Consequences of the 2008 financial crisis on Private Wealth Management
... And how business technology can help.
The 2008 financial crisis is unprecedented. With most stock exchanges momentarily down 40% and more year-to-date, virtually all asset classes in negative territory and almost no safe haven, private investors have faced one of the most frightening years ever. Caused by excessive greed, exaggerated leverage and unaffordable levels of debt, systemic risk has shaken financial markets to an extent no one could have imagined. With public authorities forced to intervene to protect the real economy, the financial industry will need a major overhaul if we are to avoid the same mistakes happening again. More regulation will no doubt be a direct consequence of the crisis. This will also impact the wealth management industry and add to the stringent regulations introduced by many governments in Europe and North America over the last few years. Compliance still has a rosy future…
This white paper attempts to identify key areas in the wealth management process that will be affected in the aftermath of the 2008 financial crisis. While everyone will re-discover what ‘risk’ is, private wealth management firms will need to adapt their private wealth management practice to a new era of investing in which investor protection is paramount and advice more important than ever. The white paper also explains why the implementation of enhanced processes requires robust software applications so that sophisticated investment services can be provided at a reasonable cost while respecting commitments to clients and regulatory constraints.
The private wealth management industry will rediscover risk. For a long, stable period of time, private wealth management actors have been able to focus on market risk, interest rate risk and exchange rate risk in making key investment decisions. Inflation risk has only recently become a concern. Market risk has shown its ugly head by reducing the value of most stock markets and hitting investment performance. Very few financial institutions have been able to protect their clients' assets from the financial crisis.
But other types of risk, such as default risk and liquidity risk, had an unexpected impact on investments. In the past these forms of risk were not so much disregarded as considered negligible. The 2008 financial crisis has dramatically highlighted how critical these forgotten risks can be to an investment portfolio.
We believe financial institutions that provide private wealth management services need to strengthen some of their key processes to better cope with risk on behalf of their clients and themselves and avoid the same mistakes happening again:
- Provide best-in-class asset allocation and product selection advice to a larger target clientele
- Strengthen risk management
- Improve transparency of structured products
- Adapt Client & Account Opening procedures to cope with the increased regulation aimed at better informing clients of the risks linked with investing and the various types of products available
To get a copy of the white paper, please contact us at info@odyssey-group.com