With the future firmly in centre stage, Private Banker International has conducted an online survey to find out what the private banking industry might look like in 2020. We have also asked members of our editorial advisory board to find out their opinions and PBI itself has taken a view on what will happen

Michael Lagopoulos

Deputy Chairman, RBC Wealth Management

What impact will the political environment have on the wealth industry in 2020?

The political environment will continue to have an increasingly significant impact on the wealth industry from many perspectives.

First, leading governments around the world are broke and are looking for more tax revenues to fund their spending, increase social programs and cut their unsustainable levels of debt. So tax revenues will have to rise.

The only way they can get it is by taxing the rich more aggressively than ever before and penalizing tax cheaters and those that aid and abet them more harshly than ever before.

Secondly, the industry has shown that it cannot regulate itself so regulations will become much more significant and much more costly to comply with.

Finally, the cost of all the new rules and regulators will increase the operational charges levied upon the industry so licensing costs will continue to rise significantly.

 

What will be the major regulatory/legislative issues for your sector in 2020?

It would not surprise me if it is to do with tax and tax collection. It may well be other G12 countries might apply the same kind of reporting requirements that the USA is currently trying to get from FATCA.

After all, why should the US have the monopoly on taxation requirements and forcing the financial institutions to help them collect the tax may be a big issue. Of course, not every government has the leverage of the US.

But the EU countries could do it if they worked together. My guess is it will be around tax collection what ever it is.

 

Do you think the business environment will improve or worsen?

I think the current slow growth, low inflation, low return environment we are in will last at least the rest of the decade and maybe even longer.

I think wealth management will still be a very good business to be in but not as good as it is today. I think there will be fewer global competitors though.

 

How large do you think the global HNW market will be in 2020 (by assets)?

If we accept the number of $42trn as a starting point at the end of 2011 as per the RBC/Capgemini World Wealth Report, then I would start my guess work at a 5% CAGR on that so I will guess $65trn.

Half of that might come from the market and earnings on existing wealth and the other half from new fortunes being made around the world, especially in emerging markets.

Then I would apply a 50% tax on the profits for new tax provisions to include income tax, inheritance tax, capital gains tax and wealth taxes of other kinds.

So if the growth is $23trn, I would reduce it by half and come in with a final guess of $53.5trn.

 

Where do you think the biggest wealth market will be in 2020?

Asia will be the largest wealth market by continental region but I think the largest single country will still be the United States.

 

Are there any new markets you think will become significant to your sector?

I think the big growth story here will be in China. I would expect and certainly do hope, for an open Chinese market where people around the world can easily buy and sell securities in renminbi as a fully exchangeable and floating currency on a market that is fair, properly regulated with reliable, timely and accurate financial reporting. A very long shot from where it is now but I have to dream large.

 

What new technologies do you think will be important?

I think the new technologies that wealth managers need to start focusing on more than they have to date is social media including Facebook, Twitter, LinkedIn and other forms that we don’t even know about today.

I think clients will want more connectivity and more information flow from their wealth managers as a demonstration of value for money.

People are increasingly judging the value of their wealth managers by how often they believe their wealth managers think of them. This is a way to demonstrate to our clients that we are thinking about them a lot.

 

What do you think will be your biggest business concern?

I think the biggest business concern by 2020 will be government, compliance, regulation and taxation issues. I think this will continue to get worse instead of better. I don’t think we are on a pendulum here. I see this as a one way trade.

 

What are you most optimistic about for the future?

I am most optimistic that clients will have more choice and tools available to them than ever before and that the value of outstanding client facing professionals who can build strong and trusting relationships with clients will be sustainable.

I also believe the value of a commercially oriented compliance executive, if one can still exist, will be very high.

 

Do you have any other predictions or forecasts for the industry in 2020?

I expect that the ROE in our industry and real wages of average employees and executives will go down rather than stay the same or go up.

While we have not seen a huge impact to date by Occupy Wall Street or the Occupy Movement more broadly, I certainly do not think it is dead and I think will have a much bigger impact in the future and force the financial services segment to think differently about their business.

I see this as potentially as powerful as the Anti Vietnam movement was against the US government in the 1960s and 1970s.

This will change the relationship people broadly have with their financial services provider and also impact the way governments treat the industry.

Perhaps it will not impact the relationship clients have with their largest and wealthiest clients so much but I do believe it will strongly impact their retail client base and their relationships with governments and regulators.

