Belgium debate: Learn more about the participants
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EXECUTIVE SUMMARY
• Competition from new European players and niche providers
• Will changes in tax drive money out of Belgium?
• Diversification of portfolios goes beyond cash, bonds and equities.
• Investors are increasingly looking at real estate and private equity investments |
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Euromoney Let’s start by talking about how the private banking and wealth management industry stands right now in Belgium. Competition seems to be growing here in Belgium. Why is that?
PPDS, Bank Degroof The latest McKinsey figures show that year on year since 2005 Belgium has been growing a little bit faster than the rest of Europe. We are a poor country, but we have a very rich population. There has been a lot of wealth creation in Belgium during the past 20 to 25 years and we are seeing a generation of baby-boomers coming to retirement, so there is a lot of demand for advice. Every year we see new industry competitors entering the Belgium market. When I started there were six or seven in the market, now we have at least 15 competitors.
EDC, Bank Degroof I think the increased competition is two-fold. Yes, the Belgian economy has been doing rather well over the past few years, which is good in terms of revenue generation. But the second feature is that our financial system has been hit harder than the average financial system in Europe during the crisis. Next to Iceland and Ireland, our big financial institutions have been hit the hardest I would say. That’s led to greater mobility of clients. This may be one of the reasons why competitors are looking at Belgium – the economy is doing rather well and there is room created by the loss of confidence some people may have vis-à-vis some of the traditional big institutions.
RH, Bank Delen The increased complexity of the market now is also leading clients to move money. Twenty-five years ago clients managed their own money. Not many clients these days want to do it on their own and a greater proportion of them are giving their asset management to a private banker.
MD, UBS Belgium The crisis boosted the need for people to diversify banks. The Belgian market is definitely more crowded than it was but the market potential is significant. True, private banking penetration is relatively low; the economy, however, is quite healthy. This provides assets in the long run that are bankable, or private bankable.
Euromoney Belgium’s economy might be in better shape than other countries, but do you think there is room for new competitors?
EDC, Bank Degroof From past experience, I would say that while we are welcoming new players in, they may well walk away within a couple of years. You need to reach a given level of assets under management to be profitable, even if you are just a subsidiary of a foreign player. It doesn’t make sense to lose money year after year. We may be a small country with wealthy people, but it is not easy to be profitable.
Euromoney Are these US banks that are coming in or are they European banks?
EDC, Bank Degroof European banks.
PPDS, Bank Degroof No US banks are coming in, and there are no Anglo Saxon banks. The main players in Belgium are Belgian, Swiss and French. JPMorgan was the last that was active here but it left. It is all European banks.
RH, Bank Delen It is important to have close contact with all the families and that takes time. Wherever you are from, it takes time to form those relationships.
MD, UBS Belgium Commitment is key. We entered the market in 2002 and it was definitely difficult in the early stages because you have to be introduced into the various networks, knowing that people are extremely loyal to their banks in Belgium. Wealth management is our core business, so we are prepared to commit and as one of the best-capitalized banks in the world, we can afford to do so. For new or smaller players entering Belgium, it will require heavy long-term investment and will represent a big challenge to make it work.
PDM, Cadelam AM What do you regard as "small"?
MD, UBS Belgium Size matters but in this case it is more principle. There are a lot of financial intermediaries in Belgium and if regulation and requirements continue to increase further, it will become more and more difficult for less structured organizations to operate.
RH, Bank Delen It is a question of efficiency. When we were two or three times smaller than we are today we were still very profitable. Big banks are not always very efficient and efficiency is well linked to the cost of the asset management, and the cost of the asset management is today very important because the interest return can halt inflow. Clients are paying this cost, so the efficiency is really fundamental in all these debates.
EDC, Bank Degroof But regulations were different then...
RH, Bank Delen It is true that there has been an evolution.
Euromoney So are these new entrants a threat to your businesses?
PPDS, Bank Degroof It depends. These new entrants take many forms. On the advisory side I see a lot more boutiques being created and new types of advisers coming in. Some call themselves family offices and advise five to 10 families. Or even real estate agents and insurance brokers that start with a product and then convince clients to follow them. It is so easy to advise a family for a fee and let them invest in a number of funds you have chosen without being in breach of any regulations. Then there are some new entrants in asset management. They each can take a percent or half a percent of your business away, so that poses questions about the future of our business. I wonder on what type of business we will concentrate ourselves within 10 years. I am not sure we will be the same.
