW private banks. Therefore, in this PCIM segment there is no reference to, or accounting specifically of, family office assets.

Service overview At the centre of the offering from PCIMs is investment management but it is often supplemented by other product and service offerings. In general the offering may consist of: - Investments (principally discretionary and advisory portfolio management and across all asset classes, execution-only or stockbroking), cash management, traded options, spread betting) - Trust and fiduciary (estate planning, tax mitigation, company incorporation, succession planning) - Tax and financial planning (retirement and pension, income and IHT planning, tax returns, structuring) - Other services such as asset allocation and risk profiling



The PCIMs


segment at GBP217 billion or 9.9% of the GBP2.19 trillion of assets managed by all wealth managers in the UK, making it the smallest of the four wealth manager sub-segments in the market

� In terms of the segment’s revenue, like HNW private banks, the PCIM segment traditionally looked to take approximately 100bps or 1% of assets per annum. Achieving that performance on today’s AUM base would deliver a revenue for the segment of just under GBP2.2 billion

� Based on the data available for the UK as of today, however, Scorpio Partnership calculates a revenue closer to 85bps´which produces total segment revenue of approximately GBP1.845 billion per annum.

Commentary on profit and corporate tax � With average revenue of 85bps, the market is managing on average to deliver a

profit margin of 20% to 30%, based on Scorpio analysis. Those levels see the PCIM segment delivering total annual profits of GBP369 million and GBP553 million

� In terms of the corporate tax then paid by the segment, we again assume two rates based on market performance and the complexity of the corporate tax calculation – 15% and the standard rate of 28%. Using the revenue average of 85bps and a profit margin of 20%, the total corporation tax payment sits at GBP55 million at 15% and GBP103 million at 28%

� However, in this analysis, the revenue and profitability of the large family office market has not yet been taken into account aside from some of the larger MFO type businesses that will be accounted for within the standard PCIM segment

� Here, we calculate total profits of GBP354 million at 20% profit margin for a corporation tax contribution of GBP53.1 million at 15% and GBP99 million at 28%

� The addition of the family office profit and taxation data gives the PCIM segment a total profitability of GBP723 million at 20% profit margin for tax contribution of GBP108 million at 15% and GBP202 million at 28%.

Market revenue


100bps revenue – historical benchmark

85bps revenue – today‘s performance



The PCIMs

Commentary on employees � Based on Scorpio Partnership analysis of the data available via open sources, that

provided to us and our own modeling we have sized the PCIM employee pool at 17,900 staff

� 27.5% of that number, or 4,923, are what the sector would call client-facing such as investment managers, stockbrokers and so on. The remaining 69.5%, or 12,978 employees, includes management, administrative, marketing and so on

� Scorpio Partnership analysis of the available market data reveals a ratio of staff to AUM of 1 staff member to GBP27.5 million in AUM. Applying that ratio to the full segment AUM of GBP217 billion gives 7,900 employees for the commercial PCIM segment

� Further, Scorpio Partnership modelling puts the number of family office entities active in the UK in one form or another at approximately 2,000. While single family offices, the vast majority of the market, will typically operate with between 1 and 10 staff, the multi-family office, a more commercial entity, will function with 10 and sometimes many more staff. For the purposes of the model, however, we are assuming an average of 5 staff per family office and therefore 10,000 in total.

Commentary on salaries, tax and NI contributions � Based on Scorpio Partnership analysis of pay levels in the PCIM segment and an

estimation of weightings of staff across remuneration levels, total remuneration for the 17,900 employees comes to GBP1,270 million or an average of GBP70,931

� For the 4,922.5 client facing staff, the total salary cost is spend is GBP562.4 million, or GBP114,250 on average, while for the 12,977.5 support staff the total spend is GBP707 million for an average of GBP54,500

� Total headcount and salary distribution leads to a total tax contribution of GBP613.5 million – broken down at GBP380.7 million in income tax, GBP75.1 million in employee national insurance and GBP157.7 million in employer national insurance.

Number of employees



380.7

75.1

157.7




The Service Providers



Service Provider summary

Accountants � Revenue – GBP500 million

� Profit – GBP76 million

� Corporation tax – GBP11.4

million to GBP21.3 million � Headcount – 13,516




Lawyers � Revenue – GBP446 million

� Profit – GBP98 million

� Corporation tax – GBP14.7

million to GBP27.5 million � Headcount – 13,620




Insurers � Revenue – GBP7.9 billion to

GBP15.8 billion







Platforms � AUA – GBP164 billion

� Revenue – GBP490 million to

GBP656 million

� Profit – GBP49 million to GBP98 million

� Corporation tax – GBP7.4 million to GBP27.6 million







Service Provider summary

Trustees � Revenue – GBP347 million

� Profit – GBP54.4 million

� Corporation tax – GBP8

million to GBP15 million � Headcount – 4,442




Ancillary � Revenue – GBP1.59 billion to

GBP3.18 billion

� Profit – GBP318 million to GBP954 billion








The accountants

Introduction � Like the legal advisory market, accountants too are central to the advisory network around private clients and will also often be the client

relationship gatekeeper, navigating clients through the complexities of the market as well as channelling and administering other service providers. The accountancy community possibly has a greater role with HNWs than the legal sector due to tax and financial considerations

