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Wealth Management

The financial market crisis has brought many inherent weaknesses in the financial system to light. In essence, the current crisis with huge wealth destructions is a crisis of trust at various levels. What started out with the bursting of a bubble in the US has impacted almost all asset classes and regions globally. The enormous leverage afforded by the financial system and international accounting standards has acted as a highly efficient transformation mechanism.

The simple fact is that the lack of liquidity in certain markets has resulted in a complete drought for nearly all asset classes. This, coupled with the requirement to mark these assets to market has led to vast sums of wealth evaporating. The IMF recently estimated that value adjustments in banks’ balance sheets will reach a level of EUR 1.5 trillion, compared with the EUR 0.5 trillion estimated in October. This is taking its toll on the system as a whole: Financial institutions are wary of one another, spreads in markets have surged, liquidity has vanished and volatility has reached exceptional levels, leading to enormous write-downs. For individual investors we estimate losses of up to 20% of financial assets, or some EUR 6 trillion. In other words, clients have earned nothing from holding their investments for the past ten years. Worse still, the crisis is beginning to show a deep impact on the wider world economy.

The current crisis has not just affected the institutions that were originally engaged in the affected markets, it has also impacted other organizations. The global financial community as a whole has been hit, even some institutions that thought they had done everything they could to protect their operations including e.g. raising capital and reclassifying assets. Yet they too are suffering along with the rest of the global financial community.

In this report we present the key findings of our survey of the wealth management industry. As part of the study, we interviewed experts throughout the industry and conducted an extensive survey among clients. The consensus view is that the lower funds under management will have some affect on mid-term profitability, but that they will revert back to normal sooner or later.