The Economist’s publishing of an extensive prognostication of the future of wealth management merits some discussion. An acceleration in the growth of global private wealth that goes far beyond global growth as a whole won’t surprise any advocate of Thomas Piketty’s theory of economics. The natural tendency of wealth, absent disruptive conditions, to aggregate into yet more wealth hasn’t been especially challenged in the past couple of decades by any of the factors that have previously disrupted the growth of capital stocks - such as devastating society-destroying wars or breakneck technological and productivity increases. Missing also has been serious policy-driven wealth redistribution on a national or international scale in any of the major economies, despite the consequential social tensions. The result is the rich have comfortably gone on growing richer while the poor have grown ever more populist. Indeed, The Economist compares the average 3% global growth over the past two decades to the rate of growth in private wealth, from US$160 trillion, or four times global output, in 2000, to $510 trillion, or six times output, in 2020. This looks set to yield, according to Bain figures quoted, some $510 billion in global wealth management revenues by 2030.
Leaving aside the social and political implications of the continuous growth of such private wealth unchallenged, as Piketty’s core thesis dictates, how does that leave its management? The same analysis postulates that those revenues will be overwhelmingly in the hands of just two institutions: Morgan Stanley and UBS. Consolidation within the industry will be driven, the analysis declares, by greater bargaining muscle for acquisitions and negotiations with private firms and other opportunities; and greater investment capacity to build new services using artificial intelligence and other innovations. Building on their existing scale and presence, it concludes, Morgan Stanley and UBS should be able to see off all other significant competitors.
There’s only one thing wrong with this picture - and I hope readers will have spotted it. If UBS makes up half of the future of global wealth management, what about the court cases against it now? What about the disgruntled Swiss and global investors busy suing UBS to recoup their losses resulting from its government-dictated takeover of Credit Suisse? UBS’s only serious domestic rival, Credit Suisse collapsed under the weight of its own mismanagement and wrongdoings, plus - critically - the lack of pro-active and effective oversight and intervention by the Swiss authorities. In mid-August this year, UBS paid some $1.43 billion in penalties in the US over alleged fraud related to the sale of mortgage-backed securities. But how does this suggest that things have gotten any better?
If we’re really headed to such a bipolar global wealth management environment, fine. But what about the state of one of those poles? Are Swiss regulators and the Swiss government really up to the job of managing even the present volume of financial assets in the country, let alone the future volume? I for one really have my doubts. And given the potential size of the asset pool we’re talking about, that’s a serious worry.