� The market is both deep and complex with several thousand firms in operation but dominated at the top by the Big Four global accounting giants who are followed by a long tail of several hundred smaller international, national and local firms. While some will have specialisations in certain areas they almost all do private client as well as corporate and commercial services

� Different from the legal market there is more cross-over in accountancy between private client work and corporate and commercial, particularly where the client is an entrepreneur or business owner.

Market size and participants According to the Professional Oversight Board (PRC) of the Financial Reporting Council, the accountancy regulator, as of June 2011, the UK’s seven membership bodies reported 304,000 members (this also includes Ireland) across 7,457 firms.

The market is heavily skewed towards the larger firms and, specifically, towards the Big Four (PwC, Deloitte, KPMG and Ernst & Young). Based on data collected by the PRC by firm size (top 1 to 4, 5 to 9, 10 to 30 and so on) and average revenue for 4,115 firms as of December 2010, Scorpio Partnership calculates that from a total revenue of GBP10.5 billion, 59.3% or GBP6.2 billion is attributed to the Big Four. The next 96 firms from produced GBP2.08 billion (19.9%), while the huge tail of 3,115 firms produced GBP2.2 billion (20.8%).

Critically, unlike in the legal market where a number of the big firms do not cover the private client market, the Big Four in the accounting market do focus on private client work and are therefore central to this analysis.

Service overview The accountancy services offered to the HNW private client market may include: - Divorce planning - Trusts and estate administration - Tax and inheritance planning - Financial planning and advice - Retirement and pension planning - Investment consulting, advice and review - Tax efficient investment - CGT planning - Exit and succession planning - Treasury management - Immigration and expatriation advice - Trust and tax compliance - Investment and business valuations - Specific services to business owners and entrepreneurs



The accountants

Commentary on market revenue � Based on Scorpio Partnership analysis of the PRC data, on average revenue for the

top 4,115 firms in the UK, out of a total revenue of GBP10.5 billion, 59.3%, or GBP6.2 billion, is attributed to the Big Four. The next 96 firms from produced GBP2.1 billion (19.9%), while the huge tail of 3,115 firms produced GBP2.2 billion (20.8%)

� The PRC data also allows provides audit and non-audit splits which show the big 4 drives 63% of income from non-audit work compared to 53% for the rest. Stripping that out creates a revenue figure of GBP6.2 billion for the whole market

� Further Scorpio Partnership analysis of the service and staff make-up of many of the firms in the top 200, as defined by publication Accountancy Age, suggests approximately 2.5% revenue contribution from private client services at the Big 4, around 5% for the top 100 (ex the Big 4), and Scorpio assumes a level of approximately 25% for the rest

� Total revenue generated based on those estimations reaches to GBP500 million, split GBP100 million from the Big 4, GBP110 million from the top 100 (ex Big Four) and GBP290 million from the rest.

Commentary on profit and corporate tax � Scorpio Partnership analysis and estimations of the subsequent profit performance

of these accountancy businesses gives a blended average of 25% profit for the Big 4 and 15% profit level for the remaining firms

� On that basis the total profit for the accountancy segment is GBP76 million , split GBP25 million from the Big Four, GBP16.5 million from the top 100 (ex Big Four) and GBP34.5 million from the rest

� In terms of tax, again using the standard two tax levels of 15% and the standard corporation tax rate of 28%, the segment is paying GBP11.4 million at 15% tax cost and GBP21.3 million at 28%.

Market revenue


Big 4

Top 10

The rest

Total revenue = GBP500mn

Total profit = GBP76mn Total tax = GBP11.4mn+

28%

15%

28% 15%

28% 15%



The accountants

Commentary on employees � The Big Four have a total staff size in the UK of 47,000. Since 37% of their business

is audit, we assume 63% of staff or 29,600 is non-Audit. Scorpio Partnership analysis of the private client units of firms within Accountancy Age’s 50 + 50 report gives an average of 2.5% of all staff operating within a private client department. Therefore, applied to the Big Four firms, there will be in the region of 740 staff

� Outside of the Big Four the average private client team rises to approximately 10% of all staff. Scorpio Partnership analysis of the partners in the top 100 firms (ex Big Four) totals 3,884 and an average ratio of 6% partners to all staff. Turning that into an all staff figure gives 64,733 of which 53%, or 34.309, is non-audit. 10% of that is 3,431

� For the huge tail of 3,115 firms we assume a conservative (for the whole group) headcount of 3 per firm working in private client focused work. That totals 9,345 which, when added to 740 for the Big Four and 3,431 for the top 100 gives a total headcount for the segment of 13,516

� We assume a distribution of all staff at 6% partners, 44% professionals and 50% support staff.