 

João Medeiros

Chief Executive, Itau International Private Bank

What impact will the political environment have on the wealth industry in 2020?

With a few exceptions, Latin America’s major economies sustain a strong foothold as a result of government initiatives to improve transparency and stability.

The positive impact of the regional political environments on market confidence contributes to long term growth as legitimate democratic institutions and improved governance are macro-drivers for the wealth management industry’s development.

 

What will be the major regulatory/legislative issues for your sector in 2020?

Regulators will maintain their focus on the reduction of systemic risk and safeguard of clients, driving wealth managers to strengthen their risk management practices.

Consequently, higher direct and indirect costs will pressure margins whereas tighter constraints will compress revenues, calling for a reassessment of current business models.

 

Do you think the business environment will improve or worsen?

The business environment will become more challenging. Players will have to cope with increasing business complexity and oversight requirements that will drive higher operational costs, keeping their focus on the optimization of cost-of-delivery and enhancement of their platforms’ value proposition.

 

How large do you think the global HNW market will be in 2020 (by assets)?

We project the global HNW market to reach roughly $110trn by 2020, of which the contribution of Latin American assets will amount to approximately $3trn.

 

Where do you think the biggest wealth market will be in 2020?

We believe that Asia-Pacific will close the gap and probably overcome North America becoming the largest global wealth market. In Latin America, Brazil will remain the biggest HNW market followed by Mexico.

 

Are there any new markets you think will become significant to your sector?

The rise of entrepreneurial UHNWIs and HNWIs in Latin America is boosting the demand for hybrid Private+Corporate solution portfolios and we foresee a rampant opportunity for private banks to enhance cross-selling in the near future.

In a a scenario of commoditization of the regular offering, players that address the demands of such individuals by developing solutions in the corporate market will be well positioned to take advantage of such growth opportunities.

 

What new technologies do you think will be important?

Digital channels and multi-channel integration will become critical factors for client relationship. In the short run, establishing mobile devices as supplementary vehicles integrated to the existing channels will be a less disruptive way for wealth managers to join the digital revolution.

The potential impact of other tools, such as social media, on the improvement of client experience and efficiency of the traditional private banking offering is promising, although yet dependent on further evolution.

 

What do you think will be your biggest business concern by 2020?

Traditional global players and a growing number of smaller, local players will become increasingly competitive in the Latin American wealth market, establishing aggressive pan regional strategies and exploring alternative business models.

In this context, players will have to develop unique selling points to differentiate from competitors through a complete offering tailored to clients’ requirements.

 

What are you most optimistic about for the future?

The process of economic growth in Latin America has reached a point of no return. We will see over the long term a sustainable wealth creation cycle even though hiccups may occur in specific countries or time periods.

 

Do you have any other predictions or forecasts for the industry in 2020?

Thus far we have not witnessed a technology-driven transformation in the wealth industry, however the coming years will present a significant assimilation of digital channels into the portfolio of solutions of wealth managers.

Players will develop alternative business models centred on clients’ greater control over their investments, delivering distinctive value propositions and client experience.

 

Caroline Garnham

Founder, Family Bhive

What impact will the political environment have on the wealth industry in 2020?

I am of the view that by 2020, politics will become increasingly accountable to the people they govern due to the increase in the power of social media. The wealth industry will be similarly accountable and responsive to demand.

 

What will be the major regulatory/legislative issues for your sector in 2020?

Governments will try increasingly to control the power of the people by curbing social media, and digital platforms. Wonga is charging usurious rates of interest.

 

Do you think the business environment will improve or worsen?

I think by 2020, the economy will have restored its confidence, but the influence of the banks will be considerably reduced as the UHNW community find ways of circumventing them using digital media to connect directly, but in a manner which is considered fair.

 

How large do you think the global HNW market will be in 2020 (by assets)?

In Britain the personal wealth is currently £6.7 trillion. This will be invested in new businesses and commodities and will continue to rise, across the globe. I cannot predict by how much.

 

Where do you think the biggest wealth market will be in 2020?

Asia although it will have to grow considerably to match the US.

 

Are there any new markets you think will become significant to your sector?

Latin America and the Middle East.

 

What new technologies do you think will be important?

The social media and power of the digital platforms. Seb Dovey of Scorpio says ‘Family Bhive is designed to market the services and products of wealth advisers and leading luxury brands to the UHNW community using the functionality of social media, but has none of the disadvantages’. This will be going live on 5th November.

 

What do you think will be your biggest business concern by 2020?

Privacy and confidentiality.

