Focus on the silver lining
The news that Royal Bank of Canada plans to sell its wealth management services in Barbados no doubt caused some people to question the island’s future as a major centre for this type of business. After all, if the biggest player is leaving the field, what might this say to the high net worth individuals and institutions we want to attract?
Similar questions were already being asked a year ago when Canada toughened its stance on the status of Canadian-owned international banks, a number of which have since moved the management function back home.
However, all is not lost; far from it. As the saying goes: “Every cloud has a silver lining.” We need to put the gloomy news in perspective. RBC’s decision is due to increasing cost pressures and dwindling profitability associated with this line of business in the region.
Banks in the Caribbean face heavy expenses in order to comply with demands from a whole suite of new international regulations from the United States-generated Foreign Account Tax Compliance Act (FATCA) to the European-based Organisation for Economic Co-operation and Development (OECD) initiatives. Bottom line: compliance costs outweigh the benefits of operating in small macro economies like our own.
But while some entities may be departing, the skills and expertise once needed to run them remain on the island. We still have the capability to manage private and institutional wealth: all we need is a new model.
The good news is that model is already emerging. Independent asset management firms, which once performed the function of international banks, are already in place and quite capable of providing the sophisticated investment advice and portfolio structure high net worth individuals and institutions need. No need to go to New York or London.
True, these independent firms may not be able to provide the custody or brokerage functions of a large chartered bank, but they can outsource these services by partnering with big, globally respected financial institutions. Clients can enjoy peace of mind knowing that their assets are secure in the hands of some of the world’s biggest and most respected financial institutions: brands such as Morgan Stanley, Citibank and UBS, to name just a few.
This hybrid model of a local firm with global relationships, allows Barbados to keep the high-value components while outsourcing other services to countries where they have scale and more of a commodity. Operating on a fee-only basis, the local firm provides independent, trusted advice directly to the client, including how best to allocate their assets, selecting specialist managers, on-going due diligence, risk management and consolidated reporting. In effect, with this hybrid model, the highest value part of the investment process, the chief investment officer function, remains on-island.
Wealth management expertise is not typically the main driver of why international businesses choose Barbados, but it is an important part of the overall value proposition that this jurisdiction offers to potential clients. So we need to let the marketplace know that we are able to facilitate investment management relationships with all the global financial brands from here in Barbados, and still provide comfort that there is a team “on the ground” who knows and understands the local management and environment.
When it comes to securing our future as a wealth management centre, we don’t need to reinvent the wheel. We simply need a different type.