Commentary on salaries, tax and NI contributions � For the Big Four specifically, due to the high earning nature of their equity partners

we employed 12 bands from GBP20,000 through to GBP1 million. For the rest of the market we employed 11 bands from GBP20,000 through to GBP750,000

� Total segment remuneration for the 13,516 staff reaches to GBP1,117 million split GBP91.7 million for the Big Four staff, at an average of GBP123,975, and GBP1,025 million for rest of market, at an average of GBP80,250

� The total tax paid on that amount is GBP561 million – broken down as GBP359.2 in income tax, GBP61 million in employee national insurance and GBP140.9 million in employer national insurance

Number of employees



359

61

140.9




The lawyers

Introduction � Legal advisers are at the heart of the advisory network around private clients, often acting as the gatekeeper and therefore the channel

through which other wealth service providers access the client. They are often the first port of call, along with accountants, in establishing a client’s advisory network and structures, particularly when a client has business interests or family-related wealth issues

� The legal market in the UK is both deep and complex, consisting of many different firms ranging from the large multinational mega-firms (though most of the Magic Circle and other big firms focus on corporate work to the exclusion of private client), nationwide and regional full service firms, specialist London and regional-only private client focused firms and hundreds if not thousands of sole practitioners

� The offering to private clients is broad but for HNW clients tends to be wrapped within service offerings entitled private client, private capital, wealth management, entrepreneurs, landed estates and so on.

Market size and participants According to The Law Society, as of February 2010, there were 115,475 registered practicing solicitors in the UK and, of those, 85,128 (74%) worked in one of the 10,362 private practice firms The total revenue produced by these firms, as estimated by The Law Society, stood at GBP19.4 billion in 2009. According to data from The Lawyer, however, the top 200 firms in the UK by revenue produce almost GBP15 billion, or 77% (compared against 2009 revenue) of that revenue and therefore dominate the landscape At the very top of the market, however, a large number of the major law firms including Clifford Chance, Allen & Overy and Freshfields do not have a private client practice and so are excluded from this analysis. This applies to 12 out of the largest 16 firms. This is largely based therefore on firms within the top 200 that offer private client services.

Service overview The legal services offered to the HNW private client market are likely to include: - Divorce and family law - Trusts, probate, wills and estates - Tax and planning - Wealth structuring - Succession planning - Domicile, residency and immigration - Litigation and dispute resolution - Residential property - Yachts and aircraft - Art and heritage - Charity, philanthropy and giving - Reputation management - Employment



The lawyers Commentary on market revenue � While total UK legal market revenue stood at GBP19.4 billion in 2009, Scorpio

Partnership analysis of firms within the top 200 firms (as defined by The Lawyer publication) reveals 46% of that group’s total income (GBP14.94 billion) produced by firms offering various forms of private client services

� Therefore, within the top 200, firms with a private client service offering produced total revenue of GBP6.88 billion. If we then assume a 46% share for the whole market, the income level for all firms with a private client service is GBP8.92 billion

� Further Scorpio Partnership analysis of the service and staff make-up of those firms with private client services would suggest approximately 5% of staff sit within a private client unit. We therefore apply a 5% proportion to total earnings which, for those firms within the top 200, equates to GBP344 million in annual revenue, while for the full market it means annual revenue for private client services of GBP446 million.

Commentary on profit and corporate tax � Scorpio Partnership analysis on the financial performance of the top 200 law firms

in the UK with a private client business produces an average profit margin of 22% � Therefore, applied to the above revenue figures firms in the top 200 produce a total

profit of GBP75.7 million from private client services while for the whole market the figure reaches up to GBP98 million

� In terms of the tax cost from those performance data, we are again applying the discounted rate of 15% and the standard corporation tax rate of 28% due to the difficult in calculating the real tax contribution based on an analysis of actual payments.

� Therefore, based on those two levels, within the top 200 the private client legal community is paying GBP11.3 million or GBP21.1 million while for the whole market the contribution is either GBP14.7 million or GBP27.5 million.

