UK Wealth Management Report Scorpio Partnership May 2012

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

UK Wealth Management
Sizing and valuing the full sector – 2012

Developing a common understanding for the industry

© Scorpio Partnership 2012 | 1


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



Project introduction
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.



Ten segments of product and service
Introduction HNW
Private
In order to arrive at a full valuation of the UK wealth Banks
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) Platforms

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, Key The wealth managers The service providers
Accountants, Trustees, and ancillary service providers such as
IT, consultants, information and research and so on.



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

Total: GBP3.593
billion

Source: PWC Source: PwC, Scorpio Partnership

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.



The full employee tax take
Contributors to UK FS sector employee taxation Applied to UKWM

Total: GBP4.028
billion

Source: PWC Source: PwC, Scorpio Partnership

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.



The Wealth Managers



Wealth Manager summary
HNW Private Banks Mass Affluent Banks IFAs PCIMs

AUM – GBP886 billion AUM – GBP501 billion AUM – GBP591 billion AUM – GBP217 billion

Revenue – GBP6.64 billion to Revenue – GBP6.3 billion to Revenue – GBP4.4 billion to Revenue – GBP1.85 billion to
GBP8.86 billion GBP7.5 billion GBP5.9 billion GBP2.2 billion

Profit – GBP664 million to Profit – GBP1.565 billion to Profit – GBP310 million to Profit – GBP723 million to
GBP1.77 billion GBP2.63 billion GBP887 million GBP1.26 billion

Corporation tax – GBP100 Corporation tax – GBP235 Corporation tax – GBP47 Corporation tax – GBP108
million to GBP496 million million to GBP736 million million to GBP414 million million to GBP353 million

Headcount – 22,700 Headcount – 20,000 Headcount – 22,611 Headcount – 17,900

Total remuneration – Total remuneration – Total remuneration – Total remuneration –
GBP1.83 billion GBP765 million GBP1.17 billion GBP1.27 billion

Average remuneration Average remuneration Average remuneration Average remuneration
– GBP81,000 – GBP38,000 – GBP52,000 – GBP71,000

Personal taxes Personal taxes Personal taxes Personal taxes
– GBP885 million – GBP299 million – GBP506 million – GBP614 million



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.

Service overview Market size and participants
The HNW private banking market offers the deepest and widest Scorpio market sizing analysis puts the HNW private banks at the
service and product set often structured across client segments. head of the market in terms of assets under management. Among
The offering may consist of: the 70 providers that fit into this segment of the market the AUM
total sits at approximately GBP886 billion and, based on historical
- Banking (deposits, standard savings products, mortgages, analysis, growing at approximately 8% per year.
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



Market revenue 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
100bps revenue –
all wealth managers in the UK. As such it is the largest sub-segment of the four
historical benchmark wealth managers as measured by AUM
In terms of the revenue the industry is able to extract from the AUM it manages,
75bps revenue – traditionally it has looked to take approximately 100bps or 1% of assets per annum.
today‘s performance 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
Profit and corporate tax 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%.



Number of employees Total headcount = Commentary on employees
22,700
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
Income tax and NI contributions of GBP80,798
For the 6,923 client facing staff, total salary cost is GBP678 million, or an average of
531 GBP98,000. For the 15,777 other staff the total spend is GBP1,156 million for an
Total tax = average of GBP73,250
GBP855 million
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
221.5 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
102.3 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



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.

The IFA market has an increasingly broad offer to the HNW and Scorpio Partnership analysis of the AUM controlled by the leading
mass affluent market place. Among relevant service providers the IFA businesses in the UK, or those with a focus on the HNW and
offering may consist of: mid-net worth market, attributes GBP591 billion, or 27%, of the
assets under management covered in this analysis
- Banking (deposits, standard savings products, mortgages,
lending, leverage, custody, FX, letters of credit, credit cards) Further Scorpio Partnership analysis of the UK IFA market puts the
- Investment management (discretionary and advisory portfolio number of firms active in targeting the MNW and HNW space today
management, execution only, platforms) at approximately 3,250. This equates to 8,660 active registered
- Trust and fiduciary (estate planning, tax mitigation, succession individuals working within these firms and also represents 29% of
planning) total number of IFAs working in the UK market
- Tax and financial planning (income, retirement, inheritance, IHT)
- Insurance (general, life, health) Again, this market is national and many of the firms operate either
- Pensions (retirement plans, SIPPs, stakeholder, annuities) 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.



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
100bps revenue
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
75bps revenue 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.

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
Profit and corporate tax 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%.



The IFAs
22,611
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.

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
Income tax and NI contributions an average of GBP70,250, while for the support staff the total cost is GBP565
million, at an average of GBP40,500
282.1 These totals lead to a total tax contribution of GBP506.3 million – broken down at
Total tax = GBP282.1 million in income tax, GBP84.3 million in employee national insurance
GBP506.3 million
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
139.9 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.
84.3 At the lower end we have allocated 20% each to remuneration of GBP30,000,
GBP40,000 and GBP50,000.



