The wealth management industry must learn the lessons of the 2008 financial crisis in being quick to guide clients through turbulent times as a Greek euro exit threatens to become real.

As I write, I do so amid rising expectations that Greece could be out of the eurozone within months, or even sooner. Last week (18 May), it was reported that a senior Brussels official has admitted for the first time that the European Union is preparing for the possibility of a Greek departure.  

Not that that should come as a surprise. Last week, this publication surveyed a handful of wealth managers and strategists about the likelihood, as they saw it, that Greece would leave the euro. One respondent gave the probability of this event as high as 95 per cent. As for the impact of such an exit on the wealth management industry, a respondent said such a development would be extremely serious. Already, there have been heavy withdrawals from Greek banks by retail clients; some of those individuals will quite probably be among the wealthy.

On Monday last week, for example, savers pulled at least €700 million (around $894 million) from bank accounts; and besides Greece, other countries are reportedly seeing exits, such as in Belgium, Italy and Spain. On Thursday last week, Spanish firm Bankia reportedly saw more than €1 billion drained by customers. Rating agencies have downgraded Spain’s credit ratings and those of some of its leading banks, such as Santander (which has a UK arm)

The impact on wealth management is more difficult to discern. A number of banks that have had exposure to Greek debt, such as France’s BNP Paribas and Société Générale, or Germany’s Deutsche Bank, operate wealth management arms. (With varying levels of success, these firms have cut their exposures). While a lot of losses may already have been allowed for in balance sheets and much of this has been discounted by markets, there is always potential for an unpleasant surprise.

Lending

In this situation, even ultra high net worth clients of wealth managers might find availability of credit for all but the most conservative activities hard to obtain. As explained to me in recent months by bankers and others, banks are often reluctant to lend to HNW individuals and other clients. 

Part of the problem has been the lack of direction. Greece’s political machinations are not the easiest to read – not even by the Greeks themselves. For months, the lack of clarity on what might happen has hampered investment decision-making. Business expansion plans and hiring can be stymied by such uncertainty.

In this alarming environment, wealth managers must be in regular contact with clients. It is essential to explain what is happening as clearly as possible. Clients with significant euro exposures will need guidance. It is essential that they receive it. 

Some relief?

However, on a contrarian, even "Devil's Advocate" basis, there might even be some sort of relief in the markets, and in wealth management, if Greece does revert to its old drachma (apparently, there are companies tooling up to print them again). Better to have clarity, even if the news is not good, than to wait upon events ad infinitum. 

One thought that occurs is what will happen to some of the various EU regulatory initiatives if the eurozone loses one, if not more members? Will policymakers be so distracted in coping with the consequences that they have neither the time or will to focus on, say, the EU’s Alternative Investment Fund Managers Directive, or the latest rules about insurance solvency, and so on? There is a real possibility that a great deal of such regulatory activity will be sidelined as the more immediate economic issues are faced. Some might argue this is not such a bad thing, as the sheer volume of regulatory initiatives threatens to overwhelm the compliance capacities of firms. Better to take time to get these issues right rather than legislate in haste.

As for whether a Greek exit will hammer clients' portfolios, it is not entirely clear whether it will do so, given that a lot of indices have been under pressure already. For weeks, we have received press commentary from wealth managers stating they are underweight of eurozone assets (with the principal exception of Germany), which suggests that some, if not all, of the dangerous period we are living through have been priced in. But there is always an unknown element of how much "contagion" would a "Grexit" cause to the rest of the European economy.