Market revenue


All market

Top 200

28%

15%

28%

15%



The lawyers

Commentary on employees � The Law Society, as of February 2010, reported 85,128 solicitors working in private

practice across the UK � Scorpio Partnership analysis of the private client departments of firms within The

Lawyer ‘s top 200 annual analysis for year-end 2009 reveals an average of approximately 5% of all legal staff sit within a private client unit. Applied to the whole market that proportion means 4,256 legal staff working in the UK private client segment

� Further, analysis of all legal staff (equity partners, salaried partners and lawyers) against all staff reveals an average ratio of 1 lawyer for every 2.2 support staff. Meaning there are approximately 9,364 support staff serving the segment

� The total UK-wide headcount for the private client legal segment is therefore in the region of 13,620 employees.

Commentary on salaries, tax and NI contributions � The total headcount for this segment has been distributed across the ten

remuneration levels again but, given the potentially large remuneration differences, this has been done for both legal and support staff. For the legal staff, where 6% are partners, the headcount has been divided across bands from 500k down to 20k while for support staff the range is from 100k to 20k

� Total segment remuneration for the 13,620 staff reached GBP825.1 million split GBP399 million for the lawyers, at an average of GBP93,754, and GBP426 million for the support staff, at an average of GBP45,500

� The tax cost of that remuneration base comes to GBP375.1 million – broken down at GBP220.5 million in income tax, GBP54 million in employee national insurance and GBP100.6 million in employer national insurance.

Number of employees


220.5

54

100.6





The insurers

Introduction � The insurance market is a clear participant in the effort to protect the wealth and valued possessions of the affluent and HNW whether that is

their home, car, boat, family, life, investments, business and so on. However, insurance is also a planning tool used principally in relation to tax efficiency which adds another dimension to the relevance of the market

� In terms of the UK insurance market, while having significant depth in the number of providers (both locally incorporated and able to do business via EU licence) offering insurance services it is in fact dominated by the leading players such as Aviva, Lloyds, Legal & General, Prudential and so on

� The affluent and HNW client segment is most often not separated out from the retail market in the service offering and thus wealthier clients often buy the same insurance products as any standard individual client. Some firms do, however, segment and specifically target the segment though this element of the market is still small when compared to the overall size of the UK industry.

Market size and participants The UK is the third largest insurance market in the world by annual premium, according to Swiss Re, accounting for 7% of all premiums paid. According to the Association of British Insurers (ABI), that market is served by a total of 1,005 (UK registered plus EEA registered) general insurance firms and 309 (UK and EEA) long-term insurance registered firms. The ABI in its September 2011 Key Facts report also states that the UK insurance industry employs a total of 290,000 staff and paid annual taxes in 2010 of GBP10.4 billion. However, the contribution of the mass affluent and HNW segments within this whole is not tracked or separated out in performance or sizing date. It is largely included within the retail market.

Service overview The insurance market for affluent and HNW private clients is similar in many form to the retail market in terms of the offering yet policies will tend to be more bespoke depending on the wealth of the end client. The offering may consist of: - Home and contents insurance (primary residence, holiday/overseas homes, investment properties) - Art, antiques and jewellery - Cars (specialist, vintage) - Yacht and motorboat - Personal risk (kidnap and ransom) - Bloodstock - Life insurance (often as a wrapper) - Travel



The insurers

Commentary on market revenue � The total amount of premiums paid in the UK in 2010, according to the ABI’s

September 2011 Key Facts document, was GBP156.4 billion. This total was split GBP110.4 billion for long-term and savings (life insurance, pensions, etc.) and GBP46.4 million for non-life (home, motor insurance, etc.)

� Subsequent Scorpio Partnership analysis of the broken out data provided by the ABI extracted those areas relating to corporate premiums and others not related to individual planning and protection. The total premium for all individuals, and thus the full retail market, came to GBP78.85 billion

� No market analysis is available on the proportion of personal insurance premium segmented by wealth levels. Therefore, we have assumed a conservative 10%, or GBP7.9 billion, of that total retail market is attributable to the insurance planning and protection premiums of the affluent and HNW. A more optimistic, but still possible, figure would be 20% for GBP15.8 billion

� When the value of the assets in question is considered and thus the size of the premiums involved a high proportion of the whole is very feasible . Indeed, the Scorpio Wealth Distribution Model puts the number of individuals with wealth in excess of USD1 million in the UK at 448,090 individuals. Against the 10% premium value of GBP7.9 billion the average annual spend is therefore almost GBP17,500 or just 0.45% of average wealth for this group per annum.

