Finance

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

The profession of providing tender loving care to the wealth of the world's rich people is heading for its annus horribilis. Private bankers in Asia could deal with 2017 -- and the headaches the year will bring -- by following one simple rule: Don't get out of bed.

Showing up on clients' doorsteps with another great investment idea will be a waste of everybody's time. In an age of stratospheric asset prices -- and subterranean yields -- assets under management are bound to grow more slowly than the gung-ho expectations on which some of these very expensive wealth-management businesses have been built.

By Oliver Wyman's estimates, there could be a $15 trillion gap between the assets bankers are hoping to land globally by 2020, and what they might end up with. That's particularly a problem for Asia, where cost-to-income ratios for global wealth managers are off the charts:

Expensive Shops
Cost-to-income ratios are the highest for global wealth managers operating in Asia
Source: Bloomberg, Deutsche Bank, Oliver Wyman analysis
Note: Shows cost income ratios, split by cost type by region.

Staying in the office is an even worse idea. That will mean dealing with compliance all day long. Blame that on the regulatory clampdown on tax evasion and money laundering, which is threatening to become the bane of the banker's existence.

First, there was FATCA, or the U.S. Foreign Account Tax Compliance Act, which made it obligatory for financial institutions around the world to monitor the activities of U.S. citizens and report them to the Internal Revenue Service.

But while banks in Asia could deal with FATCA by, among other things, turning away American clients, what's coming now will be impossible to evade. The Common Reporting Standards, or CRS, under which 54 out of 101 signatory countries will start exchanging tax information next year, will leave banks with no choice except to invest heavily in databases and search algorithms.

Maintaining up-to-date records of clients' tax residency status, identifying "reportable accounts," raising red flags on suspicious transactions, and making additional disclosures will cost money and time. But the extra work can't be ignored. In Hong Kong, intentional disregard of the rules could become a personal liability for bankers, according to a white paper by AxiomSL, a provider of regulatory reporting platforms.

Clueless
Clients in Asia score low on the price awareness scale and almost half claim to be price aware when they're really not
Source: Oliver Wyman HNW client survey 2016
Note: Countries covered in survey: Germany, Hong Kong, Singapore, U.S., U.K.

Bankers in Asia have already been put on notice. A multi-country inquiry into allegations that billions of dollars were stolen from a Malaysian state investment firm and laundered around the world has seen Swiss private bank BSI get booted out of Singapore. Another Swiss wealth manager, Falcon Private Bank, is under investigation in the city for  "serious breaches" of anti-money-laundering regulations. Singapore lender DBS, as well as local units of UBS and Standard Chartered, are being probed for "instances of control failings."

To be sure, dodgy deals aren't limited to wealth management. The U.S. Federal Reserve has given Agricultural Bank of China 60 days to clean up its act after a former compliance officer in New York sued the lender, alleging that she was forced out for telling the Fed about money-laundering risks from international trade-finance transactions.

Nevertheless, the rich are in the cross hairs. Singapore banks were in the news recently for reporting their clients' participation in an Indonesian tax amnesty program to the city-state's police. It's hard for the wealthy to accept that their trusted bankers are telling on them even when they're trying to come clean. But this is just the beginning. The scrutiny will become more intense from next year. And the bankers whose thankless task it will be to do the policing will dread getting up in the morning.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net