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.