While news that the ultra-wealthy use offshore tax havens may come as little surprise to Portfolio Adviser readers, it highlights once more where financial services sits within the current zeitgeist – where the demand is not only for the details of who is ‘hiding’ what and where but, more importantly, for clear action from regulators to ensure that such opacity is being tackled.
And, while the initial headlines have focused on the highest celebrity cases, this is a can of worms that cannot be unopened; the stories and regulatory reactions will continue to mount.
But, it is not only in the offshore world that the demands for transparency are increasing. A new study by Pwc, titled: Rethinking reward as asset management moves centre stage, pointed out on Monday that the asset management sector’s growing importance within the world means that it too is going to see significant change, particularly in terms of how managers are remunerated and products are sold.
According to Pwc, within a few years asset management will be the single biggest component of the financial services sector and, just like the banking sector before it, with that increased size will come an increased level of scrutiny; “stakeholders at large will hold the industry to a standard far beyond that which has existed up to this point.
This is already beginning to happen and the increased level of regulation has served to push costs up. At the same time, clients demand lower fees and shareholders better returns. One of the results of this is that compensation particularly for the asset managers will have to become more targeted, Pwc writes.
This, in turn, the consultancy says, means “A stronger link will be created between client outcomes and pay for investment professionals. This will increase alignment with investors and reduce reliance on broader corporate performance over which many employees have limited direct influence.
At the same time it adds: “Higher standards of transparency and governance will be required of asset managers, leading to an increased requirement for significant levels of pay to be robustly justified. Beta masquerading as Alpha will be less significantly rewarded.”
