Weathering the storm in Wealth Management 2007

Published by: Datamonitor

Published: Dec. 19, 2007 - 19 Pages

Table of Contents

DATAMONITOR VIEW

CATALYST

SUMMARY

ANALYSIS

The majority of wealth managers are not concerned about the risk of a global economic downturn

There are two broad schools of thought on the economic outlook for the next two years

Very few wealth managers acknowledge that a market downturn is on the way

Datamonitor believes that 2008-09 will be characterized by struggling economies worldwide

Rising interest rates, excessive borrowing and negative savings rates have combined in a perfect storm that will shake most of the world's economies

The widespread securitization of loans will compound this problem

Consumers were not alone in overextending themselves; state debt servicing is up against budget, while tax revenues are sharply down, which may signal a muni bond crisis ahead

The US economy is not healthy enough to 'expand' itself out of these conditions

Foreign direct investment may also boost the economy; unfortunately foreign investors have run for the hills

A continued Treasury sell-off may further depress the dollar and, at worst, force interest rate hikes

Another major terrorist attack in the US will destabilize the economy further

Market capitalization, to varying degrees, will fall worldwide as US stock markets continue their jitters

Communication, risk assessment and effectively marketed products will be the keys to success in the downturn

A structured communication program should have already been implemented to address customer concerns about market volatility

Risk assessment is more important now than ever

The potential to deepen share of wallet is significant

Risk-averse clients will demand insulation and reassurance from the downturn

Clients will be tempted to hold investments in cash

Risk-loving clients should be encouraged to see the opportunities in volatility and in mis-matches

Product development will be a combination of new launches, and intelligently marketed existing products

The lending side of the business will also be important as re-mortgaging opportunities will abound when rates come down

Wealth managers who don't anticipate client needs in the market recovery will lose them

A shift back into stock market-related investments should be marketing-led, not client-led

As the market improves, clients will again want more say in their investments

The best client managers will be poached from those wealth managers without a retention plan already in place when the market improves

APPENDIX

Definitions

Currency peg

Exchange-traded fund (ETF)

Guaranteed fund/ Capital-protected fund

Risk tolerance

Uncorrelated investment

Methodology

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Figures

Figure 1: US troubles have spread to the rest of the world

Figure 2: Less than 10% of wealth managers were most concerned about a potential recession as of September 2007

Figure 3: General obligation and revenue muni yields have increased in recent weeks, while Treasury yields have decreased, indicating a shift from munis to Treasuries

Figure 4: The US has run a trade deficit since 2001

Figure 5: US dollar exchange rates have fallen against the European currencies since the last market downturn

Figure 6: Net assets in guaranteed funds have grown strongly from mid-2006

Figure 7: Net sales into equity-linked UCITS have been negative in 2007

Abstract

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