The DPM was Deputy Prime Minister and Minister of Finance the Hon. Peter Turnquest said globally, there are some interesting trends in the wealth management industry, which likely are impacting registrants, licensees and stakeholders in the investment funds, securities and capital markets in The Bahamas.
The amount of wealth held by individuals and families is on the rise, although the private banking sector and other wealth managers have struggled to maintain profit margins and in some cases, to stay in business, DPM Turnquest said at the Securities Industry Act, 2011 and Investment Funds Act, 2003 Annual Briefing hosted by the Securities Commission of The Bahamas at the British Colonial Hilton, Thursday, September 14, 2017.
“As a case in point, the Financial Times reported in June this year that despite increasing assets under management (or AUMs), wealth managers’ profit margins had fallen by nearly a third over the past decade. The article references a Boston Consulting Group report, ‘Global Wealth 2017, Transforming the Client Experience.’ According to the report, global private financial wealth grew by over five per cent in 2016, to an estimated 166.5 trillion US dollars.
The DPM said, that is AUMs at wealth managers generally. The Scorpio Partnership 2017 Private Banking Benchmark recently reported that AUMs in private banks globally rose by almost four per cent in 2016, to $21 trillion. Over the same period, net new money decreased by 0.03 per cent.
“While the report indicated increasing operating profits as private banks did better at containing expenses, the report also suggests that managing the revenue side of the profits equation will be the true challenge going forward.
“As a final point for your consideration, last year KPMG reported that 10 per cent of private banks in Switzerland did not survive 2015. The cry was that the institutions suffered reduced returns on equity and no notable increases in net new money.”
He said the impact of the contraction in private banking operations globally certainly has manifested itself locally, as the country saw a stark contraction in private banking operations being conducted from within The Bahamas since 2012. At the same time, however, smaller, independent, boutique firms appear to be creating opportunities from this contraction.
“To illustrate, the number of licensed securities firms which were structured as bank and trust companies, declined from 47 in December 31, 2013 to 44 in June 30, 2017. Simultaneously, the number of ‘standalones’ – that is, licensed securities firms who were not bank and trust companies, increased from 89 to 110 over the same period.
“Similarly, the number of investment funds administrators who were also bank and trust licensees slightly declined over that period, from 25 to 23, while standalones again increased in number, from 38 to 42 over the same period.”
DPM Turnquest said the Commission also advises that it is beginning to see a potential trend of some investment funds converting into simple International Business Companies (IBCs), likely in an effort by wealth managers to contain costs where possible.
“Each of you likely has a very intimate appreciation for some or all of these realities and trends. Increasing regulation, compliance costs, difficulty in bringing in new clients and new money, and clients who are increasingly wary of the costs associated with doing business are the new norm for many.
“Once again, financial services practitioners in The Bahamas find themselves challenged to maintain and grow market share locally and internationally. We can see, also, that it is not a unique challenge to this jurisdiction, however, as data suggests institutions around the world are struggling with the cost of compliance in an environment of increasing regulations and transparency, while trying to increase revenue and maintain or grow profit margins.”
He said there may be many who quietly, or not so quietly, pine for the days of minimal regulations to comply with, few questions to ask of clients and prospective clients, few authorities to answer to, and the opaqueness of an independent jurisdiction respectful of the rule of law while committed to financial secrecy.
“I believe, however, that most financial services practitioners appreciate that those days are gone. Being competitive in financial services today requires access to clients, access to correspondent banking and other facilitating services and access to financial markets, amongst other things. It means that to be competitive, this jurisdiction must be known to be well-regulated and fully participating in global efforts to protect financial markets from abuse.”
By Llonella Gilbert
Bahamas Information Services
