Wealth re-creation comes to the fore

High net worth individuals (HNWs) across the globe have been as shocked by the severity of the crisis as the average investor. To a degree, some HNWs may have fared slightly better as their professional advisors will have been able to forecast the storm and moved into a more defensive asset allocation as much as twelve months ago. We hope so. However, the big question on everyone's mind is how long this economic condition will last. In our view, the net result of the financial armageddon is that we have shifted into a new world order for wealth management. Fear has overtaken greed. Consequently, clients will now actively seek out independent advice and recognise this as a value. Banks that are uncommitted to offering independent advice solutions will lose out. Strange though this may sound, we think this is going to be a good thing in the long run. Both the buyers and the sellers have to re-engage with the concept of responsible and realistic investing. In fact, fees will be attached to skills-based input rather than product access and this is the true virtue of proper wealth advice. Overall, we believe clients will want to take a much greater control of their wealth matters. Not only will they act with their feet, they will also buy a new wallet that bankers can get so much of a share of. This is perfectly reasonable and in many ways, we are very excited about this market condition. For those sensitive to the shift in attitudes, there is an opportunity to re-build wealth proposition with a truly client-centric focus. No more lip service about this: real action, real delivery. Moreover, amid this market carnage it is time for change. And it is time for a new agenda. Indeed, we are now in an era of wealth re-creation and the role of the financial institution is under intense review. Inevitably, the wealth industry will need to do more than change the product matrix and polish their shoes to go for these potential buyers. Attitudes to wealth management are fundamentally shifting. Indeed, notwithstanding the market upheavals, some wealthy clients, particularly in Europe, are beginning to seek investment opportunities. This is being driven by a combination of hunch of opportunity rather than any mathematical certainties. Particular asset classes of interest are private equity and real estate. The shift now is that the investors are less certain that the banks have a role to play in sourcing the products and the bank's seal of approval is now seen as a little leaky. One word springs to mind for most clients if the banks protest too much – Madoff. Meanwhile, as the desire for control of their wealth destiny increases there is greater appeal among HNWs toward direct investment. Critically, customers want to know what they are buying, the provenance of the opportunity and also have a greater influence in the outcome. They have learnt from the last 12 months that they do not like the sense of helplessness by being swept along in the market crises. And while greed may have played a part, it was also propped up by trust. In this context, providers to the very wealthy that can understand this will re-orientate their businesses to weather the storm and drive innovation. However, the challenge is whether the wealth industry has the time to wait for deeper and consistent client understanding to filter through to the strategic planning level or whether there needs to be a concerted push to drive the knowledge-levels up in the short-term to reap long-term reward. Unfortunately, in our view, past performance of the banks is a pretty good guide to the future performance. Sebastian Dovey, managing partner and head of consulting at wealth management think-tank, Scorpio Partnership