 

What are you most optimistic about for the future?

The improvement of service and products for everyone in response to the accurate feedback from customers and clients.

 

Do you have any other predictions or forecasts for the industry in 2020?

As with all revolutions, there will be winners and losers. For those who adapt to the changes, there are considerable advantages, for those which do not they will be left behind and for some absorbed by the more successful businesses.

 

Rory Tapner

CEO, Wealth Division, RBS Group

What impact will the political environment have on the wealth industry in 2020?

It will exert a significant influence on the wealth industry in 2020. The predominant current trend for our industry shows politicians and regulators becoming increasingly local in their thinking, yet our market is becoming increasingly global in many respects, particularly related to currencies and cross-border asset flows.

This disconnect could prompt tension in the long-term, particularly from a client standpoint.

 

What will be the major regulatory/legislative issues for your sector in 2020?

Other markets and jurisdictions will attempt to introduce moves similar to that of the Retail Distribution Review (RDR) which the FSA are putting in place in the UK. Naturally, the industry is facing the implementation of Basel III and major regulatory initiatives such as MiFID II and FATCA in a number of other countries.

 

Do you think the business environment will improve or worsen?

It is relatively difficult to see the business environment worsening significantly, given that parts of the West appear to be recovering from the excesses of the financial crisis and the economic damage that it wrought.

In Asia, we may be seeing a slight softening, but one would expect many of the economies to bounce back relatively quickly given overall economic and secular trends there.

 

Where do you think the biggest wealth market will be in 2020?

Without a doubt, China, and they will reach this milestone in three years time. As a global wealth manager, you will always have the question of how to approach the US, as that will continue to be a significant market.

It will also be interesting to see how the strategy pursued by foreign banks operating in China evolves.

 

Are there any new markets you think will become significant to your sector?

Indonesia harbours significant potential and it will become an important part of the business for many wealth managers in the future. Parts of Africa will also become interesting, although this might be slightly longer off.

 

What new technologies do you think will be important?

Technology will continue to play an important part in our industry, as it clearly has over the last twenty years. Whilst technology advances do help to bring down the cost of serving clients, they will never replace the individual professionalism and expertise of an experienced banker.

 

What do you think will be your biggest business concern?

Wealth management remains an industry where the cost to serve is high – although, historically, the margins have been high as well. We have seen pressure on margins given increased competition, and, although investment in the industry does appear to have fallen off, it is still significant – and necessary for long-term competitiveness. Increased regulation naturally has an influence on overall cost levels and will continue to do so.

 

What are you most optimistic about for the future?

We are beginning to see signs of consolidation which will inevitably bring some benefits of scale to a broader group of wealth managers than the group of peers that have dominated the industry over the past decade or two.

 

Shayne Nelson

Chief Executive and Global Head, Standard Chartered Private Bank

What impact will the political environment have on the wealth industry in 2020?

With the initiation of the US FATCA regulation, we can expect other countries to increase their focus on the transparency of tax reporting and scrutiny around offshore tax evasion.

Governments will look to enhance their respective countries’ reputations around AML or tax evasion, thereby increasing the complexity in the regulatory landscape for the financial services industry.

While globalisation promotes the trend of standardisation and consolidation, private banks, particularly in Asia, are likely to have to address an increase in differing regulations imposed by individual countries.

 

What will be the major regulatory/legislative issues for your sector in 2020?

With the US FATCA regulation in effect, we can expect a continued focus on transparency of tax reporting and scrutiny on offshore tax evasion. In 2020, we can anticipate that more countries would have signed reciprocal agreements with the US.

Compliance and due diligence will face more stringent standards and expectations both from regulators and clients, than ever before.

2020 would also see a greater integration of digitisation and technology in private banking, largely driven by client demand. Clients will be more empowered, more informed, more demanding, and regulations will continue to have to evolve along with this.

Businesses and regulators can expect to closely collaborate to develop solutions to ensure client suitability and protect client privacy in a highly digitised environment.

 

Do you think the business environment will improve or worsen?

As with every economic cycle, there will always be opportunities if one looks for it. The global economic shift of wealth from West to East will mean greater opportunity particularly for organisations like Standard Chartered, which has a strong focus on Asia, Africa and the Middle East.

According to the Economist Foresight 2020 report, by 2020 emerging markets, and China and India in particular, will take a greater slice of the world economy.

China is expected to become the biggest economy in the world, India is likely to become the third while many of the current emerging markets in Asia will continue to take a bigger slice of the global economic pie.