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.

The Mass Affluent private banking market is a generally less The Scorpio Partnership market sizing model and analysis
sophisticated offering than full-scale private banking, certainly in attributes GBP501 billion in assets under management to the MA
terms of specialist services, but it largely covers the same areas. banks. That gives them % of the assets under analysis in this work
The offering may consist of:
In terms of providers, there are approximately 20 in the UK market
- Banking (deposits, standard savings products, mortgages, including specific lines of the main retail banks but also competition
lending, multi-currency accounts, credit cards) such as the Co-operative Bank, Citibank, Nationwide and
- Investments (ISAs, discretionary advisory portfolio management, Santander.
share dealing, across the majority of asset classes)
- Financial planning (retirement planning, tax planning, children) New providers in this space are few and far between though the
- Insurance (home, life, illness, critical, travel, car, pet) specialist service lines such as HSBC Premier are relatively new but
- International (moving abroad, offshore, FX, mortgages) have reportedly experienced strong and consistent growth.
- 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
150bps revenue
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
125bps revenue
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

Unlike some of the other segments in the market, the mass affluent banks are
Profit and corporate tax 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.



20,000
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.

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
Income tax and NI contributions
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
Total tax = towards the lower remuneration bands. For instance, while 0.5% of all staff are
GBP298.5 million
allocated to GBP250,000, 30% of all staff are allocated to each of GBP20,000 and
GBP30,000.



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.

At the centre of the offering from PCIMs is investment Scorpio Partnership market sizing analysis puts the PCIM segment
management but it is often supplemented by other product and of the wealth manager market at approximately GBP217 billion in
service offerings. In general the offering may consist of: assets under management. Once again this market is seen to be
growing at approximately 8% per year.
- Investments (principally discretionary and advisory portfolio
management and across all asset classes, execution-only or On the AUM side we have included only those assets managed by
stockbroking), cash management, traded options, spread betting) traditional PCIMs rather than the family segment. For the family
- Trust and fiduciary (estate planning, tax mitigation, company office element of this market, we have taken the view that their
incorporation, succession planning) asset base is counted either within PCIM already or within another
- Tax and financial planning (retirement and pension, income and area of the Wealth Manager segment, most likely HNW private
IHT planning, tax returns, structuring) banks. Therefore, in this PCIM segment there is no reference to, or
- Other services such as asset allocation and risk profiling accounting specifically of, family office assets.



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
100bps revenue –
historical benchmark
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
85bps revenue –
today‘s performance 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.

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
Profit and corporate tax 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%.



The PCIMs
17,900
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
Income tax and NI contributions assuming an average of 5 staff per family office and therefore 10,000 in total.
380.7

Total tax = Commentary on salaries, tax and NI contributions
GBP613.5 million
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,
157.7 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
75.1 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.



The Service Providers



Service Provider summary
Accountants Lawyers Insurers Platforms

Revenue – GBP500 million Revenue – GBP446 million Revenue – GBP7.9 billion to AUA – GBP164 billion
GBP15.8 billion
Profit – GBP76 million Profit – GBP98 million Revenue – GBP490 million to
Profit – GBP789 million to GBP656 million
Corporation tax – GBP11.4 Corporation tax – GBP14.7 GBP2.37 billion
million to GBP21.3 million million to GBP27.5 million Profit – GBP49 million to
Corporation tax – GBP106 GBP98 million
Headcount – 13,516 Headcount – 13,620 million to GBP662 million
Corporation tax – GBP7.4
Total remuneration – Total remuneration – Headcount – 5,800 million to GBP27.6 million
GBP1.12 billion GBP825 million
Total remuneration – Headcount – 4,237
Average remuneration Average remuneration GBP374 million
– GBP82,000 – GBP61,000 Total remuneration –
Average remuneration GBP206 million
Personal taxes Personal taxes – GBP64,500
– GBP561 million – GBP375 million Average remuneration
Personal taxes – GBP49,000
– GBP158 million
Personal taxes
– GBP86 million



Service Provider summary
Trustees Ancillary

Revenue – GBP347 million Revenue – GBP1.59 billion to
GBP3.18 billion
Profit – GBP54.4 million
Profit – GBP318 million to
Corporation tax – GBP8 GBP954 billion
million to GBP15 million
Corporation tax – GBP48
Headcount – 4,442 million to GBP267 million

Total remuneration – Headcount – 3,500
GBP361 million
Total remuneration –
Average remuneration GBP226 million
– GBP81,000
Average remuneration
Personal taxes – GBP64,500
– GBP178 million
Personal taxes
– GBP106 million



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.

