One lesson from the bankruptcy of Lehman Brothers last year is not to imagine that the financial world needs a new, even heavier burden of regulation. Alas, it seems policymakers will not heed such advice.

It is not much surprise to my perhaps cynical journalistic mind that the news outlets are awash with retrospectives about last year’s bankruptcy of Lehman Brothers. It seems mildly incredible that the events occurred only 12 months ago. The affair not only helped fuel a sense of panic worldwide but within wealth management, the demise of this old investment house jolted specialist areas such as structured products. Suddenly, concepts such as “counterparty risk” did not seem so dull any more.

And as people have picked over the details of last year’s crisis, a lot of commentary – I have an example on my desk from Credit Suisse – talks about a retreat from the “Anglo-Saxon” model of capitalism for a more “managed” (hint, more state regulated) variety. If there is one clear lesson from any crisis, whether it involves markets or security, one common feature is that times of great worry tend to be fertile breeding ground for bureaucracy and regulation.

Certainly, politicians and officials from large industrialised countries, such as the Group of 20 nations, have been coming up with plenty of calls for yet tougher regulations on banks. We can expect this to be a strong trend for the next few years and wealth management is bound to feel the effects. It is doubtful how far the end-client will actually benefit from any rise in the regulatory overload, however.

The wealth management industry is right to put regulation up top as a driver of change. PricewaterhouseCoopers, for example, in its report on trends in wealth management issued in June, found from a survey of the industry that changes in regulatory requirements are seen as being the biggest mover of risk management change over the next two years. And without doubt, the impact on expected costs is likely to be one way – higher. For all the warm words one occasionally hears about harmonisation of standards and so forth, it is hard to see regulatory burdens coming down. Other things being equal, the regulatory burden will squeeze margins, or at least hamper attempts to widen them. As a consequence, the burden of higher regulatory costs is also likely to drive merger and acquisition activity, forcing some firms to sell up, benefiting the large players at the expense of the smaller.

Wherever you look, the financial industry appears to be on the back foot against the regulatory onslaught. The European Union, for instance, has hedge funds in its sights. The UK’s financial regulator, the Financial Services Authority, caused a stir a few days ago when its chairman, Lord Adair Turner, even suggested that UK financial services were dangerously big compared with the rest of the domestic economy and might be usefully reduced by a sort of tax on transactions. (Mind you, the chances of such a tax taking effect do not seem very high, in my view). And as has been already noted by this publication, there is the relentless rhetorical and legal pressure being brought to bear on offshore financial centres.

In trying to learn the lessons and repair their reputation, what should wealth managers try to do? For a start, while there are examples of excellent managers protecting clients’ wealth in a tough environment, the industry as a whole needs to be more open in communicating with clients and also, more effective at explaining what they do to the wider public. For years, it has served wealth managers well to be a fairly discreet bunch. (The whole point of using a private bank is, in some ways, to keep one’s financial affairs private). But this low-profile image, while it can come with a kudos that people pay money for, is a double-edged sword. The industry is getting better at defending itself and speaking about the issues – but more needs to be done.

For example, it needs to be stressed repeatedly that regulations favour big firms, as they are able to cope relatively more easily with a soaring compliance workload, than small ones. Arguably, this is harmful, since by raising the barriers to entry, it can also protect larger, complacent firms from the upstarts. Of course, the “upstarts” can contain a share of incompetents and the odd crook, but generally, it is unhealthy that product innovation and new business formation in wealth management should be hampered by a thicket of red tape.

It is also odd to see the argument made that somehow last year’s crisis somehow proves that unregulated markets have failed. One wonders if those who hold such a view have actually ever worked in a bank. I am sure any of our readers can provide many examples of rules that they must comply with – ranging all the way from Sarbanes Oxley to the national registration requirements on banks. What happened last year did not happen in some anarchic Wild West, but in a mature, often highly regulated marketplace. One of the prime culprits for the credit crunch, let it not be forgotten, were central banks and their unwisely loose monetary policy in the years leading up to the crash (easy to say that with hindsight, of course.)

If there is one lesson to be learned, it is not that the wealth management sector needs more regulations, but smarter ones that actually work. And above all, as we remember Lehman Brothers, let's not forget that no financial institution, even the most venerable, is indestructible.