It has been another 12 critical months for private banking and wealth management. Big changes have followed new clients’ demands and increasing regulatory and technological developments. Valentina Romeo summarises what the industry has seen in 2014 and what to expect in 2015
The year 2014 has made a big impression on how the private banking and wealth management (PBWM) industry is reshaping and aiming to achieve higher levels of professionalism.
Go deeper with GlobalData
Globally, bigger banks and smaller firms have all acknowledged that the focus of their business has to return to what clients want.
The tech boom and rising regulatory requirements have shaken up players who were complacent, and forced many banks to adapt and even change their business models.
For instance three banks in Switzerland – Pictet, Lombard Odier and Mirabaud – publicly revealed results for the first time in over 100 years. Unsurprisingly, not everyone has managed to comply. Pressure on margins onmany on-shore and off-shore businesses, for example, has urged some players, such as SGPB Hambros, to sell their Asian operations. RBS has officially put Coutts’ international operations up for sale as well. Much like the year gone by, 2015 is expected to bring about lasting and pivotal changes.
Regulation strikes harder
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThere is no doubt that regulation and increasing compliance costs have made headlines in private banking in the last few years and will continue to play a big role in the reshaping the industry. With the upcoming MiFIDII, in 2014 we have seen many small and big players starting their preliminary impact assessments, although some banks are still in the ‘wait and see’ phase.
Specifically, only a third of private banks have actively started analysing the impacts and the raft of implications of MiFIDII, according to PwC.
MiFIDII is expected to increase the quality of investor protection at all levels, as well as quality in the advisory models with heavy impact on clients’ categorisation in retail and private banking segments. BNP Paribas Wealth Management (WM) co-heads, Vincent Lecomte and Sofia Merlo, say: "There have been significant changes in terms of the pace of incoming regulation, which is affecting the whole industry."
However, they say it is important to note that the end objective is an industry that is delivering a better service, better standards, and with greater professionalism than ever before, and "we are fully behind this".
Technology is the word
Technology and the increasing digitalisation of the PBWM industry has been another key theme running through 2014.
Guy Stephens, MD, Rowan Dartington Signature, says: "We believe that digital technology will actually deepen the relationship between relationship managers and clients."
As clients increasingly want to use technology to engage with their relationship managers, private banking firms are heavily investing in it.
"We are seeing a merging of technology solutions for the industry. Historically, platforms have offered a custody solution, CRM systems have offered a client information database and SIPPs a low-cost online commoditised tax wrapper," says Stephens.
According to Stephens, platforms have had to evolve following the RDR as they lost their revenue stream from fund managers. Many are now providing operational solutions to IFAs and Networks with DFM model portfolios to assist with the move to outsourcing.
In 2014, Citi Private Bank also launched In View, a platform offering a single online point of contact for clients and private bankers via mobile and desktop devices. In 2015, many other firms are expected to follow Citi’s path.
Additionally, the PBWM industry has moved towards digital solutions on the whole, with online-only discretionary management players fast establishing a presence globally – particularly the US and UK. After Nutmeg’s market break out, players such as Wealth Horizon have entered the direct-to-customer wealth management industry in the UK.
Investment trends
Stephane Monier, CIO for Lombard Odier’s European private banking business, says five years after a crisis caused by private and sovereign over-indebtedness around the world, 2014 was a favourable year in terms of financial assets performance, with equity returns increasing by 10% in the US, 2% in Europe and 6% in Japan.
However, he says, as we move forward and assets become more expensive, the probability of another financial crisis occurring is increasing.
According to Stephens, the big surprise of 2014 was the treasury market, which has been one of the better performing asset classes.
"Clearly, the markets were too bearish on the outlook for interest rates at the beginning of the year and expectations of rises are now stretching out to the second half of 2015 at the earliest," he says.
Monier believes that the major challenges in 2015 will be how to perform well in an environment where returns are still weak for both bonds and equities, in comparison to the beginning of 2000. He says a dynamic asset allocation strategy and durable risk management will deliver a better risk-adjusted performance and satisfactory returns.
Markets to watch
According to Monier, Europe is the region to keep an eye on.
Monier sees plenty of opportunities in equity markets, which are outperforming bonds, especially in Europe though the entire European project is under threat and economic reforms are taking a long time to be implemented in Italy and France.
The political environment in certain countries have had wider economic impacts.
Stephens says whilst there were many challenges and surprises, the biggest impact has been Russia’s ambitions in Ukraine and most importantly the effect it’s had on the oil price.
"It would be normal to expect an oil price spike, but the opposite has happened due to the pact between the US and OPEC to inflict economic hardship on Russia and Iran by flooding the oil market with excess supply."
This is boosting economic growth in the West by lowering input costs and is driving Russia into recession, he adds.
The eventual and anticipated start of the normalisation journey in interest rates will have a big influence in 2015, says Stephens. Furthermore, as economic growth strengthens in the US, this is looking more likely.
He says: "The tightening of interest rates was the consensus expectation for 2014 but markets were ahead of themselves. In 2015 this expectation should become a reality."
