2016 in review: a year of uncertainty and loose ends
Last year was a tumultuous one with political upheavals, market volatility and leaked documents making headlines. Wealth managers had to deal with all this, along with the ongoing digital revolution, evolving business models and a flurry of M&A activity
… and breathe.
If you are a fan of the European Union, the Clintons or George Michael we know you probably haven’t had the best 12 months. 2016 will always be remembered as a year of change and challenge; big political and economic shifts caused market volatility, polarised societies and created strategic uncertainty.
At times, we felt more like counsellors than consultants. And, like all good counsellors we are going to ask you to pause and reflect. Here is a whistle stop tour through 2016’s major headlines in wealth…
January: Despite weathering difficult market conditions in 2015, the first wealth managers were prepared to show their hand as the year kicked off. Crédit Agricole announced plans for divestment of its retail operations to increase focus on wealth management. With international ambitions that extended beyond mainland Europe, the business rebranded as Indosuez Wealth Management; a nod to the 19th century heritage of Banque de l’Indochine.
UBS Wealth Management, too, revealed strategic intentions that extended far from their most established borders. Chief executive officer Sergio Ermotti announced plans to double the firm’s workforce in China to 1,200 within the next five years.
The Swiss giant’s focus on China was further strengthened in the summer, when the business revealed a joint partnership with Fudan University’s School of Management. The UBS Fudon Certificate and Scholarship was created to provide students with insight into the latest operational trends in investment banking, wealth and asset management.
February: It was clear that 2015’s trend for digitisation was set to continue. This time, however, it was not just FinTech start-ups who were the market disruptors. Through either strategic partnerships or internal initiatives, larger wealth operators started to take ownership of the digital debate in 2016.
One of the first was Singapore’s OCBC Bank, which launched a new financial technology unit called The Open Vault at OCBC this month. The initiative brought early stage businesses together with internal experts to tackle technology challenges in wealth, credit and insurance. Among others, compatriot DBS Bank followed suit later in the year, opening an innovation facility to foster collaboration with the FinTech community.
March: While some firms were opening their doors for collaboration, others were thinking about a more selective entry policy. The Wall Street Journal reported that JP Morgan was raising its minimum investment threshold for private banking to $10m. The move would see about 10 per cent of existing customers move onto the company’s Private Client Direct platform.
April: It became clear that 2016 would not only be a tumultuous year but a historic one. First, a huge leak of 11.5m confidential documents from Panamanian law firm Mossack Fonseca caused media furore. The so-called ‘Panama Papers’ allegedly demonstrated how certain wealthy individuals were exploiting offshore tax regimes, raising questions – once again – about the transparency and the distinction between legal tax planning and tax evasion.
Second, the United States’ Department of Labour’s (DoL) long anticipated Fiduciary rule was passed. The ruling will oblige all financial professionals who provide retirement advice to meet the fiduciary standard. The change is intended to ensure that advisers put clients’ interests first, rather than pursuing the sale of higher commission products. With an implementation date of April 2017, US operators are scrambling to prepare for the new requirements.
May: Although some were attempting to shape a better future for industry, others were still facing the ghosts of their past. HSBC Private Bank launched an appeal against the record HK$605m ($78m) fine and revocation of its advisory licence from the Securities and Futures Commission. The reprimand was over alleged misconduct related to the selling of structured products between 2003 and 2008.
It was not all bad news for the UK financial services giant. Later in the year, HSBC launched a private banking presence in Australia for the first time.
June: Brexit. The UK’s shock decision to leave the European Union caused a shake-up of the global markets and an uncertain future for businesses and investors in the country. As exit negotiations continue in 2017, the industry will be keeping a keen eye on discussions about access to the single market which will impact on their ability to market products and services across the EU.
July: The immediate aftermath of the UK referendum actually brought some positive outcomes. UK wealth managers including St. James’s Place and Brewin Dolphin reported net inflows into their savings and investment products from UK customers.
But the good news was short-lived. In what was perhaps the first major Brexit-related blow to the UK financial sector, UBS announced later in 2016 that it would be launching its new European headquarters in Frankfurt, not London.
August: As things started to calm down, the Asset Management Association of China released a statement reflecting on their progress tightening up the Chinese private wealth sector. Between early February and the summer months, AMAC shut down 10,000 private wealth management firms in China, in a bid to counter rising defaults and fraud in the fast-growing sector.
September: Two announcements made the future strategy of Germany’s largest bank a little clearer. Deutsche Bank CEO John Cryan defended rumours that he was selling its asset management division, describing the unit as an “essential part” of the business model.
The business also revealed the sale of its US Private Client Services business to Raymond James had been finalised. They stated Deutsche’s future role in the US wealth management market would be to strategically expand its presence in the West Coast and Florida.
October: As one deal closed, several more opened. TD Ameritrade agreed to buy Scottrade Financial Services, a move that would see two of the biggest US discount brokerages combine. The acquisition, which was valued at $4bn, was set in the context of weak trading volumes and slow revenue growth in the discount brokerage sector.
Also this month, Singapore’s DBS purchased ANZ’s retail and wealth management business in five Asian markets. The Australian bank took a $201m loss on the sale in order to create a ‘simpler, better capitalised, better balanced bank’.
November:Another shockwave as Donald Trump defied the pollsters to become the next President of the United States. As with Brexit, the public reaction was emotional to say the least. As well as deciding the fate of DoL’s fiduciary rule, Mr Trump’s administration will determine whether to enact his proposal to reduce estate tax. His response to these issues – and many more – will have a significant impact on the future direction of the sector.
December: By now most of us were begging for mercy – or the holidays, at least. It did not stop a flurry of activity at the end of the year. LGT announced its acquisition of ABN Amro’s Asian and Middle Eastern private banking business, Citi revealed a new mobile app and Edmond de Rothschild closed its Hong Kong operations.
Most ambitious of them all was Credit Suisse, who pledged to cut costs by another $994m in the next year. Despite the rapidly changing context for wealth managers around the world, the bank lowered its operating cost base for 2018 to less than SFr17bn ($16.7bn) from SFr18bn.
If anything is true, 2016 created many loose ends that will need to be tied in 2017. It seems that uncertainty is something that we will have to get used to.
Annie Catchpole is senior manager at wealth management think-tank Scorpio Partnership