Commentary on profit and corporate tax � In terms of the segment’s profitability, Scorpio Partnership analysis of the leading

insurance firms’ data reveals a relatively low level of profitability. We have therefore assumed two options for full market of 10% and 15%

� Assuming the 10% of premium level, at a 10% profit margin the segment produces GBP789 million per annum while at 15% profit the figure is GBP1,183 million

� The tax contribution on those performance figures, if we again assume a 15% and 28% corporation tax level, is therefore GBP106 million and GBP220 million at 10% profit margin and GBP177 million and GBP331 million at 15% profit margin

Market revenue


If 20% of market

If 10% of market



The insurers

Commentary on employees � According to the ABI in its September 2011 Key Facts report the UK insurance

industry employs a total of 290,000 staff � We assume at least a 10% share of all personal premiums. However, given that the

ticket size for premiums at the MNW or HNW level are likely to be significantly higher, even if more complex to establish and administer, we assume just 2% of total UK insurance sector headcount to be dedicated to this segment of wealth. That means 5,800 employees which includes individuals such as brokers as well as all sales, administrative and support personnel.

Commentary on salaries, tax and NI contributions � The total headcount of 5,800 staff has again been distributed across the standard

ten remuneration bands (in GBP thousand at 20, 30, 40, 50, 75, 100, 150, 250, 350 and 500k) with 1% in the top band (GBP500,000) and 70% of the total distributed across GBP50,000, GBP40,000, GBP30,000 and GBP20,000

� The subsequent total remuneration cost for all 5,800 employees in the insurance sector comes to GBP374 million, at an average of GBP64,500, with a total tax contribution arising from that of GBP158 million – broken down at GBP93.7 million in income tax, GBP22 million in employee national insurance and GBP42 million in employer national insurance.

Number of employees






The platforms

Introduction � The platform market is an increasingly relevant part of the UK wealth management market and likely its fastest growing sub-sector in terms of

use and assets. As a technology enabled offering platforms are increasingly central to the overall solution delivered to advisers and end clients, particularly, though certainly not exclusively, in the IFA arena where platforms support with expertise and product that is less likely to sit in-house. In fact, already 90% of IFAs use a platform or multiple platforms

� The platform space is expected to achieve greater market penetration as a result of the Retail Distribution Review and the entry of more major players is on track

� Platform service providers divide (with cross-over) into administrative platforms which support advisers in managing their business and discretionary asset management platforms which are focused on offering an investment service.

Market size and participants According to specialist industry analysts The Platforum as of September 2011 there were 23 platforms in the UK market administering a total of GBP164 billion. That is a huge jump of 59% on GBP102 billion reported in June 2010. Further, more conservatively, The Platforum predicts quarter-on-quarter growth of 5.34%, meaning the market will potentially grow by 23.13% over the year to GBP202 billion by June 2012 In terms of our analysis we have taken the data for the full platform market as its offering is agnostic of wealth level and delivers a holistic service offering to all end investors regardless of wealth Of the 23 platforms active today the largest are providers such as Skandia, Cofunds and FundsNetwork while numerous other smaller firms are growing apace such as Ascentric, Elevate and Nucleus.

Service overview The platform market offers an increasing array of products and services to support both its advisory clients and the end-client. In most cases the market has evolved beyond the traditional fund supermarket model. The offering may consist of: - Funds (in the form of OEICs or SICAVs) - Standard savings products and cash accounts - Insurance and pension products including SIPPs - Onshore and offshore bonds - Discretionary asset management via third party providers - Hedge funds - ETFs - Asset allocation and fund selection support - Risk profiling and investment research



The platforms

Commentary on market revenue � The segment’s charging structure typically fits between 10bps and 100bps

depending on the complexity of the service offering and amount of assets in question. On average, however, market professionals put the sector’s revenue on its AUA base of GBP164 billion at 30bps to 40bps

� Therefore, at 30bps on GBP164 billion the platform segment is generating annual revenues of GBP490 million. At the more optimistic 40bps on all AUA the segment‘s revenue reaches GBP656 million

� Given the (increasing) level of competition in the market and market insight research, however, we believe the 30bps level to be most representative of the full market.

Commentary on profit and corporate tax � In the terms of the sector’s profitability, again, the competitiveness of the segment

as well as high cost associated with entry and the development of an increasingly sophisticated technology-based product is seen to be impacting on profitability

� Therefore, we estimate profitability at 10% and 15%. Based on these assumptions, at the 30bps revenue level, the segment is driving an annual profit of GBP49.2 million at 10% profitability and GBP66 million at 15% profitability

� More positively, on 40bps average revenue on AUA, the segment is creating annual profit of GBP66 million at 10% profitability and GBP98 million at 15% profitability

� Turning to the segment’s corporation tax contribution, and again assuming two effective tax take levels of 15% and 28%, at the 30bps on revenue level, the tax cost on the 10% profit margin is GBP7.4 million at 15% and 13.7 million at 28% while at 15% profit margin the tax cost is GBP11 million and GBP20.6 million at 15% and 28% respectively.

