Latin American Wealth Management: Ugly Duckling No Longer
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17 January 2012Alexander Camargo
When compared to Asian wealth management markets, Latin America still appears to be the second-place prize. Wealth managers have been aggressively ramping up their Asian operationsl high net worth investors with offshore accounts in Switzerland are looking to Hong Kong and Singapore; even the Obama administration has made a foreign policy pivot towards a focus on Asia-Pac. However, Celent’s recent survey on IT spending in wealth management (the results of which are present in its report, Wealth Management IT Update) indicates that firms pivoting to South America can also bear significant fruit. The results of this survey are beginning to show that the saying, “When the United States sneezes, Latin America catches a cold” is becoming a tired old trope.While North American wealth managers expected IT spending to increase between 5-7%, Mexican firms expected spending to increase 10-15%. Furthermore, despite a slowdown in Brazil, wealth managers there expect 15% increase in IT spending as well. Additionally, data is showing that high net worth investors in Latin America are keeping more and more of their money on-shore, whereas high net worth investors in the US and Europe are balancing their portfolios with more exposure to Latin American markets. To put the cherry on top, many wealth management firms are still in the midst of developing their wealth management IT platforms. Few, if any, platforms have been in place longer than 2 years. These conditions present an attractive opportunity for global and local wealth managers. Granted, there are still significant costs to entering the Latin American market. For example, entering Brazil requires an arduous and extended process with regulators, and corporate taxes are very high (The standard corporate tax rate is 15 percent, but a 10 percent surtax and 9 percent social contribution on net profit paid by most industries brings the effective rate to 34 percent). Furthermore, state control in many industries is still high in comparison to developed markets. The Heritage Foundation’s economic freedom scores place Brazil, Mexico, Peru, and Argentina all outside of the top 40 countries. Despite these growing pains, the number of HNWI in Latin America continues to grow, and wealth management firms continue to mature with more personalized service. Latin America may soon find itself the next darling of the wealth management community.