What is the outlook for private banking in 2020? There are a lot of factors that will have an effect, from elections to climate change. Patrick Brusnahan asks experts what the wealth management industry can look forward to in 2020 (and what it should dread)
Yousafa Hazara, Irwin Mitchell
With Boris Johnson’s snap election to push through a hard Brexit, the big worry for HNWIs is what the landscape would like under a Labour government. For those individuals with connections and investments in the UK, careful planning will be even more essential to organise transactions and structure investments to ensure optimum tax efficiency.
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The most dramatic force of change continues to be the global drive for transparency. Governments are increasingly focused on cross-border arrangements and structures, and have implemented regulatory schemes that require the exchange of tax-related information. The Registration of Overseas Entities Bill is scheduled to come into force in 2021, with the aim to improve transparency regarding the ownership of land in the UK.
The bill seeks to create a publicly accessible register of beneficial ownership of all overseas entities that own land, or are purchasing land in the UK. Details of who owns and controls overseas companies and other legal entities that own UK land will be kept at Companies House.
Since 2017, trustees of UK and non-UK trusts which incur a UK tax liability have been obliged to register certain information with HMRC on the Trust Registration Service (TRS). This reflects the governments’ obligations under the Fourth Anti-Money Laundering Directive.
The scope of the TRS will be significantly widened by the Fifth Anti-Money Laundering Directive (5MLD), which is expected to be implemented by the UK on 10 January 2020. The government consulted on how 5MLD will be transposed into UK law; the consultation closed on 10 June 2019 and the government has yet to publish the report.
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By GlobalDataThe most significant reform will be that any express trust – irrespective of value or any UK tax liability – will need to be registered with the TRS. This appears to include trusts made in informal or domestic situations – for example, recording ownership of a home held jointly which may technically constitute a trust – charitable trusts, bare trusts and trusts of life insurance policies.
Alessandro Tonchia, Finantix
As we enter a new decade, clients know the type of customer experience they want to generate. But they are getting to the point where they say: “All of this is great, but I don’t have enough data, or the right data.” So, you have this tension between the drive for personalisation and meaningful advice, and a dearth of data that can focus on those decisions and personalisation.
Certainly, one crucial task over the next year will be to fill those containers of data. Because, with that data, you can have client intelligence and also compliance intelligence. You have a better-fitting suitability model that not only supplies intelligence, but can produce tailored proposals to the client and react to certain events, based on explicit or implicit client preference. So, a rich data model and data collection will allow you to automate as much as possible in any level of service you are aspiring to.
AI also has immense potential. There are two areas in particular where we envisage more change in this space. Firstly, around client intelligence and using AI to discover more around things such as events. In addition, using AI to support extreme personalisation. For this, it is important to understand client needs, build a wholesome client profile and configure work around this, with sophisticated personalisation about risk preferences, investments and so on.
There is not one technology that is going to change the way private banks interact. However, to be disruptive in 2020 will mean to be client-centric. Incumbents will have to show and deliver client services, and show a stronger focus on the customer. Client acquisition, personalisation and portfolios that are in line with the beliefs of the customer are all key trends that I believe will be pertinent for the wealth management industry in 2020.
Fahad Kamal, Kleinwort Hambros
Global economies are slowing, buffeted by powerful headwinds. Manufacturing remains mired in contraction, dragged down by rising global trade worries. Export-oriented economies in Japan and Germany are particularly vulnerable.
Even in the US, where manufacturing remains in better shape, a lack of clarity on trade and other policies continues to stymie corporate capital expenditure and profits. Admittedly, services – the dominant sector for most advanced countries – remains in expansion across much of the world, underpinned by robust personal consumption, strong real wage growth and low unemployment. But consumer data tends to be a lagging indicator, not a leading one. Add to the above elevated valuations for equities, a bull run entering an 11th year and myriad geopolitical quagmires, and you arrive at the conventional view that one should eschew risk, be prudent and bank the accrued gains. That view is likely wrong.
