A survey of trends and developments in the global market, highlighting major banks, wealth managers, and hiring news.
According to the Family Wealth Transfer Report 2019 published by intelligence firm Wealth-X, $15.4 trillion of global wealth will be transferred by 2030 by individuals with a net worth over $5 million. The report identified that the majority of wealthy people around the world are currently over the age of 60, for whom wealth transfer has become a priority.
Of the total estimated transfer, $8.8 trillion will be passed on just in North America, followed by Europe where $3.2 trillion is estimated to shift to the next generation by 2030. Asia accounts for $1.9 trillion, due to the much younger wealthy population as opposed to older economies like Europe and the US. Furthermore, the super wealthy, with a net worth of $100 million or more, will be transferring the majority of this wealth, equivalent to $8 trillion.
According to Capgemini’s World Wealth Report 2019, the number and overall wealth of global high-net-worth individuals declined in 2018 for the first time in seven years. The number of individuals fell by 0.3% and overall wealth declined by almost 3%. HNWIs are defined as those having investable assets of $1 million or more, excluding primary residence, collectibles, consumables and consumer durables. The report identified Asia Pacific being responsible for 50% of the global wealth decline of which China accounted for half of that.
Europe and Africa also declined, while North America remained almost flat. The Middle East was the only region that registered an increase in its total HNW wealth. A significant drop in equity markets and a slowing economy were among the main reasons for the global decline. The UHNW segment (defined as the top 1% of the HNWI population) also registered a decline, with its population and wealth declining by approximately 4% and 6% respectively.
Banks collectively overseeing over $47 trillion in assets, or a third of the global industry, signed up to the new Principles for Responsible Banking, launched at the end of September in New York City and backed by the United Nations. The six principles provide a framework for a sustainable banking system to tackle the climate crisis and demonstrate how the industry can make a positive impact. The banks committed to align their business with the goals of the Paris Agreement on Climate Change and the UN Sustainable Development Goals (SDGs). Thirty banks led the development of these principles, which obtained 130 founding signatories during the launch. While action on climate change is growing, it is still far short of what is needed to meet the 1.5°C target of the Paris Agreement.
Switzerland granted banking licenses to Seba Crypo and Sygnum, two cryptocurrency-focused banks, representing the move of the blockchain industry into traditional banking. Finma purposely granted the two licenses at the same time, to avoid giving one firm a head-start over the other.
Seba, based in Zug, has officially partnered with Julius Baer; while Zurich-based Sygnum’s board includes former UBS CEO Peter Wuffli, and former Swiss central banker Philipp Hildebrand as a Senior Advisor. They are joined by a number of other crypto firms who are fighting to go live. Finma has always been very reluctant in issuing banking licenses to firms with drastically new business models.
The Swiss Federal Council has released a policy proposal to implement new anti-money laundering measures targeting lawyers, notaries and other consultants who have a role in managing companies and trusts; requiring those who have a role in some part of the management of companies and trusts to follow the same due diligence and reporting requirements as bankers. This comes as a result of the 2016 Panama Paper leak, which revealed that Swiss intermediaries, such as lawyers and financial advisors, had aided in setting up more than 38,000 offshore accounts on behalf of clients over the course of four decades. The Parliament will review the proposal later this year and if passed it will come into effect in 2021.
Switzerland has also started exchanging financial account information for tax purposes with 33 more countries in September, for the first time. These countries are: Andorra, Argentina, Barbados, Belize, Brazil, Chile, China, Colombia, Cook Island, Costa Rica, Curaçao, Faroe Islands, Greenland, Hong Kong, India, Indonesia, Liechtenstein, Malaysia, Mauritius, Mexico, Monaco, Montserrat, New Zealand, Russia, Saint-Kitts and Nevis, Saint Martin, Saint Vincent and the Grenadines, Sainte-Lucia, Saudi Arabia, Seychelles, Singapore, South Africa, and Uruguay.
According to a report by McKinsey, industry profits fell 8% to £13.5 billion last year from £15.4 billion in 2017. Private banks in Europe took the biggest hit since the global financial crisis. The survey studied 113 banks and found that over 30% reported net client outflows, up from 25% a year earlier. Although banks continued to take tactical measures to control costs, the absolute cost base continued to grow between 2% and 3% year on year, with investment management, sales and marketing expenses rising by 4% a year over the past five years. McKinsey suggested banks to take quick action and especially small and mid-sized banks should work together to reduce costs by creating a platform for back-office functions. Consolidation among the smaller players would also create real competition to larger rivals.
As previously identified in our Q1 2019 report, many Swiss private banking players are facing extinction. A recent report by KPMG and the University of St Gallen found that 34% of Swiss banks were “weak performers” in 2018, a drastic 50% increase from the year before. More than half of those banks posted a loss last year. At the same time, the number of “strong performers” dropped from 26 to 19 banks and is dominated by the larger players. This comes as a result of the death of banking secrecy that took place exactly five years ago. Banks in Switzerland fell from 163 in 2010 to 101 at the start of 2019. CHF 100 billion + in AUM has been identified as the minimum scale for long term success.
Despite London retaining second place in the world’s top financial centres index published by consultancy firm Z/Yen, second only to New York, KPMG has recently predicted a 1.5% GDP decline by 2020 if Brexit ends in a no-deal, which would be worse than the decline following the 2008 crash. It was a turmoiled year in 2018 for the UK, building not only on Brexit but also on the uncertainty of the US-China trade war. According to Capgemini’s 2019 World Wealth Report, the population of UK high net worth individuals (HNWIs) declined by 3.3% in 2018 to stand at 556,000, significantly lower than the population growth of 9.5% in 2017. Assets of the UK’s wealthiest also took a significant hit, with a 6% decline to $2 trillion (£1.6 trillion).
