Brazil’s private banking and wealth management sector has endured a rollercoaster ride in recent years as the government imposed a tax amnesty; and an economic downturn and political uncertainties have encouraged private banks in Brazil to focus more attention on the offshore market. However, with the Brazilian economy expanding again and poised to accelerate in 2018, there is optimism for the future growth of Brazil’s wealth management market. Robin Arnfield explains

Will Trout, head of wealth management research at Celent, says: “Brazil is the largest Latin American private banking market. It has several large domestic banks in the wealth space like Itaú and Bradesco and requires substantial investment by domestic and foreign market participants.

“The last few years’ economic meltdown and political uncertainties have encouraged private banks to focus more attention on the offshore market, particularly Miami. Challenges have encouraged players like Citi and HSBC to close their operations in this market, and the short-term outlook is at best uncertain.”

Tej Vakta, Capgemini’s global wealth management practice leader notes that Brazil was one of the top markets with strong HNWI population and wealth growth in its Latin America HNWI Market Analysis 2017.

At the beginning of November 2016 the Brazilian government announced it had collected the equivalent of $15.8bn in taxes and fines under its tax amnesty, while $263bn in assets were declared during the first three months of Indonesia’s nine-month amnesty.

Brazil’s Finance Ministry has reportedly raised $503m in revenue in the second round of the program granting tax amnesty to undeclared assets held abroad, disappointing expectations as the government struggles to reduce a budget gap.

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Boston Consulting Group’s 2017 World Wealth Report says that expected repatriation of Brazilian wealth after the Brazilian government’s 2015 tax amnesty hasn’t been as substantial as expected. Instead of repatriating offshore wealth, many families kept their wealth outside Brazil and merely reported it to the Brazilian tax authorities.

Itaú Private Bank

Itaú Private Bank has benefited from wealthy Brazilians’ move to offshore investing following political and economic uncertainty in Brazil.

Based in Brazil, Itaú Private Bank has offices in eight other countries including the US, Switzerland, Argentina, Chile, Paraguay and the Bahamas.

In conjunction with a profile of Itaú Private Bank published in Private Banker International in November 2017, an Itaú spokesperson said: “In July 2017, we completed 10 years of operating our international private banking unit in Miami. During this period, we increased our AUM in Miami by 400%. In terms of drivers, one of our main objectives is to increase our Latam offshore clients and to build new partnerships to expand our product offering, especially in alternative investments.”

Carlos Albertotti, head of sales at Itaú’s international private banking operation, says: “Itaú Private Bank’s offering has become more targeted to the different type of client profiles.

“We feel it’s important to recognise that clients with different profiles, sophistication, risk appetite, etc., need products and services that may be different from each other. Our focus has been setting up a platform that is complete for each different type of client profile.”

Itaú believes that, while digitalisation and innovation are critical, human interaction won’t disappear in the HNW private banking industry.

“Our view is that increasingly Latin American clients – especially post-amnesty – prefer a more integrated approach in their onshore and offshore coverage,” says Albertotti.

“They want help with fiscal planning, family governance, immigration, asset and risk management onshore and offshore, and they want these services to be integrated. Some private banks like ourselves are considering increasing their local presence in the markets where clients reside and have their operating businesses.”

Commenting on recent Latin American tax amnesties, Albertotti says:
“We believe banks with a local presence in Latin American markets have emerged from the post-tax amnesty period strengthened and better positioned to grow their offshore businesses.”

Julius Baer strategy

Beatriz Sanchez, head of Latin America and member of the executive board of Bank Julius Baer, says the bank is totally committed to Mexico, Brazil and Latin America in general.

Sanchez says: “In the short term, we see some volatility due to elections in Brazil and Mexico, but the right fundamentals are there for wealth creation and for us to add value in these markets. Our approach is to offer clients face-to-face advice, but we’re looking into the best options for digital channels, for example for millennial clients.”

“In Brazil, Julius Baer has 100% ownership of GPS Investimentos, a leading local independent wealth manager,” Sanchez says. “GPS provides open-architecture discretionary management services to HNWIs and UHNWIs focusing on domestic and international profiles.”

Julius Baer’s philosophy is to keep GPS independent, as it’s a well-recognized brand, says Sanchez.

Sanchez comments: “We’ve moved from a world where individuals or families looked at onshore assets totally divorced from their offshore investments. Today, onshore versus offshore isn’t the way to look at wealth, as people now manage their wealth holistically and decide what asset allocation strategy makes sense.

“In Brazil, GPS offers wealth management advice and implementation, wealth planning solutions, discretionary services, real estate and private equity investment opportunities, plus a panorama of international investment options and perspectives. It’s very difficult to do that only from an offshore or out-of-country perspective. Because of the tax amnesty, people manage their wealth totally transparently now.”

Sanchez stresses: “As Brazil’s capital markets are deeper and broader than Mexico’s, there’s more choice of financial instruments, but also very complex tax rules. The trends are similar in terms of amnesty and repatriation to Mexico. Brazilian families and individuals want an independent wealth manager or advisor that offers global asset allocation.”

Reviewing the past few years and looking ahead, Sanchez says: “Brazil’s economy went through a very dramatic recession in the last few years, touching bottom in 2015, but we’re seeing an uptick. We’re very optimistic for the future growth of Brazil’s wealth management market, although short term there’ll be financial and political volatility due to the 2018 presidential election.

“The economy is expected to grow 2-3% in 2018-2019 and inflation is under control with real interest rates at historical low levels. The era of buying and holding short-term paper to get high rates are over, and clients now need to do much more strategic and tactical asset allocation.”

 Fast Fact

In UBS’s house view for 2018, it explains that after a three-year recession, the Brazilian economy has started expanding again and is poised to accelerate in 2018. The recovery was triggered by the return of political confidence and a monetary policy easing cycle that slashed interest rates by half. The government also succeeded in enacting meaningful reforms, including the spending cap and labor market laws.