Wealth managers could lose $1.1trn in client money over the coming years on the back of a global crackdown on tax avoidance through the use of offshore accounts.
A report by Oliver Wyman and Deutsche Bank suggests that the wealth manager arms of banks will be lumbered with additional costs as a result of the outflows, with predicted annual revenue losses of about $13bn, the FT reports.
The $1.1trn represents about 10 per cent of the total assets currently held offshore. Furthermore, only around $200bn of this amount will be relocated to onshore banks, says Kai Upadek, a partner in Oliver Wyman’s wealth and asset management practice.
“It’s a continuation of the overall challenges that the industry is facing,” says Kinner Lakhani, Deutsche’s head of European banks research, adding that bank management teams “have a lot of heavy lifting to do to address the structural challenges, both on the cost and revenue line”.
According to analysts, the valuation of wealth managers grew 7 per cent in the last year, compared to the valuations for the banking sector which overall grew 16 per cent, marking the first time in five years that wealth managers did not outperform the wider sector.
Despite fewer capital demands and more stable earnings than investment banking, the wealth management industry has been hit by increasing compliance costs amounting to about 78 per cent of total income, compared to the 69 per cent cost-to-income ratio it faced before the financial crisis.