The global wealth management industry that invests money for the world's elite is suffering a profits squeeze, paying $8 to generate every $10 of income as it grapples with ever more burdensome and expensive regulations.
Specialist wealth management consultant Scorpio Partnership said in a closely watched annual health check of the global private banking sector that cost to income ratios across the industry reached 80 percent in 2011, from 79 percent a year earlier.
This compares to ratios of less than 70 percent before the financial crisis hit in 2008, prompting waves of new regulation across the world.
Among large institutions with more than $20 billion in assets managed for clients, the average increase in expenses jumped 18 percent to more than $2 billion at the end of 2011, the survey of 201 firms found.
The market trends pose the question whether cost income ratios in the region of 78 percent to 85 percent are the new reality for wealth management in the post-2008 era, Scorpio said in the report.
Cath Tillotson, managing partner at Scorpio, blamed in part higher personnel costs as firms looking to expand into growing markets in regions like Asia poach bankers from each other.
But an increasingly pivotal component of rising costs is the simultaneous introduction of new rules to govern the industry in multiple jurisdictions since the financial crisis.
New rules being introduced around the world include FATCA, a U.S. initiative cracking down on international tax dodging that will force non-U.S. institutions to root out clients who may be eligible for U.S. taxes from 2013.
Global banking regulators such as the Basel Committee on Banking Supervision are simultaneously tightening supervision, making lenders hold more capital to defend against possible future financial shocks.
And in Britain, reforms on retail investment product sales are coinciding with an overhaul of the entire regulatory infrastructure.
There's an imperative to expand but it's getting more expensive to do this kind of business around the world, Tillotson said.
The world's largest wealth manager, according to Scorpio, is Bank of America despite a 2 percent fall in assets to $1.67 trillion, followed by Swiss giant UBS with $1.55 trillion.