Market revenue


At 40bos on AUA

At 30bos on AUA



The platforms

Commentary on employees � According to data collected on the 23 platform providers by sector analyst The

Platforum, the total headcount stands at 4,237 � Given the heavy technical and administrative nature of the platform business model,

the number of client facing staff number is relatively low. For the purposes of this work we estimate it to be 10% of total headcount or 424 employees

� The remaining 90% or 3,813 are support staff and a mix of technical and administrative given the service nature of platforms

Commentary on salaries, tax and NI contributions � After allocating those 4,237 staff across eight total remuneration levels from

GBP250,000 down the total segment remuneration is GBP206.2 million at an average of GBP48,667 per employee

� For the 424 client facing staff, the business development teams and account managers, the total salary spend comes in at GBP27.98 million for an average of GBP66,000. For the 3,813 non-client facing staff the total spend is GBP178.3 million for an average remuneration per employee of GBP46,750

� In terms of the headcount weightings across remuneration levels, we have assumed a maximum remuneration for the segment of GBP250,000 and allocated 2% of client-facing staff to that level. Otherwise staff are allocated across seven remuneration levels (150, 100, 75, 50, 40, 30 and 20k)

� Based on those remuneration totals and weightings the segment has a total tax contribution of GBP86.1 million – broken down at GBP46.3 million in income tax, GBP15.5 million in employee national insurance and GBP24.3 million in employer national insurance

Number of employees




46.3

15.5

24.3



The trustees

Introduction � The onshore trust market in the UK is relatively easy to define but extremely hard to size. Ultimately, however, it is a segment within

segments since its product and service offering is delivered in the vast majority of instances within six of the other segments reviewed in this analysis – HNW private banks, mass affluent banks, PCIMs, IFAs, lawyers and accountants

� For each of the above six segments a proportion of their overall proposition is the delivery of trust and trustee services. This service line in each case integrated into their core offering whether that is investment management, financial advice, law and so on

� The data that is used to size this segment is therefore data that is extracted from and already accounted for within the above six segments � The only exception to that double counting is for employees of overseas trust businesses that are employed in the UK. These individuals are

counted in the total headcount, salary and personal tax calculations

Market size and participants As outlined, the onshore trust market is essentially already counted as it is a service line that sits within six of the other segments in this analysis. Little or no data actually exists that separates out the trust area of work from those larger business lines, however. Therefore, our approach to attempt to size this area of work has been to extract a value that is attributable to trust work from the six segments that deliver within their wider proposition a trust product and service offering. We have thus made an estimate for each. In addition, we have also looked at the number of offshore trust businesses in key jurisdictions and made an estimate of the percentage that employ a permanent presence on the UK mainland.

Service overview Delivered across six of the segments also sized in this research the UK onshore trust market, in addition to the onshore presence of numerous offshore trust businesses, delivers a service offering that may consist of: - Trust and company establishment and administration - Tax planning - Wealth structuring - Succession planning - Provision of trustees



The trustees

Commentary on market revenue � This data on revenue is pure double counting from the six areas identified as

providers of trust services � To arrive at a market revenue figure for this segment Scorpio Partnership has

estimated a proportion of revenue that is attributable to trust services within each of the identified trust service segments

� Those estimations are: HNW private banks (2% of all revenue = GBP132.8mn), mass affluent banks (0.5% = GBP31.3mn), PCIMs (1% = GBP18.5mn), IFAs (0.5% = GBP22mn), lawyers (15% = GBP66.9mn) and accountants (15% = GBP75mn)

� Therefore, the total estimated market revenue for the trust segment is GBP346.5 million

Commentary on profit and corporate tax � To estimate the profitability of the trust segment, Scorpio Partnership again

employed the data from the six relevant segments. This time on their respective profit totals

� Therefore, HNW private banks (2% of total profit = GBP13.3mn), mass affluent banks (0.5% = GBP7.8mn), PCIMs (1% = GBP3.7mn), IFAs (0.5% = GBP3.3mn), lawyers (15% = GBP14.7mn) and accountants (15% = GBP11.6mn)

� The combined total for the segment therefore comes to GBP54.4 million per annum � Then, assuming the two corporation tax rates of 15% and 28% on that profit total,

the trust segment is contributing between GBP8.15 million at 15% and GBP15.2 million at 28%.

