What might the opportunities and challenges for wealth managers and advisors be if, as appears to be the case, there is a process of "deglobalisation" at work? The author of this article sets out ideas.

We often read about the idea that globalisation – the term referring to the growing linkages caused by trade, media, communications and travel – has halted and is in reverse for various reasons. Whatever the rights and wrongs of the specific claims, if globalisation is in reverse, what does this mean for wealth management asset allocators? To address this question, we carry this article from Julia Khandoshko, CEO at Mind Money, a European investment technology and financial engineering hub. Khandoshko is a finance industry professional with 10 years of experience in technology and capital markets. This news service is happy to share these insights; the usual disclaimers apply. Email tom.burroughes@wealthbriefing.com

The 20th century was marked by the triumphant march of globalisation, with the overarching theme being "mass" – encompassing mass production, mass industrialisation, and mass telecommunications, among others. Technology, particularly digital technology, artificial intelligence, and remote intelligence, emerged as the driving force behind these transformative changes, extending their influence to the financial markets.

However, history unfolds in cycles, since around 2008 we've witnessed a reverse trend gaining momentum, a trend that is set to intensify in 2024. The era of globalisation is giving way to the atomisation of the financial market. Factors such as the impact of Covid-19 and the implementation of protectionist policies have contributed to a slowdown in international trade and a withdrawal from global cooperation. This marks the initial phase of the re-globalisation of the financial market, presenting both challenges and opportunities for portfolio managers.

What hinders the work of portfolio managers?
The main difficulties modern asset and wealth managers face today arise from the clustering of the financial landscape. This fragmentation, extending from KYC processes and client analysis to currency diversification, compels managers to navigate distinct pieces independently. The struggle lies in harmonising these elements into a cohesive whole.

Consider the intricacies: ETF availability varies between the US and Europe. For companies aiming to attract European investors through public offerings or admission to trading on regulated markets, lacking an EU securities prospectus hinders raising capital. Take Porsche's 2022 IPO; while open for investment, it is exclusively accessible through the Frankfurt Stock Exchange. Purchasing Porsche stock necessitates a brokerage service with access to this exchange, a feature not widely available on US-based platforms.

The escalating atomisation of financial markets forces managers to diversify portfolios separately for individual clients. Operating in the US, Europe, and the UK mandates three distinct licences. Moreover, US dividends incur varying tax rates based on the client's tax residency, and not all markets and portfolios offer identical instruments. Achieving a unified financial result for routine activities also becomes a formidable challenge amid this complexity. 

Additionally, the significance of financial infrastructure and access are critical. Even the choice of a specific interactive brokers’ branch, the largest electronic brokerage firm in the US, matters, whether serving clients in Ireland, the US, or Hungary. Assessing the banks where clients hold accounts, a once-not-so-essential aspect, has likewise gained prominence. So, how can portfolio managers address the current de-globalisation trends and accompanying intricacies?

Avoid being “everything everywhere all at once” 
To navigate these challenges, asset and wealth managers must undergo a significant shift in approach. Gone are the days when “omnipresence” defined success. Take, for instance, prominent Asian brokers operating successfully in one country but deemed “illegal” in another by regulators. The key here, I would say, is going niche with your offering, elevating team competencies strategically, and preparing for diverse scenarios.

A judicious evaluation of markets is essential, identifying areas where genuine expertise can be cultivated to stand out. It's about delving deeper rather than attempting to be the best service provider everywhere simultaneously. Choosing a focal point is imperative, recognising that offering financial and brokerage services' excellence across all arenas concurrently is unproductive and, to be honest, unattainable. However, I would recommend building a professional network and nurturing partnerships that will help you understand the regional landscape, as it is critical for success.

For instance, if you are an asset manager based in London, you will still need to be prepared for unexpected ventures, such as participation in a US IPO. This demands flexibility and a higher level of expertise and personnel training, a solid basis for any financial institution. Possessing the skills to build your network of partners and apply this strong foundation globally in response to client demands becomes the new benchmark for success.

Intense polarisation will shake the finance world beyond 2024
What can we anticipate next year against the backdrop of the financial market's atomisation? I can assert that the aforementioned challenges for brokers and asset managers will persist.

Furthermore, an intensified division of the financial (but not exclusively) world into distinct zones and jurisdictions is on the horizon. This shift presents both significant limitations and new opportunities for financial experts.

Examining Europe provides a clear illustration; the UK and Brexit have been propelling the nation towards becoming a fully-fledged separate financial zone. The UK government's actions – hindering the free flow of capital and arbitrage – are likely to inspire other European countries, as well as influential financial hubs such as Japan, the UAE, the US, and their respective national governments. In such conditions, small and medium-sized brokers might find a genuine chance to compete with giant brokerage firms by emphasising niche offerings and tailored products for their clients.