Private banking architects: Modern wealth management

Euromoney expanded its coverage of private banking in 2004 with the launch of the Euromoney Private Banking survey. 

It wasn’t an obvious move for a magazine that for 35 years had mostly been focused on capital markets and the global banking industry, but Padraic Fallon, former editor and then chairman of Euromoney, saw that the management of wealth had intersected with capital markets in more ways than one. 

The world’s wealthiest individuals were now entrepreneurs seeking capital markets access and, not only were they growing in number and assets, many of them worked in the financial industry itself. 

Fallon also saw what many were yet to see: that investment banking and wealth management would become complementary business lines, as James Gorman, chief executive of Morgan Stanley outlines in the following pages. 

Euromoney’s task was not to miss one new development in the private banking industry. But the challenge was that unlike other areas of the financial markets, wealth management – despite its M&A wave of the early 2000s and an Asian expansion – seemed to have little in the way of innovation. 

The nature of wealth preservation called for quite the opposite; the most successful advisers think in terms of decades rather than being reactive to market moves or seduced by new-fangled products. A fast pace of change is anathema to clients. 

But speaking to the senior executives across the industry about the last 50 years of private banking, it has been fascinating to see how the industry has evolved as the growth in wealth has expanded from the hands of a few to the hands of millions around the world. 

That expansion really began back in the 1960s, a time when few millionaires existed. Good historical figures are hard to find for any country’s wealth, but it is estimated that less than 0.1% of the US population in 1969 were millionaires –110,000 people – versus 3.3% of the US population today (11 million households). 

The model of managing wealth in the 1960s and early 1970s was simply that of a broker helping people buy and sell stocks. Private banking, typically trusts and estates, was for a few dynastic families in the US and Europe. In Latin America, the Middle East, Russia, Africa and Asia, wealth was the domain only of the ruling classes, themselves advised by an elite set of bankers, typically in Switzerland. 

But as wealth in US and Europe grew, the ‘millionaire next door’ emerged, and supported by deregulation of brokerage commissions in 1975, a new do-it-yourself investor class was born. 

Regional firms became national firms throughout the 1980s, while competition and a maturing investor base morphed the broker into the adviser. With these changes, the term ‘wealth management’ arrived.  

Technological advances in the 1990s only spread further the reach of wealth management to the millionaire masses around the globe and, as billionaire wealth began to rocket in the 2000s, capital markets access and direct investments in the best private equity and hedge funds became an essential part of any private bank offering, as Mary Callahan Erdoes at JPMorgan demonstrated. 

At the same time, economic reforms decades earlier in China bore fruit as the country overtook the US as the fastestcreator of wealth. Last year, it produced 55 billionaires, compared with 53 in the US. India, too, was seeing vast wealth generated as a result of its reforms. 

“It was Asia’s time,” as Tan Su Shan at DBS Bank says, and it required a brand new wealth management industry to help it find its way. 

Now a global industry, wealth management has found itself in recent years shape-shifting once again. The financial crisis inspired regulation around suitability and transparency. 

Clients want to know how their money is being managed and where and why it is being invested. 

Former chief executive of UBS Wealth Management Jürg Zeltner responded to that demand with the creation of the chief investment office, something that is now an integral part of all global wealth managers. 

Clampdowns on tax evasion have further shifted the model away from its historic private bank roots, reflecting a world where vast wealth has been created while governments have become financially depleted. Vocal regulators such as the Swiss Financial Market Supervisory Authority (Finma), headed by Mark Branson, have been crucial in bringing private banking into the 21st century. 

We have identified five individuals as the architects of modern wealth management on the following pages. As the world’s wealth grows from $70 trillion to $100 trillion in the decade ahead, who knows what further evolution lies ahead, but it is good advice and good money management that will provide the foundation.