Market revenue


At 28% tax

At 15% tax



The trustees

Commentary on employees � The headcount make-up of the onshore trust market is essentially formed of two

sources: those already counted in the six relevant segments, and thus double counted here, and those working onshore in the UK for legal, accounting and trust businesses from other jurisdictions such as Jersey, Guernsey, the Isle of Man, Switzerland, Cayman and so on

� For the onshore segment, Scorpio Partnership has used the same percentage as used for proportion of revenue for each of the relevant six segments to calculate the total headcount. Therefore: HNW private banks (2% of all staff), mass affluent banks (0.5%), PCIMs (1%), IFAs (0.5%), lawyers (15%) and accountants (15%)

� That gives a total (double counted) headcount for trust services of 4,312 � For the offshore headcount, Scorpio Partnership looked at the number of trust and

corporate service provider businesses registered in some of the leading jurisdictions and then, combined with some market conversations, applied a percentage of firms to that number that are likely to operate with a permanent presence onshore in the UK. For the Isle of Man, for instance, there are in the region of 200 registered corporate service providers of which a maximum of 5% are estimated to have a UK presence

� The total headcount for the offshore portion comes to 130 giving a total for the trust segment of 4,442.

Commentary on salaries, tax and NI contributions � Allocating the total headcount of 4,442 across the standard ten remuneration bands

(20, 30, 40, 50, 75, 100, 150, 250, 350 and 500k), but with slightly more weighting given to the middle bands in this instance, gives a total remuneration for the segment of GBP361.5million at an average of GBP81,375

� The offshore headcount of 130 accounts for GBP12.2 million of that (avg. 93,750) � The subsequent tax contribution for the full group reaches a total of GBP174.9

million (GBP5.9 million for offshore) – broken down at GBP108.8 million (GBP3.7 million) in income tax, GBP20.6 million (GBP0.67 million) in employee national insurance and GBP45.5 million (GBP1.55 million) in employer national insurance.

Number of employees






The ancillary service providers

Introduction � As a sizeable segment of the UK financial services sector, wealth management employs thousands of staff, serves thousands of clients and

operates with a sophisticated and complex operating model that subsequently feeds into a wide array of external ancillary service providers � Therefore, there are hundreds, if not thousands, of businesses supplying specialist services to the UK wealth management sector across the

right through the value chain from the specialist, sophisticated, professional and highly technical end through to the day to day needs of any business

� In terms of sizing that market place the approach here is to look at the so-called higher end professional services that sit outside of the internal remit of many firms in UK wealth management and will therefore be employed by a large section of the sector. Further, these service providers are relatively easily grouped into distinct business lines such as recruitment, information technology, strategy and operational consultancies, PR, information and so on

Market size and participants Arriving at a data point that sizes the number of ancillary service providers to the UK wealth management sector is extremely difficult given the multiplicity of potential service lines and needs of individual institutions. The total number of UK-based providers who are on the pay roll of wealth managers in the UK certainly reaches into the hundreds and, depending on what is included, possibly the thousands once every wealth manger is taken into account For the sake of this analysis, however, we are focusing on the main intellectual and information service providers to the sector as revealed, certainly in terms of jobs and remuneration. Our starting point also to measure this segment, based on Scorpio Partnership research with the market, is the proportion of the market’s expenses bill that applies to ancillary-type services. That is typically between 10% and 20% of a firm’s total costs.

Service overview The lead professional ancillary service areas to the UK wealth management market are: - Management and strategy consultants (e.g. McKinsey, PwC, Scorpio) - Information, research and knowledge providers (e.g. Bloomberg, Standard & Poor’s, Wealth Briefing) - IT and systems consultants and providers (e.g. Advent, Temenos, SEI, Citisoft) - PR, marketing and branding agencies (e.g. Lansons, Broadgate Mainland) - Recruitment firms - Others such as education firms, real estate services and so on




Commentary on market revenue � The Scorpio Partnership wealth distribution model sizes the AUM controlled by the

UK wealth management sector at GBP2.19 trillion. Total market revenue from the four wealth manager segments, based on their individual assumptions, for this asset base is GBP19.15 billion

� Against that revenue is a total cost base of GBP15.9 billion, reached by totaling the cost base for each of the four segments based on their assumed profitability which averages out at 17% for GBP15.9 billion an industry cost income ratio of 83%

� Scorpio research into the proportion of a firm’s total cost that can be applied to ancillary services attributes between 10% and 20%, depending on the business model employed by the firm. Applying those percentages to the total cost of the market and the annual spend on ancillary services is between GBP1,590 million and GBP3,180 million

� We have therefore assumed that to be the annual revenue of the ancillary segment and the 10% level to be most appropriate for the full market.

