The global wealth management industry saw median assets under management grow by 18% in 2005, according to a UK-based consulting firm.

The finding comes as part of new research from Scorpio Partnership. It suggests that this strong asset growth came from a combination of healthy markets last year and surging net new money inflows. It also reports that pre-tax profits increased by 24.6% for the industry.

“Following some painful lessons in the recent past, the wealth management industry has hit its stride. The market leaders are demonstrating a sustained concentration on efficiency and profitability. Critically, they appear to also be achieving a more global proposition that resonates with the rapidly growing first generation new wealth holders. Net new asset flows are reflecting this,” said Sebastian Dovey, managing partner of Scorpio Partnership, in a news release.

The firm notes that three companies have now surpassed the US$1 trillion mark in AUM. UBS is the leading firm with US$1.3 trillion in AUM, up 8.75% in US dollar terms. “In base currency terms, it posted the highest AUM growth among the top 10 banks, rising 25.3%,” Scorpio Partnership notes.

UBS is being closely challenged by Citigroup, it adds. “This year Citigroup has reported assets under management both for Citigroup Private Bank and Citigroup Smith Barney, which targets clients with more than US$500,000 in liquid wealth. The collective business, Citigroup Global Wealth Management, reported total AUM of US$1.310 trillion,” it says.

Merrill Lynch is the other firm with more than US$1 trillion under management. There is a big drop off from third to fourth place, occupied by Credit Suisse, with US$558.7 billion in AUM. Morgan Stanley ranks fifth, followed by HSBC Group, J.P. Morgan, Wachovia Corporation, Bank of America and Deutsche Bank.

For banks targeting clients with US$1 million, the research finds Morgan Stanley now ranks second to UBS. “As a result of a re-classification of assets, Morgan Stanley climbed from 14th to fifth this year in the global ranking,” it says. For firms with a minimum investment of US$1 million, Wachovia ranks third, followed by BofA and ABN AMRO.

For firms targeting clients with at least US$10 million, UBS is also first, followed by J.P. Morgan, Citigroup, Northern Trust and Bessemer Trust Co. “Significantly, the growth rate in this category is markedly slower than in the US$1 million plus category,” says Scorpio Partnership, adding that the profitability of this segment is lower too.

“Targeting the ultra-HNW is often cited as the ultimate goal of many private banks. However, the research is now clearly demonstrating that it is often more profitable for banks to attack the mainstream private client market. There are more opportunities and the solutions can be more efficiently sold,” said Cath Tillotson, partner of Scorpio Partnership.

This research marks Scorpio Partnership’s fifth annual quantitative assessment of the wealth management industry. It includes comparative data from 73 firms controlling US$8.5 trillion in assets for private clients worldwide.