London’s unique position as a
hub for global, cross-border clients is one of its key attractions.
As technology advances, the opportunity to service international
investors in their local markets becomes more realistic. Yet there
are signs some international clients are leaving.
Go deeper with GlobalData
Paula
Elliott (PE), moderator: Josh, your business is set up to assist US
clients through London and Switzerland. With your experience of the
North American and Swiss markets, what can London learn from these
markets to increase its attractiveness?
Josh Matthews: I think it’s helpful to look at
how each of these markets grew into what it is today. Looking at
the Swiss market, it was always known for safe custody of assets
and secrecy, and typically dealt with international clients and
portfolios, although the firms were very domestic. They are losing
a lot of American and European clients because the veil of secrecy
is coming down, but their emerging market client base is growing
much more quickly.
The industry in the US largely
works with domestic clients and domestic portfolios. London is
heading down that path. It’s not going down the Swiss route with
its secrecy.
In the UK people are having to take
care of their own assets and investments. Because of the
disappearance of defined benefit plans and the rise of defined
contribution plans you will probably see major changes.
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By GlobalDataAs the industry grows, costs come
down. The financial media will probably become more interesting to
the common man, more advisers will emerge and RDR will do the same
in the UK as it did to the registered investment adviser (RIA)
business in the US.
In the US, RIAs are not allowed to
charge transaction fees or commissions; they can only charge annual
or set fees. That’s been a huge trend in the US and we’re starting
to see that over here. The UK has domestic and international
clients, investment firms and investment portfolios. So it’s in a
much better position to capitalise on some of the changes which are
inevitably going to happen here.
You’ll get more boutiques, more
people from different origins, whereas in New York City it’s
different. You have more US-centric investors.
I think if the UK plays its cards
right it could become a massive player with Russians and people
from the Middle East coming here. For some passport holders it is
increasingly difficult to get a visa to go to the US. So if you are
a foreigner, where are you going to buy a flat? London or Miami?
You’re going to get one in London.
James Fleming: I
was interested in a couple of points Josh made about the polarised
market and the value segments, because of the increased cost of
running the business.
Whether it’s regulation or another
element, the cost base is going up, which means the cost of
providing the traditional relationship is greater. I think we’re
going to make our firms push their needles up the value chain to
only deal with those clients who can provide a return that makes
sense against the cost base. For the traditional value client it’ll
be more technology-based, which has greater cost efficiency. I
think the international side is very true. London is not
diminishing. We’re seeing more Russian, more Indian, more Middle
Eastern and even more Chinese clients coming in.
NM: Is this a transitory
issue, because of the current financial situation, or is it a
deeper systemic issue?
James Fleming: On
a costs basis it is structural because all elements of the cost
base are holding current levels, or increasing. Whether it is IT
costs or regulation, I don’t see any of those cost elements going
down. That’s forcing firms to say: ‘There are only so many hours in
the day. How do we want to spend those? On this size client, or
that size of client?’
Selwyn Blair-Ford:
We are not in a bad place if you think about what London does and
the amount of business. The problem is that the growth in wealth is
happening elsewhere.
The real question for London is
that we know where the wealth is, and how much can we realistically
grab, but how strong will those competitors developing in those
other centres turn out to be?
For us it’s an opportunity cost,
not so much a case of our market or field growing or diminishing in
what we traditionally do. There is actually something new happening
elsewhere that we want to be part of, and we could end up in a
position where we are not playing a part in that game.
Josh Matthews:
It’s tough to dance at every wedding. You have to choose where you
want to be strong in the world. Demand is still increasing in
Europe, but at a slower rate than we see in Asia. That is what is
so tantalising for so many firms in Asia.
If you are a global player you have
to be in Asia because the growth rate is enormous. As demand
increases you need to be there to supply it. Those trends will
continue. I don’t think it’s London’s loss. I think people living
in Asia feel a bit more comfortable travelling to Singapore if they
can, instead of all the way to Switzerland or London to visit their
bars of gold in a safety deposit box, or to see their investment
manager.
Gary Dugan: I
don’t think London should be seen as the bank for the rest of the
world. We do not have to bring the cash here, but it can be the hub
of intellectual capital for the business.
Then it is thought leadership that
is very important. It means that UK brands can go into the rest of
the world and run money for people in their local market. It
doesn’t all have to come back here.
Selwyn Blair-Ford:
The potential for that to happen increases because the technology
is becoming much more accessible and mobile. Wanting to go over and
get a slice of that pie is more tangible and more practical, but we
haven’t figured out how.
You’ve got your iPads and iPhones,
so it doesn’t matter where your money is as long as you have
regular communication and trust. We can do that for Asia.
It is similar to the challenge of
establishing the first telephone banking service. Many people tried
and failed, then all of a sudden they got a model that worked and
they could make money out of it.
The race is on if we don’t develop
a telephone banking system quickly enough. The locals will set up a
bank that will satisfy those needs.
PE: Sophia, the lifestyle
advantages of London are often cited as one of its biggest draw
cards. What is your experience with the NRI segment?
Sophia Solanki, Partner,
Client Associates UK: We are an Indian-focused family
office and our India partnership was expanding. The question was
which overseas geography we should we go into, post-crisis. Of
course the leading contender remained London. Second choice, which
was very close, was Singapore, but obviously London won out.
Going forward, how is the future
going to seem for the highly placed professional business
owners?
The non-resident Indian client is
looking for that stability from those first-rate systems and
structures, for instance low crime rates and tax systems which
maintain their lifestyle. A temporary glitch like a weaker economic
outlook, if it’s temporary, is not going to change that, but if
it’s going to be a long, drawn-out situation it will lead to the
collapse of the system.
Do those systems exist and remain
as they are? I don’t see a major outflow or brain drain back to
India. Amongst our clients, the drain I’ve seen is a little
worrying. I’ve seen families move out.
How will the future go? That’s the
main deciding factor. Is the system going to improve on the aspects
mentioned, or are we going to continue on this road?
One point, relating to our own
business now, is the immigration laws, which are directly hampering
our growth plans. That’s an issue. We are all set to grow, the
business is attractive, but it is UK immigration law which is
stopping us expanding further.
PE: Should private banks be
increasingly focused on offshore, non-domiciled clients, rather
than onshore clients?
Chris Chambers: I
think that, for the most part, the major private banks either have,
or have expectations of, representation in these areas. You also
have to look to differentiate between offshore centres.
Sometimes you have revitalised or
younger financial centres competing with, or often complementing,
your more established centres.
Hong Kong, Singapore, Dubai and
Brazil are thriving areas precisely because of their proximity to
where the wealth is being created. Any private bank would be well
advised to increase its attention to those areas, but at the same
time they don’t want to ignore the old areas.
One of the hotter topics in Jersey
currently is the Middle East’s Arab Spring. I understand that as a
result of the geopolitical uncertainty there has been a quite
noticeable increase in deposits in Jersey bank account from Middle
Eastern sources.
I would suggest that when we get
access to the latest Swiss figures we will find the same thing
there and, again, the same thing in London.
So I certainly think that by all means any private banks should
increase exposure in these emerging areas, as long as they do not
neglect the older established areas.
See also:
PBI Round Table: Complacency threatens London’s
status
PBI Round Table: Regulation – a force for
good?
PBI Round Table: Preparing London’s pitch