Commentary on profit and corporate tax � Scorpio research suggests the ancillary segment to be extracting a profit on its

activities on average 20% to 30% on the revenue it generates � Therefore, at 10% of total cost (revenue of GBP1,590 million) the ancillary services

sector will generate between GBP318 million per annum at a 20% profit margin and GBP477 million at a 30% profit margin

� In terms of the tax contribution on those performance figures, again employing the discounted tax take of 15% and the standard rate of 28%, the ancillary services sector will pay either GBP47. 7 million at the 15% tax rate and GBP89 million at 28% on 20% profit and GBP71.6 million at the 15% tax rate and GBP133.6 million at 28% on 30% profit.

Market revenue


If 10% of the sector‘s total cost base –our lead assumption

If 20% of the sector‘s total cost base




Commentary on employees � The Scorpio Partnership estimation on the number of firms within the main business

areas (IT, consultancy, etc.) serving the UK wealth management is 350 businesses � Across this group of core providers, based on knowledge of team sizes and

estimations, we have assumed a total headcount of 3,500 staff, all employed directly as a result of services provided to the UK wealth management market. We believe this to be a conservative estimation

Commentary on salaries, tax and NI contributions � Employing the standard ten remuneration bands (20, 30, 40, 50, 75, 100, 150, 250,

350 and 500k) and allocating the 3,500 headcount across those gives a total remuneration for the segment of GBP225.75 million or an average of GBP64,500

� The total tax contribution on this salary base is GBP106 million – broken down at GBP64.5 million in income tax, GBP13.8 million in employee national insurance and GBP27.7 million in employer national insurance

� In terms of the distribution across the ten remuneration bands, we allocated 1% of total segment headcount to GBP500,000 at the top and 20% each to GBP20,000 and GBP30,000. The exact breakdown is in the appendix.

Number of employees






Appendix



Methodology

Market sizing – assets under management To build the picture of the asset value of the UK wealth management market, in terms of the assets under management within the market, we have employed the Scorpio Partnership Wealth Distribution Model. This market tool uses a combination of top down and bottom up analysis to minimise double counting. The size of the banking sector has been estimated using top down analysis. We have calculated the total wealth of the mass affluent and HNW client segments (including non-domestic HNW wealth managed in the UK) and used our Benchmark data to estimate how much of this wealth is controlled by UK banking entities. We have taken this approach because many banks do not provide segmented AUM data for different client groups or countries and, where banks do provide these data, the segments are not consistent across the market. This approach minimises double counting. In the case of HNW banking providers, we have assumed a 42% penetration rate. In the case of mass affluent banking providers, we have assumed a 55% penetration rate.

The size of the IFA sector has been estimated using bottom up analysis. The IFA sector rarely releases AUM data, but good revenue data are available for the leading firms. The size of the PCIM sector has been estimated using bottom up analysis ensuring there is no double counting between PCIMs, IFAs and the banking sector.

We have made the assumption that the four Wealth Manager segments are the asset holders/managers. The six other segments in this analysis are providers of services and not the managers of the money and therefore, apart from the platform and trustee segments, we do not seek to provide an assets under management or administration data point. The platform sector and the trustee sector are seen as service provider since the assets they administer are managed within the four money manager segments in almost all instances.



Data and information sources

Accountants � The Professional Oversight

Board – Key Facts and Trends in the Accountancy Profession, June 2011

� ICAEW Career Benchmark Survey 2011

� Accountancy Age, 50+50 2011 � Accountancy’s Top60 Survey,

2011 � Scorpio Partnership analysis

Lawyers � The Law Society, Fact Book

2010 � The Lawyer UK 200 � The Legal 500 � The Solicitors Regulation

Authority � Roll On Friday � Scorpio Partnership analysis

Insurers � The Association of British

Insurers (ABI), UK Insurance – Key Facts, September 2011

� Swiss Re, Sigma Report 2011 � Hiscox Wealth Review 2009 � Scorpio Partnership analysis

Platforms � The Platforum PAT tool � Scorpio Partnership analysis

Trustees � Scorpio Partnership analysis

Ancillary � Scorpio Partnership analysis

HNW Private Banks � Scorpio Partnership, Wealth

Distribution Model, Global Private Banking Benchmark, analysis

� Individual firm data contributions

� British Bankers Association � Financial Services Authority � TheCityUK

Mass Affluent Banks � Scorpio Partnership, Wealth


� British Bankers Association � Financial Services Authority � TheCityUK

IFAs � Scorpio Partnership, Wealth

Distribution Model, analysis � Individual firm data

contributions � Owen James Advisory

Distributors Benchmark 2011 � Professional Adviser Top 100,

2010 � Plimsoll IFA analysis 2011

PCIMs � Scorpio Partnership, Wealth


� Individual firm data contributions

� APCIMs

uk wealth management report scorpio partnership may 2012

Documents

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