Firstly, GDP growth is still positive across all major economies, including Germany and Japan. Neither the International Monetary Fund nor any major central bank expects a recession in any notable country. Even as the ‘expansion’ stage of the business cycle has undoubtedly drifted into ‘slowdown’, slowdowns can last for years. More importantly, history shows that risk assets such as equities outperform defensive assets such as investment-grade bonds in slowdowns. ‘Contractions’ – or recessions – should be avoided like the plague from a perspective of risk assets, but we are not in a contraction!
Secondly, the monetary policy cavalry has once again ridden out in force to pre-empt the current deceleration in growth and inflation from worsening, which should help keep us in slowdown mode. If monetary policymakers will also be joined by their fiscal counterparts, conditions may even tick back into expansion! But even just monetary policy alone will do at least one thing: keep rates low. This gives us some comfort on elevated equity valuations.
Thirdly, while equity valuations are not cheap, the asset class is in strong momentum. Indeed, far from new equity market highs being a bearish signal, they are bullish, with new highs often begetting new highs. The trend is a far more powerful indicator than the ‘age of the bull market’ or similar notions.
Finally, geopolitics. The Brexit drama is just beginning in many ways in 2020 – future terms remain to be discussed – and a US election is likely to be a bruising, even disturbing, affair. But data does not support the hypothesis that geopolitical tensions are bad for markets. Anecdotally, the FTSE 100 is up 34% (i.e. 9% annualised) since 22 June 2016, the day before the Brexit vote in total return terms (i.e. including dividends). The US market is up 55% (i.e. 16% annualised) in the three years since the Trump election.
We have analysed a battery of geopolitical dislocations in history – overwhelmingly, they tend not to matter to returns in the months and years ahead, and are best ignored. We remain sanguine and constructive on risk positions.
Ross Jennings, RBC Wealth Management
We expect the next year to see a continuation of long-term shifts in the wealth management landscape, some of which are not unlike those we are seeing in the banking and finance industry more generally.
Operationally, greater integration of technology to improve the client experience will continue to be a key focus for wealth management firms. This is with a view not only to respond to the demands of a younger, always-on client base, but also to augment the role of relationship managers to give them the tools to better service clients, regardless of where they are.
Continued demographic diversification in the client base is another key trend that the industry will need to continue to adjust to. The pace of wealth accumulation among millennials and women of all generations will continue to increase as a result of the boom in tech-driven innovation, and this creates significant demand for wealth management advice and wealth-preservation strategies, presenting a significant opportunity for wealth managers who can offer bespoke wealth management services to meet their needs, as well as, in turn, diversify their own workforce to be better aligned with the changing client demographics.
Another trend concerns the fact that life expectancy continues to increase, and families will find three – and in some instances, even four – generations alive at the same time, with newer members becoming successful entrepreneurs in their own right. Against this backdrop, independent advice and the ability to manage and represent often diverse interests while preserving the family’s legacy will require wealth managers to create structures that help families navigate that complexity in an environment that fosters collaboration between the different generations.
From a client perspective, I believe there will be continued momentum throughout 2020 towards increasingly incorporating ESG factors into portfolios, with the aim to both protect and enhance returns for the long term.
From an investment perspective, the industry’s biggest challenge and opportunity in 2020 will be to navigate the macroeconomic environment which continues to be categorised as ‘uncharted territory’. We expect central banks’ 2019 accommodative monetary policies, as well as some additional fiscal stimulus, to keep most developed economies growing through 2020 and probably longer, continuing to support growth in corporate earnings, dividends and buybacks, though wealth managers should be cautious of inflationary pressures on over-exposure to stocks. A well-balanced global investment portfolio should help clients avoid complacency.
Furthermore, continued persistence of low interest rates means the search for yield becomes even more important, with clients increasingly hungry for insights and ideas that will help them deploy capital effectively. Wealth managers who are part of large global universal banks and thus have relationships across public and private capital markets will have an opportunity to become even more relevant to their clients in 2020.
