Independent wealth management in the wake of MiFID II
Thursday 28 June 2018
Deloitte Luxembourg and the ALPP put the spotlight on Luxembourg investment firms in their new, joint report named Independent Wealth Management in Luxembourg. The sector is changing not only its pricing structure, but its business model as a whole.
Deloitte Luxembourg joins forces with the Association Luxembourgeoise des Professionels du Patrimoine (ALPP) and presents a deep dive into the External Asset Manager (EAM) sector in Luxembourg. The study highlights the development of this particular industry over the past years, illustrates its contribution to the broader financial sector, and provides a perspective on trends, challenges and future success factors.
“A key difference between private banks and External Asset Managers, is that External Asset Managers offer a more personalized approach to their clients, both in terms of client relationship management and when it comes to investment strategies. While private banks increasingly opt for scalable portfolio models and automated asset allocation strategies, bespoke service is the trademark of External Asset Managers. That said, it is important to keep in mind that client target groups are different. External Asset Managers tend to operate on the higher end of the wealth scale,” explains Jean Fuchs, Chairman of the ALPP.
Regulatory changes, the introduction of tax transparency and on-going competitive challenges have led EAMs to revisit their business model and redefine their approach over the past years. MiFID II has had a particularly significant impact, and as a consequence, many players have changed their entire revenue model. The loss of transactional retrocessions and trailer fees in the post-MiFID II business world is expected to have a significant impact on EAM players going forward. The survey suggests that in some cases, revenue loss may amount to 40-50 percent.
A strategic role within the Luxembourg financial sector
External Asset Managers are regulated PSF entities in the category of investment firms, and supervised by the CSSF. EAMs play an important role in the financial landscape in Luxembourg. The report quantifies both the direct and the indirect contribution made by these players to the broader financial sector in Luxembourg. EAMs account for 94 firms in Luxembourg, manage nearly €30 billion in client assets (AuM), generating nearly €600 million in revenue in Luxembourg. In addition, these firms employ more than 2,100 professionals in Luxembourg, which is equivalent to one third of Luxembourg private banking employment.
As a group, EAMs represent a variety of business models and wealth management approaches, and encompass traditional independent wealth managers, investment management players and fund houses, family offices as well as platform-based wealth managers. The report analyzes the differences between these EAMs and traditional private banks, the evolution of each group over the past years, and the relationship and contributions between independent players and their depositary banking counterparts.
The EAM of the future will manage funds and be digital
While the sector has grown faster than the overall private banking industry and financial performance has held up in recent years, the impact of MiFID II is still to be reflected in this performance, and the coming years are likely to be significantly more challenging.
“In light of these challenges, a new business model is emerging for EAMs in Luxembourg and Europe more generally. In our view, future success factors for EAMs will include the ability to develop new investment solutions such as investment funds in order to secure revenue streams and reduce expenses, as well as digital capabilities to optimize client interactions and investment activities. An increased focus on efficiency will also be critical in the coming years,” comments Benjamin Collette, Partner and Financial Services Industry Leader at Deloitte Luxembourg.
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In Luxembourg, Deloitte consists of 100 partners and over 2,200 employees and is amongst the leading professional service providers on the market. For over 65 years, Deloitte has delivered high added-value services to national and international clients. Our multidisciplinary teams consist of specialists from different sectors and guarantee harmonized quality services to our clients in their field. Deloitte General Services, société à responsabilité limitée, is an affiliate of the Luxembourg member firm of Deloitte Touche Tohmatsu Limited, one of the world’s leading networks of professional services firms.