The US election has been at the top of the news agenda for several months, but now that the presidential race has been decisively won by Democrat Barack Obama, with an increase in his party’s control of Congress, what are the implications for the US economy and the wider wealth management sector?

Norval Loftus, senior investment manager at Ansbacher Banking Group, gave WealthBriefing his view on the significance of Mr Obama’s presidential victory.

According to Mr Loftus, the first challenge facing investors is that they must try to anticipate the “unintended” consequences of the expansion of the US government’s role in the economy.  The rescue package offered to US banking institutions has put the US Treasury under immense strain, which could have a huge impact on investors.

“We can expect the US federal budget deficit to balloon in excess of $ 2-3 trillion in the short term, which should push US Treasury yields wider across maturities, and as a consequence could undermine the recent revival of the US dollar as a safe haven currency,” said Mr Loftus.

While the technical definition of two quarters of negative growth is still to be met, a US economic recession is now virtually an accepted fact and this will put pressure on the new administration to implement policy changes quickly.

Mr Loftus said: “Mr Obama’s victory won’t change the nature of the grim economic statistics to come in the months ahead. The severity of the slowdown will give the new president a much shorter window of opportunity to introduce his policies designed to engineer a recovery. In this sense, we should expect a very concentrated bout of reformist legislation and a shorter honeymoon period where the equity markets offer the benefit of doubt that these reforms can succeed against the current extraordinary environment.”    

So what will be the consequences of Mr Obama’s election on wealth management?

“Wealth management as an industry exists not in isolation, but more as a cog in the financial system and overall economic landscape. Operational issues in wealth management for me are part of these 'unintended' consequences of the greater issues facing the next president elect.

"Perhaps mergers and acquisitions in institutional asset management firms will accelerate, along with general consolidation in the overall financial system. And certainly, a focus on the hedge fund industry would seem to be on the cards as part of the new wave of legislation,” said Mr Loftus.