Analytic company GlobalData estimated that should no-deal happen, Q4 2019 will be a harming quarter which could reduce the UK wealth market by up to 5% in both 2019 and 2020 and will be largely felt in the fund and equity market. The number of UK resident non-domiciled individuals also declined to its lowest level ever. Last year, there were 78,300 non-domiciled taxpayers in the UK compared with 98,500 in 2016-17. HMRC said that of those who no longer have the non-dom status, about half became domiciled taxpayers and the other half left the British tax system. Although this number can be a little discouraging, the UK wealth market is broadly forecasted to revert to positive growth in the years following Brexit. As many bankers say “we need to get Brexit done; the inertia is worse than a no deal.”
Capital controls imposed in 2015 at the pick of the Greek financial crisis were lifted in September, meaning that Greek individuals and companies will no longer be restricted on transferring money abroad, in a bid to make the country more attractive to foreign investors. Unemployment fell below 18% compared to its peak of 28% during the crisis; Greek state bonds continue to drop, while stocks and retail sales have been on the rise. Greek banks continue to shed non-performing loans with a country target to reduce bad loans by half, or below 20%, by the end of 2021.
Greece completed the stability support programme designed by the European Stability Mechanism last year, which aimed to address long-term structural issues that contributed to Greece’s financial crisis in the first place. The mechanism distributed €61.9 billion over three years and allowed Greece to implement reforms to help economic recovery and will hopefully protect the country from future crashes.
Hong Kong’s political turmoil over the past two months saw multiple flights being grounded and violent street clashes with police, driven by protesters against the extradition bill proposed by China. If enacted, the bill would have allowed local authorities to detain and extradite criminal fugitives who are wanted in territories with which Hong Kong does not currently have extradition agreements, including Taiwan and mainland China, and would have undermined the autonomy of Hong Kong and its civil liberties. Despite the bill being suspended on July 9th, and withdrawn on September 24th, there is no doubt Hong Kong’s stability has been undermined.
An ever-increasing number of wealthy Hong Kong residents have been looking at other safer heavens, mainly eyeing the UK, Switzerland and the US, but also other countries that offer residency-for-investment visas like Portugal and Italy, to make sure they have a contingency plan in place in case things get worse. Portugal’s visa program for example, has been one of the most sought after in Europe as it grants residency in exchange for a minimum property investment of €350,000. London is also attractive given the 20% fall in home prices from their 2014-15 peak and the weakened sterling, with Hong Kong Chinese individuals snapping up UK golden visas at an unheard-of pace, reaching a five-year high.
The private wealth management industry total AUM in Hong Kong decreased by 2% in 2018 to HK$7.62 trillion (approximately $1 trillion) compared to the previous period. Despite Europe becoming increasingly interesting, a significant part of assets continues shifting from Hong Kong to Singapore too, a much simpler asset move than to the West.
According to the 10th edition of the Global Wealth Report published by Alliaz, Singapore has overtaken Japan and is now the richest state in Asia, while ranking third globally after the United States and Switzerland, with net financial assets per capita of €100,370.00 in 2018. This represents a 4.4% year-on-year growth, despite the global economic instability and trade wars weighting mainly on the global middle class.
Singaporean banks reported strong performances in the first half of 2019, with the three major banks increasing their assets under management by 8-9% compared to the year before, as well as reporting stronger wealth management fees. Wealth-related fees in the first half of 2019 made up 37% of DBS Bank’s core fees, 48% of OCBC Bank’s, and 35% of UOB’s, largely generated from the affluent segment, as well as private banking clients. They are also increasingly benefitting from more family offices setting up in Singapore, with the advantage of incentives like the tax incentive dubbed “13X” that allows qualifying family offices to have specified income derived from certain designated investments such as securities to be exempted from tax.
Singapore has also raised to be Asia-Pacific’s third largest fintech market by funds, placing just behind China and India. Despite a fall in the total value of fintech deals globally in the first half of 2019, the value of fundraising deals in this sector in Singapore almost quadrupled to $453 million. China and India instead experienced declines of 49% and 21% respectively.
The 2019 State of Wealth Report compiled by Crestone Wealth Management and CoreData discovered that most millionaires in Australia are unsophisticated and cautious investors. The report found that 81% of HNW & UHNW individuals (defined as individuals with $1 million and $10 million more of investable assets respectively) prefer to keep their wealth in cash through saving accounts and term deposits, rather than risk capital erosion. 56% invest in Australian equities, followed by 42% in direct residential property.
The report also identified that they feel safe in their own market, as less than one in four invest in global equities, and only one in 10 hold international bonds. Baby boomers (born between 1946 and 1964) are more likely to invest in cash or Australian equities, while younger investors tend to be more diversified. The report also commented that although Aussie investors are aware of the risks associated with the lack of diversification in their portfolio, they prefer to be cautious and are mainly focused in generating income and preserve capital.
According to a survey conducted by UBS Global Wealth Management, US markets continue to hit record highs in 2019. Wealthy individuals and business owners are expressing growing intentions to invest; they remain positive on the US stock market, although politics and the national debt have emerged as top concerns. The study revealed that 50% of US investors see a diversified portfolio as a hedge against US-China trade tensions specifically, compared with 41% who favor cash. Banks are seeing increasing willingness in US investors to diversify their portfolios and put more money in the market.
As identified in a research by Fidelity Clearing and Custody Solutions, wealth management M&A activity in the Americas hit record volumes in the first half of 2019, with RIA (Registered Investment Adviser) transactions increasing by almost 50% from the same time the year before. Transacted AUM increased 55%, with 73 deals taking place that amounted to $460.5 billion in assets transacted. Some owners saw the advantage of selling and exiting during times of record-high markets, while other firms merged in a bid to improve their scale.