What a year was 2012, and not just for Queen Elizabeth or fans of the Olympic Games. The global wealth management industry around the world has contended with regulations, market volatility, fiscal cliffs and potential euro crackups.

The past 12 months have been extremely eventful for the global wealth management industry, and even as bankers and clients were about to head for the ski slopes or sunnier climes, big news stories continued to pour out. UBS, Switzerland’s largest bank, announced a $1.53 billion payment to global regulators to draw a line under inter-bank interest rate manipulation offences, putting it in the same doghouse as Barclays, which has also been punished.

But other stories have been happier: there have been a number of new firms launched or expanded; some potentially beneficial merger and acquisition deals were agreed (as always, we have to wait to see how joyful such marriages prove), and there is the continued development of mobile apps and related technologies. In Asia, Latin America and even in more developed countries, money is being made, driving the growth of the industry overall.

And despite the fears at the start of 2012, the eurozone is still alive, although the feeling might be that the patient is still in intensive care. The problems of debts in Western democracies are still formidable: at the time of writing, US policymakers have still to reach a deal on how to avoid falling over a “fiscal cliff” of automatic spending cuts and tax hikes at the start of 2013. China has a new leadership (although democracy had not much to do with it); Japan has elected a new government keen on monetary reflation; France elected a tax-raising socialist government (boosting London’s already-hot property market). In Switzerland, there are glimmers that this proudly independent nation, long used to its bank secrecy laws, is adjusting to a climate of increased demand for transparency. For all the talk there is about a mass exodus from Geneva and Zurich and a shift to Asia, some of that noise might be exaggerated. The Alpine state is a resilient place with a well educated workforce and a solid rule of law - hardly ingredients for serious decline.

RDR

In the UK market, perhaps the biggest news story of all has been preparation – or concerns about the lack thereof – for the Retail Distribution Review programme of reforms to UK wealth management advice. In essence, the RDR aims to squash the use of trail commissions by advisors, and is about encouraging fee-based payment for those wishing to retain the name “independent” in their business. The RDR has encouraged firms to merge, be acquired or buy rivals to obtain economies of scale. Discretionary asset management has been outsourced; new “RDR share classes” for financial products have been launched in recent weeks.

In late November, Deloitte warned about the possible unintended consequences of the RDR, predicting that after its implementation a third of consumers will opt for do-it-yourself financial planning to avoid paying advisor fees. A poll of 2,000 UK residents found that 32 per cent are likely to go the DIY route for financial planning and investment product research. Having chosen investment products themselves, 27 per cent of respondents said that they would go direct to the provider – cutting out the advisor as the “middle man”. This survey may be a warning of things to come.

Many of the big banks this publication speaks to, such as UBS, Credit Suisse, JP Morgan and Coutts, say they are not just ready for RDR but will fare well in a market where professionalism and objective financial advice are explicitly paid for. Time will tell. This publication will be keeping a beady eye on progress and, on the other side, watching to see if there really is going to be a major problem of “orphan clients” cast aside by firms requiring higher minimums of assets to stay viable. There are already signs that such things are happening: the UK wealth advisor, Bestinvest, has even set up a new service to cater for such expected castaways.

FATCA Attack!

From the US, the acronym “FATCA” (Foreign Account Taxation Compliance Act) has become as well known as RDR or MiFID. The US act, which in its first versions presented a scary picture of onerous compliance burdens on foreign financial institutions, has arguably been made less frightening through some delays to rollouts of implementation and through treaties between the US and several major economic powers. Fears that expat Americans would be denied financial services or be hit with painful tax bills might have been overblown, but when a country such as the US is as desperate for revenues as the US now is, fears will remain.

In Asia, the large Western and domestic banks continued to expand some of their operations. In the case of Swiss firm Vontobel, for example, it partnered up with ANZ, the Australia/New Zealand firm in the autumn, to get itself more of a foothold in the Asia-Pacific market. This follows a similar kind of deal between Julius Baer and Australia’s Macquarie in 2011. Regulators in Hong Kong and Singapore, meanwhile, have not been shy of cracking the whip against behavioural lapses: Hong Kong’s regulator in April moved to tighten the screws over money laundering, for example. Meanwhile, reports suggest that one area of potentially strong growth is the Asian family office market. With so many businesses being family-controlled in Asia, the market for single and multi-family offices looks big. Many of the big banks are targeting this market now and expanded further in 2012. 

The North America market has shown more signs of progress this year, emerging from a period when the industry focused on keeping its head above water. The implications of regulatory changes such as the Dodd-Frank legislation continue to be digested. As this publication highlighted in a number of reports from across the US, the entrepreneurial vigour of US wealth management can not be underestimated. Firms such as Charles Schwab are taking a determined move to develop sectors such as the RIA market; the sector for dealing with ultra high net worth clients is seeing developments from big banks, such as Wells Fargo with its Abbot Downing unit. 

In Latin America, the continent's largest economy, Brazil, is becoming a place to watch not only as a source of wealth management client, but as moves have shown, a source of financial institutions wishing to break into other markets. Brazil's Safra Bank, for example, now owns the controlling stake in Switzerland's Sarasin. Maybe other LatAm banking names will be showing up in the European M&A stakes.

And besides the eurozone crisis, another area of turmoil - the Middle East and North Africa - has had its impact on the industry. Some of the promise of the so-called "Arab Spring" has faded; London and Switzerland, for example, have witnessed the impact of wealthy MENA region citizens seeking safe havens for their money. More positively, another continued growth area - albeit not spectacular - appears to have been the market for Shariah-compliant wealth management.

There's gold in those hills

Also, jurisdictions such as Qatar and Turkey are potential or actual wealth management hotspots (your correspondent enjoyed a trip to Istanbul and could see some of this potential first hand). And in the world of international financial centres, jurisdictions such as the Channel Islands, Isle of Man, Malta, Gibraltar and The Cayman Islands continue to slug it out to keep a competitive edge, creating new markets in structures such as foundations, or in areas such as intellectual property and image rights. 2012 could be thought of as the year when the demise of offshore wealth management failed to materialise and when such places learned to diversify. These jurisdictions exist for reasons far beyond tax avoidance.

And finally, as far as guarding wealth is concerned, firms had a tough year wrestling with negative real interest rates, choppy equities, expensive government bonds and rising tax burdens in several jurisdictions. As well as calling for smart asset allocation, developments have put even more pressure on advisors to do a top-notch wealth structuring job.

The past year, then, has had its of ups and downs. With bankers no more loved now than they were at the start of 2012, and with politicians still hungry for taxpayers’ money to try and deal with debt problems, the wealth management sector is still faced with a difficult climate. But the entrepreneurship and energy of many of the industry’s practitioners continues to impress - and many of the smart young graduates who might have gone into very different fields might now be tempted to work in wealth management.

I wish all our readers, of whatever faith or of none, a very happy holiday and a prosperous, peaceful and fulfilling New Year.