Wealth management has become increasingly important for banking groups: it is a fee-generating business that does not require the deployment of capital – something of great importance as more stringent capital rules continue to reshape bank activity across the world.
Yet wealth management is dealing with its own regulatory hurdles as well as competition from new players. These are both fintech providers with their inexpensive set-ups that aim to serve not only mass affluent clients but, increasingly, wealthier ones too; as well as less established but fast-growing names from the developing world. A sluggish global economy is not helping provide clients with the desired returns, while reputational risks remain serious concerns.
Aside from the heavy fines suffered by a number of private banks in recent years in connection with tax regulation, the recent leak out of Panama-based law firm Mossack Fonseca has raised fresh questions as to whether firms that use offshore jurisdictions may end up facilitating dubious practices, if not illegal activities.
Wealth managers’ ability to provide clients with sound advice and suitable investment options, keep up with complex regulation, as well as dealing with reputational risks continues to be tested. Clients naturally gravitate towards firms renowned for their quality of service and clean reputation: these are the firms whose brands would undoubtedly have greater value.
Measuring brand strength
To try to order such brands according to their financial worth, The Banker has commissioned a ranking of the most valued wealth and asset management names around the world. Compiled by consultancy Brand Finance, the list is based on the royalty relief methodology, a technique that calculates the licensing rate that a third party would have to pay to use the brand. Calculations are based on historic and forecasted financial results, market share, as well as on emotional factors such as familiarity and general brand satisfaction, as scored by clients and collected by independent data providers.
In contrast to our previous two private banking rankings, this year’s include asset management operations too as Brand Finance found it increasingly challenging to separate net revenues generated by wealth management from those sourced from asset management. The list still includes bank names only, as opposed to pure play asset managers, for example.
UBS is the undisputed leader, with a wealth and asset management brand valued at a total $6.35bn. The bank’s chief marketing officer, Johan Jervøe, believes that its success is the result of the increasingly rare combination of personal advice and global reach. “[Clients’] total wealth plan goes beyond merely financial matters, and this is what differentiates us from other wealth managers. Our global footprint mirrors many of our clients who live their lives in several countries and across continents,” he says.
Mr Jervøe believes that having wealth and asset management next to an investment bank allows UBS to provide all-round services to private clients. A presence on the ground is essential, he adds, noting that UBS’s 900 or so analysts across more than 50 markets are key to its success.
Wells Fargo's rise
But despite its clear leadership, UBS is not immune from challenges. Although by far the largest wealth management operation, its brand value has lost strength and dropped by 21% year on year. On the other hand, second placed Wells Fargo is gathering momentum. The US bank has improved its brand value by 35% to $5.87bn. This may not come as a surprise, as Wells Fargo has been in expansionary mode for the past few years. In 2014 it pledged to expand its asset management operation through acquisitions and more aggressive sales to big investors. Earlier this year, it boosted staff numbers by hiring about 100 financial advisers from Credit Suisse’s US wealth management operation, as the Swiss bank was exiting the market.
Wells Fargo’s wealth and asset management operations generated about $14bn in net revenues in 2015, according to Brand Finance, forecasting that this figure will steadily grow to reach $18bn by 2020. This progress is backed up by an effective communication strategy. “Along with its fundamental growth, Wells Fargo’s brand strategy has also been revamped to be more contextual and emotive in nature,” says Vinoth Jayakumar, who has compiled Brand Finance’s ranking. “Wells Fargo’s new ‘Why we work’ slogan, under its long running ‘Together we’ll go far’ campaign, seems to be working in terms of developing brand preference and loyalty.”
Marshall Butler, head of marketing for wealth and investment management at Wells Fargo, says: “Wells Fargo enjoys a long history of trust in the market, but we’re keenly aware that we build that trust every day with each interaction with our clients.”
ICBC's breakthrough
Equally impressive is ICBC’s brand growth, which, in a similar vein to Wells Fargo, has expanded 34% year on year and landed the Chinese bank in eighth place – higher than traditional heavyweights such as Goldman Sachs and Julius Baer. It is also the highest scoring emerging market name out of the three present in the list, which is overwhelmingly populated by European and US brands.