The accountancy services offered to the HNW private client market According to the Professional Oversight Board (PRC) of the
may include: Financial Reporting Council, the accountancy regulator, as of June
2011, the UK’s seven membership bodies reported 304,000
- Divorce planning members (this also includes Ireland) across 7,457 firms.
- Trusts and estate administration
- Tax and inheritance planning The market is heavily skewed towards the larger firms and,
- Financial planning and advice specifically, towards the Big Four (PwC, Deloitte, KPMG and Ernst
- Retirement and pension planning & Young). Based on data collected by the PRC by firm size (top 1 to
- Investment consulting, advice and review 4, 5 to 9, 10 to 30 and so on) and average revenue for 4,115 firms
- Tax efficient investment as of December 2010, Scorpio Partnership calculates that from a
- CGT planning total revenue of GBP10.5 billion, 59.3% or GBP6.2 billion is
- Exit and succession planning attributed to the Big Four. The next 96 firms from produced
- Treasury management GBP2.08 billion (19.9%), while the huge tail of 3,115 firms produced
- Immigration and expatriation advice GBP2.2 billion (20.8%).
- Trust and tax compliance
- Investment and business valuations Critically, unlike in the legal market where a number of the big firms
- Specific services to business owners and entrepreneurs 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.



The accountants
Market revenue Total revenue = Commentary on market revenue
GBP500mn
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
Big 4 Further Scorpio Partnership analysis of the service and staff make-up of many of
Top 10 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,
The rest 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)
Profit and corporate tax Total profit = GBP76mn and GBP290 million from the rest.
Total tax = GBP11.4mn+
28% Scorpio Partnership analysis and estimations of the subsequent profit performance
15% of these accountancy businesses gives a blended average of 25% profit for the Big
4 and 15% profit level for the remaining firms
28% On that basis the total profit for the accountancy segment is GBP76 million , split
15%
GBP25 million from the Big Four, GBP16.5 million from the top 100 (ex Big Four)
28% and GBP34.5 million from the rest
15% 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%.



The accountants
13,516
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
Income tax and NI contributions We assume a distribution of all staff at 6% partners, 44% professionals and 50%
support staff.
359
Total tax = Commentary on salaries, tax and NI contributions
GBP561 million
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
140.9
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
61
income tax, GBP61 million in employee national insurance and GBP140.9 million in
employer national insurance



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.

The legal services offered to the HNW private client market are According to The Law Society, as of February 2010, there were
likely to include: 115,475 registered practicing solicitors in the UK and, of those,
85,128 (74%) worked in one of the 10,362 private practice firms
- Divorce and family law
- Trusts, probate, wills and estates
The total revenue produced by these firms, as estimated by The
- Tax and planning
Law Society, stood at GBP19.4 billion in 2009. According to data
- Wealth structuring
from The Lawyer, however, the top 200 firms in the UK by revenue
- Succession planning
produce almost GBP15 billion, or 77% (compared against 2009
- Domicile, residency and immigration
revenue) of that revenue and therefore dominate the landscape
- Litigation and dispute resolution
- Residential property
- Yachts and aircraft At the very top of the market, however, a large number of the major
- Art and heritage law firms including Clifford Chance, Allen & Overy and Freshfields
- Charity, philanthropy and giving do not have a private client practice and so are excluded from this
- Reputation management analysis. This applies to 12 out of the largest 16 firms. This is largely
- Employment based therefore on firms within the top 200 that offer private client
services.



The lawyers
All market While total UK legal market revenue stood at GBP19.4 billion in 2009, Scorpio
Top 200 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.

Scorpio Partnership analysis on the financial performance of the top 200 law firms
Profit and corporate tax 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
28% profit of GBP75.7 million from private client services while for the whole market the
figure reaches up to GBP98 million
15%
28%
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
15%
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.



The lawyers
13,620
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.

Income 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,
220.5 this has been done for both legal and support staff. For the legal staff, where 6%
Total tax = are partners, the headcount has been divided across bands from 500k down to 20k
GBP375.1 million
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
100.6
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
54
and GBP100.6 million in employer national insurance.



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.

The insurance market for affluent and HNW private clients is similar The UK is the third largest insurance market in the world by annual
in many form to the retail market in terms of the offering yet premium, according to Swiss Re, accounting for 7% of all
policies will tend to be more bespoke depending on the wealth of premiums paid. According to the Association of British Insurers
the end client. The offering may consist of: (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-
- Home and contents insurance (primary residence, term insurance registered firms.
holiday/overseas homes, investment properties)
- Art, antiques and jewellery The ABI in its September 2011 Key Facts report also states that the
- Cars (specialist, vintage) UK insurance industry employs a total of 290,000 staff and paid
- Yacht and motorboat annual taxes in 2010 of GBP10.4 billion.
- Personal risk (kidnap and ransom)
- Bloodstock However, the contribution of the mass affluent and HNW segments
- Life insurance (often as a wrapper) within this whole is not tracked or separated out in performance or
- Travel sizing date. It is largely included within the retail market.


UK Wealth Management Report Scorpio Partnership May 2012

UK Wealth Management Report Scorpio Partnership May 2012

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