Perspectives from Boyden's Global Financial Services Experts on Banking, FinTech, Real Estate, Insurance, Wealth & Asset Management

A roundtable discussion led by Boyden's Global Financial Services Practice Co-Leaders, Carlos Dafauce and Joost Goudsmit.

Joost Goudsmit: Due to extreme volatility during the pandemic, wealth and asset management may be an industry where we’ll see a rise in consolidation and M&A activity. Have you seen indication of that taking place already?

Giovanni Donati (U.K.): Definitely. Private banks, despite slimming down on costs post-2008, have been affected by increased spending including digitization as well as costs for legal and compliance. The volatility caused by the pandemic has unquestionably accelerated this process. If we look at Switzerland for example, one of the key European international private banking centers, the current forecast is that one fourth of private banks will disappear by 2025 due to consolidation. In 2010, the ten largest Swiss private banks held 72% of assets managed in Switzerland; by last year the number rose to 75% and is expected to rise to 80% by 2024.

We have all witnessed an exponential growth of Multi-Family Office (MFO) and External Asset Management (EAM) structures. They have been emerging as one of the preferred options for wealthy clients and have been gaining increased market share over the past decade. Despite a growing client demand for these structures; we see this segment starting to consolidate as well, especially in more mature markets. With a growing number of MFOs and EAMs globally, regulators have been implementing new frameworks to control the industry, which are expected to continue intensifying. Going back to Switzerland for example, recent legislation has just brought in new measures for multi-family offices that create more complexity and higher costs. This is an issue for the smaller players that are going to struggle with profitability and it will push consolidation and/or collaborations. There are currently more than 2,500 independent wealth managers in Switzerland with an average of three members of staff and about CHF 200 million in assets under management which are expected to be hugely affected.

Krista Espaldon (Singapore & China): I would add that Private Banks are reshuffling their investments, markets and business focus not only because of COVID-19 disruption but also because of regulatory changes. On the aspect of a big private bank acquiring a smaller private bank, we don’t see of this happening anytime soon in Asia but perhaps in a year or two. Right now, cash is king, and cost-saving and revenue generation are the focus.

External Asset Management (EAM)/Independent Asset Management (IAM) companies are taking into consideration of buy-out or capability exchange opportunities. Because the margins are so squeezed at this current market climate, even large EAMs/IAMs are re-thinking their formula pay-out scheme to a much lesser percentage.

For ultra-high-net-worth clients, we see the opposite. In times of extreme volatility, clients pay more attention to the professionals helping manage their wealth, regardless of the institutions they represent. Clients care about the timeliness of info and responsive of managers than the institutions. Therefore, less consolidation may take place due to the renewed attention of clients on the various managers they are dealing with.

Joost Goudsmit:  Are there other industry trends on the rise as we look towards the recovery and strengthening of models?

Krista Espaldon (Singapore & China): Delivery of timely market info and the ability to act on the info will be key. FIs need to invest fast to digitize their processes to allow managers to deal with clients at speed. I add that Robinhood and very small investors are taking advantage of new digital platforms to get into equity markets and commodities. You can make a case that the last 10% of the market rise has been driven by this new pool of “investors/gamblers”.

Giovanni Donati (U.K.): There remains a need for wealth managers to integrate technology for every part of the value chain, and to re-evaluate decisions related to the speed of automation and digital transformation. This goes from the onboarding process, with tools such as video conferencing and biometric authentication, all the way to digital trading and reporting.

The role of technology needs to be reprioritized and leveraged as a competitive advantage to win and retain clients, while at the same time wealth managers should also focus on value differentiation which requires long-term strategic thinking and development. Alongside this, they need to provide bankers with the tools and insights needed to communicate often and effectively with clients, wherever they are.

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