“ICBC established a private banking arm in 2008 and has seen phenomenal growth since then,” says Mr Jayakumar. “Overall, ICBC has been the most international of the Chinese banks and this has enabled them to have a first-mover advantage in relation to offering Chinese asset management services to the international community. ICBC’s partnership with Credit Suisse in establishing a joint venture in China with Rmb640bn [$99bn] of assets under management is further proof of this.”
Mr Jayakumar also notes how this year’s ranking mirrors Chinese banks’ growing focus on and investment in brand awareness. China Construction Bank also made it into the list, in 25th place; while the last emerging market brand, Mexico’s Banorte, is in 48th.
Europe bounces back
In Europe, a number of banks have either expanded or restructured their operations with positive effects on branding. Santander has seen the largest expansion, a phenomenal 78%, thanks to the merger of its asset management operations with Pioneer's in 2015, which will boost the Spanish bank’s reach in its key markets of Europe and Latin America. It is now the 33rd largest wealth and asset management brand in the world.
Higher up in the ranking, in 13th place, BNP Paribas has restructured part of its operations and started reaching clients outside its traditional European markets, something that contributed to a 34% brand growth. Its strong retail banking presence across Europe has also supported this expansion. Vincent Lecomte, co-head of BNP Paribas Wealth Management, says: “We see growth across markets such as France, Belgium, Italy, Luxembourg and Poland, where our retail banking presence brings strong recognition of a brand that can be trusted. It is this trust that allows us to work closely with our clients in meeting the challenges of slow growth and low interest rates in the European economy.”
The challenges facing wealth managers around the world are unlikely to ease in the near future. As the industry continues to reshape to better fit new macroeconomic and regulatory environments – where new rules may also be driven by public pressures following international scandals – paying attention to branding can only help.
For the full results download the PDF
Methodology
Brand Finance employs a discounted cashflow technique to discount estimated future royalties at an appropriate rate to arrive at a net present value of a bank’s trademark and associated intellectual property – its brand value.
The steps in this process are to:
1. Obtain brand-specific financial and revenue data.
Revenue streams pertaining solely to segments titled asset management, wealth management and asset and wealth management are isolated.
2. Model the market to identify market demand and the position of individual banks in the context of all other market competitors.
- Three forecast periods were used:
- Estimated financial results for 2015 using Institutional Brokers Estimate System (IBES) consensus forecast.
- A five-year forecast period (2016 to 2020) based on three sources: IBES, historic growth and gross domestic product (GDP) growth. Perpetuity growth based on a combination of growth expectations (GDP and IBES).
3. Establish the royalty rate for each bank by:
- Calculating brand strength on a scale of zero to 100 according to a number of attributes, including asset strength, emotional connection, market share and profitability.
- Determining the royalty rate for each revenue stream mentioned in step one.
- Calculating the future royalty income stream.
4. Calculate the discount rate specific to each bank, taking account of its size, geographical presence, reputation, gearing and brand rating (see below).
5. Discount future royalty stream (explicit forecast and perpetuity periods) to a net present value – the brand value.
Royalty relief approach
Brand Finance uses a ‘relief from royalty’ methodology that determines the value of the brand in relation to the royalty rate that would be payable for its use, were it owned by a third party. The royalty rate is applied to future revenue to determine an earnings stream that is attributable to the brand. The brand earnings stream is then discounted back to a net present value. This approach is used for three reasons: it is favoured by tax authorities and the courts because it calculates brand values by reference to documented third-party transactions; it can be done based on publicly available financial information; and it is compliant to the requirement under the International Valuation Standards Committee (IVSC) to determine Fair Market Value of brands and the ISO 10668 standard.
Brand ratings
These are calculated using Brand Finance’s ßrandßeta analysis, which benchmarks the strength, risk and potential of a brand relative to its competitors, on a scale from AAA to D. Conceptually, it is similar to a credit rating. The data used to calculate the ratings comes from various sources including Bloomberg annual reports and Brand Finance research.
Brand ratings definitions:
AAA Extremely strong, AA Very strong, A Strong
BBB-B Average
CCC-C Weak
DDD-D Failing
Valuation date: Brand values for the 2016 report are for the year ending December 31, 2015
