The Tribune

By Llonella Gilbert

Bahamas Information Services

Global pressures continue to impact the Bahamian financial services industry, the Deputy Prime Minister saying it remains" challenged to maintain and grow market share".

K P Turnquest told a Securities Commission industry briefing that while wealth continued to grow globally, private banking institutions and wealth managers were struggling to maintain profit margins and/or stay in business.

"As a case in point, the Financial Times reported in June this year that despite increasing assets under management (or AUMs), wealth managers' profit margins had fallen by nearly a third over the past decade," he said.

The article references a Boston Consulting Group report, 'Global Wealth 2017, Transforming the Client Experience.' According to the report, global private financial wealth grew by more than 5 per cent in 2016 to an estimated $166.5 trillion.

Meanwhile, the Scorpio Partnership 2017 Private Banking Benchmark reported that assets under management in private banks globally rose by almost 4 per cent in 2016, hitting $21 trillion. Over the same period, net new money decreased by 0.03 per cent.

"While the report indicated increasing operating profits as private banks did better at containing expenses, the report also suggests that managing the revenue side of the profits equation will be the true challenge going forward," Mr Turnquest said.

"As a final point for your consideration, last year KPMG reported that 10 per cent of private banks in Switzerland did not survive 2015. The cry was that the institutions suffered reduced returns on equity and no notable increases in net new money."

He said the impact of the contraction in private banking operations globally had affected the Bahamas since 2012. At the same time, smaller, independent, boutique firms appeared to be filling the niche created by this contraction.

"The number of licensed securities firms, which were structured as bank and trust companies, declined from 47 in December 31, 2013, to 44 in June 30, 2017. Simultaneously, the number of 'standalones' - that is, licensed securities firms who were not bank and trust companies, increased from 89 to 110 over the same period," Mr Turnquest said.

"Similarly, the number of investment fund administrators who were also bank and trust licensees slightly declined over that period, from 25 to 23, while standalones again increased in number, from 38 to 42 over the same period."

Mr Turnquest added: "Each of you likely has a very intimate appreciation for some or all of these realities and trends. Increasing regulation, compliance costs, difficulty in bringing in new clients and new money, and clients who are increasingly wary of the costs associated with doing business are the new norm for many.

"Once again, financial services practitioners in the Bahamas find themselves challenged to maintain and grow market share locally and internationally. We can see, also, that it is not a unique challenge to this jurisdiction, however, as data suggests institutions around the world are struggling with the cost of compliance in an environment of increasing regulations and transparency, while trying to increase revenue and maintain or grow profit margins."