Comment: Good Old Times for Offshore Wealth Managers Gone
Time for a New Strategy
Feb. 12, 2010
The latest data from the Swiss National Bank show that foreign assets in private Swiss bank accounts have declined by almost 30% since the beginning of 2008 whereas domestic assets have declined by only about 14%. One important reason for this is the huge amount of net money outflows of private foreign money. The media report that the German government is about to buy another set of stolen data allegedly containing the names of thousands of German tax evaders. Italy has offered a generous amnesty to its tax evaders in case they bring back their black money to the home country. A Liechtenstein court has just ruled to pay millions of Swiss Francs of money damages to a German who has not been informed in due time by his Liechtenstein bank that confidential data about him had been stolen.
These are only a few random observations from the last six weeks affecting the major offshore wealth destinations in Europe. Nobody knows how far tax-hungry governments will go to “repatriate” assets that they believe are rightfully owned by the taxman. Yet, what we know for sure is that it is the eleventh hour for offshore Wealth Managers to adapt their business model and strategy to a massively changing environment. Even if some form of banking secrecy will survive or if the stolen client data turn out to be worthless for the tax authorities, we have no doubt that the cozy old times are over. Our research about Private Banks and Wealth Managers shows time and again that especially firms that have been insulated on their offshore islands for decades have a hard time changing their former way of doing business. We often hear the phrase “it has worked for decades and centuries”, but nobody should fool themselves: in order to survive, Wealth Managers and Private Banks should implement a new client focus and value proposition.
Mainly, there are five areas which require a new strategy:
Embrace change. Over the next decade or so the wealth management industry, particularly in European offshore centers, will live through an extensive change that has never been experienced before. A wave of new regulations will hit the banks all across the world, a new generation of clients will take responsibility for their assets, and the function of tax-shelters will vanish. Given the strength of many offshore destinations, change can be turned into an advantage and new strength – yet only if it is embraced wholeheartedly by the top-management of Wealth Management firms.
Strategy means focus. Many Private Banks have no clue which client segments to concentrate on. The usual segmentation by amount of investable assets (affluent, high net worth, ultra high net worth) is a useless tool once it comes to really understanding the customer needs. Every change in strategy consists of two vital actions, namely a customer segmentation meeting the demands of the customer and the focus on those segments whose needs can be served best and most profitably.
Adopt the communication technologies. Strategy is not only about which (potential) clients to focus on but also about how to reach out to them. We have just conducted a study on the web presence of the 20 largest Wealth Managers worldwide. The results show that in many cases even the basic standards like contact options and search functions have been insufficient.
Think about pricing and transparency. In the past, many offshore clients have paid without complaining fees of up to 2% per annum plus whatever hidden fees came with the funds in their portfolio. Once onshore and offshore Wealth Managers will compete directly pricing will be under close scrutiny on the client’s side. New standards of transparency and a clear value-for-money ratio will be required.
New Skills and competences of the advisers. Working with clients from many countries and understanding all the existing and possible new financial regulations in their home countries requires a heavy upgrade of the adviser skill set. Especially so in respect to tailoring a more client-specific advising process and taking into account that the new generation of clients will be harder to please and will employ the new technologies for selecting and monitoring their Wealth Manager and his performance.
These are only a few, but arguably some of the most important strategic imperatives for Private Banks and Wealth Managers. Over the next few months we will publish a series of reports to tackle those challenges. So, stay tuned.
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