This month edition marks the 300th issue of Private Banker International, the world’s oldest established periodical of wealth management, since we first appeared way back in 1987. The industry for personalised advice for high net worth investors has come an awful long way since the 1980s. Back then, private banking was relatively primitive and, in international terms, absolutely dominated by the Swiss banks and offshore, rather than onshore banking.
Apart from Europe and the US, private banking barely existed and few would have predicted the phenomenal rise of Asia as a region for the rich, serviced by Singapore as a Far East clone of Monaco, with its own casinos and annual F1 grand prix. It is even forecast the Singapore could outstrip Switzerland by 2020 to become the defining global wealth centre.
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The City of London had a select few banks, such as Coutts and C. Hoare. But mostly, the service offered was banking-based rather than comprising the broad financial planning, tax and investment advice that any self-respecting firm prides itself on offering these days.
Nowadays, it is estimated that worldwide HNW assets total more than $46 trillion, a pool of money that private banks are still far from fully penetrating. Unofficial estimates are that advisers have a role in only about one-fifth of these assets.
More money, more problems
So, still much to play for. Against this rosy picture, success has brought its problems.
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By GlobalDataProfitability and scale can be increasingly tough to achieve. Witness the retreat by American firms, with Merrill Lynch and Morgan Stanley selling off much of their international wealth operations in recent months. This leaves few global scale US players left apart from exceptions like JP Morgan and Citi.
By and large, American firms – once so dominating in international finance – are a shadow of their former self as they concentrate on their home domestic markets. Canadian banks, which adroitly avoided the sub-prime mortgage debacle which so devastated banking sheets, have emerged as a powerful force. Latin America is also growing as an onshore market, particularly in Brazil, Mexico and Chile.
Switzerland is continuing its evolution after the latest agreement with the US marking the death-knell of tax-shy client assets. A quarter of the current 120 Swiss banks could disappear as Zurich and Geneva adapt to the new declared money regime.
Profitability also proves illusory for many firms in Asia-Pacific. Overheads from building networks in the region and hiring quality staff leave many still struggling to make money, according to informed opinion in Singapore and other centres. So expect to see a retreat from Asia by certain firms in the coming years. Perhaps the Swiss houses will prove the stayers — regarding Asia as the great new hope for their business after the regulatory onslaught at home.
New technologies
The impact of media and the internet, barely thought of in the 1980s, which has brought up-to-date information and analytics to clients, means that much of what has traditionally been done as wealth managers has been commoditised. Trade execution, investment products and banking products, the very sources of fee and commission income, have become undifferentiated and the outperformance of important benchmarks increasingly difficult to achieve.
So where to add value? Some veteran bankers contend that if firms are to demonstrate the value that they add, then they need to look at charging models to properly reflect the expertise and advice that clients are receiving.
Arguably, there would be greater transparency if the industry were to charge for time spent by their professionals and then a more reasonable fee for transactions and products. This model allows a better demonstration of the process of gaining an understanding of the clients’ circumstances, their long term goals and objectives, and the compiling and executing of an effective plan.
Death and taxes
Perhaps the greater challenge of all to the wealth business comes from the significantly greater role governments play in the international free flow of private assets, demonstrated by an ever-greater barrage of regulation.
Back in the 1980s, private banking, at least in some quarters, was an unfettered free-for-all. The tax amnesties across the world of the last decade – from the US, Britain, Germany, France, Italy and elsewhere – have done much to make clients "honest" and regularised their affairs. There seems to be no let up in the governmental desire to ensure, at best, full transparency is achieved and, at worst, to actively discourage their citizens being able to freely – and legally – move their money across borders.
Just look at the reluctance of growing numbers of banks in Europe to handle the affairs of American clients, because of the onerous reporting requirements under the FATCA regime.
The advisory industry has shown that it cannot be trusted to regulate itself so regulations will inevitably become much more intrusive and costly to comply with.
Optimist or pessimist, one thing is sure: global HNW worth is continuing on an upward path, albeit with setbacks, as that benchmark, The World Wealth Report from Capgemini and RBC shows over the last 10 years (see chart). From a low base of $28 trillion back in 2003, by last year it had built to more than $46 trillion despite sizeable blips during the financial crisis during the 2008 financial crisis.
So whatever your model – universal bank, independent, boutique or family office – or geographic reach – global or regional – or chosen segment – mass affluent, high net worth and the truly ultra wealthy — there’s an awful lot of client money out there to go after.
Global High Net Worth Assets – 2003/12
2003 = $28.2 trillion
2004 = $30.8
2005 = 33.3
2006 = 37.2
2007 = 41.0
2008 = 32.8
2009 = 39.0
2010= 42.7
2011= 42.0
2012 =46.2 trillion
Source: World Wealth Report