At the same time, we can expect more competition in the region from peer private banks and also from different types of financial service providers. Technology will continue to offer greater client insights and the opportunity for private banks to truly understand and anticipate their clients’ needs, aspirations and deepen relationships.

Preparing to capitalise on these key business trends will help an organisation build a successful and sustainable business.

 

How large do you think the global HNW market will be in 2020 (by assets)?

The world HNWIs’ aggregate investable wealth stood at US$ 42 trillion in 2011, according to the Capgemini Wealth report 2012.

Assuming moderate and stable economic growth, we expect global total wealth to grow by more than 6% annually, reaching over US$ 70 trillion by 2020.

While it is hard to predict the exact size of wealth pool, the clear trends of economic shifts from West to East will continue to intensify.

 

Where do you think the biggest wealth market will be in 2020?

 

While the US is expected to maintain its status as the biggest wealth market, China would have achieved a significant growth in wealth and number of HNWIs.

Today, China is the second largest HNWI market in Asia Pacific, accounting for one-quarter of the region’s HNWI wealth (source: Capgemini Asia Pacific Wealth Report 2012).

We are already observing this migration of wealth as China and India continue to power global economic growth and take the lead in wealth creation.

On a global scale, the focus remains in Asia; by 2020, 52% of world population will be middle class and 54% of them will be in Asia, compared to 22% for Europe and 10% for North America, according to Telefornica, a research and development company.

 

Are there any new markets – unfamiliar at the moment – you think will become significant to your sector?

Already familiar markets like China, India and Indonesia will continue to become increasingly important for the private banking business.

Currently developing markets like Thailand will have a sizable middle class. In addition, more African countries are expected to start emerging as important markets for private banks.

 

What new technologies do you think will be important? Will they be beneficial to your business?

With the mobile phone now commonplace and the rapid proliferation of smartphones, by 2020, most, if not all, customers will interact with banks on mobile devices.

These are increasingly being used for transactional functions, particularly as smartphones offer improved features like bigger data capacity, larger screens and better touchscreen technology.

Clients are likely to spend an increased amount of time accessing the internet, performing transactions and communicating online, replacing a significant portion of current face-to-face or over the phone interaction.

However, high-tech environment doesn’t mean that high-touch private banking services will disappear. Clients will more than ever appreciate the value of high-touch in-person discussions, especially when it comes to complex financial solutions.

Successfully integrating and leveraging technology to create the right combination of high-tech and high-touch will be critical to successful and sustainable growth.

 

Looking ahead to 2020, what do you think will be your biggest business concern?

Change is one of the few constants in today’s economic environment and a key on-going challenge is to implement a business strategy to ensure sustainable growth and success.

Meeting increasing regulatory requirements and growing a sustainable business supported by high client satisfaction are priorities. Many products and some services will continue to be commoditised and thus, nurturing quality talent and developing sound, quality expertise will be even more important in creating client value and staying competitive and differentiated.

While the future will present a lot of new opportunities, maintaining strategic focus will require good vision and discipline.

 

What are you most optimistic about for the future?

The growth and evolution of wealth in Asia. Asia-Pacific’s HNWI segment became the world’s largest in 2011 with 3.37 million individuals and total aggregate assets of US$ 10.7 trillion. Asia’s rich are different and have distinct needs from their counterparts in the West: They are younger, more entrepreneurial and more aggressive.

About 63% of them are business owners and their personal and business wealth is inter-linked. To serve this fast-growing client base efficiently, banks must change their approach, pulling up the shutters that have traditionally separated business and private banking.

 

Do you have any other predictions or forecasts for the industry in 2020?

Next generation wealth transfer: Across Asia in the next few decades, billions of dollars of newly minted wealth is set to be handed down to the next generation. A wealth transfer on this scale is unprecedented – raising the question of whether wealthy Asians are equipped to handle it and, more importantly, whether private bankers are offering the right support.

Philanthropy: With a fast growth of wealth in Asia, many more people especially the next generation will agree that with wealth come responsibilities. Although giving itself is not new to Asia, how it is done will change. It will become more structured and strategic. Private banks can expect to play a larger role in helping clients make a difference and leave behind a personal legacy.

RMB linked investments: By 2020, according to financial experts, the Chinese Yuan (RMB) will be one of the world’s three main currencies, along with the U.S. Dollar and the Euro. It will be used in international trading and for currency reserves. RMB linked investment products will become more widely available and gain popularity among private banking clients.