There is no shortage of issues confronting the wealth management industry in 2009 as clients react to the historic economic events of the past year. These events have removed any lingering doubts that what began as a subprime mortgage crisis has become a global financial crisis. This is leading to a fundamental restructuring of the global banking industry, with a significant effect on wealth management products, services and distribution. As it has done in the past, the industry will move forward, with an immediate focus on regaining the confidence of clients, shareholders, regulators and governments.
As the restructuring unfolds, the wealth management industry will emerge as an obvious beneficiary of a new economic order. The evidence is clear. Wealth management divisions of many global financial services companies have already been the recipients of reinvestment budgets and funding even as their parent companies face overall profitability challenges in the short term.
Wealth managers cannot ignore the immediate effect of what has occurred. As the dust continues to settle from the events of 2008 and 2009, some key consequences have emerged and firms’ strategic direction must now take them into account. First, both existing clients and prospects have suffered wealth erosion like they have never experienced before.
Second, skepticism of complex financial products has greatly reduced investor appetite for risk in their portfolios. Taken together, these two factors have created an atmosphere in which investors are much more reluctant to invest. However, this still is an area of growth.
Do you think the wealth management industry is poised to benefit from the economic crisis? To learn more about wealth management in 2009, download BearingPoint’s white paper.
Post by David Cooke, Senior Government Advisor to BearingPoint
It’s impossible to underestimate the challenges that Geithner and the Obama administration face—the pressure to do something—anything—fast to fix the banking crisis. I don’t pretend to have the solution, but I do know that restoring public confidence is a critical part of the recovery process.
What I learned as the Executive Director and COO of the Resolution Trust Corporation (RTC) during the savings & loan (S&L) crisis is that the two—public trust and the crisis resolution strategy—are inextricable. Even more so when taxpayer funds are involved. The greater the public confusion or doubt, the more difficult operations will become – no matter how hard you try.
I saw this firsthand when the former S&L regulatory agency lost public confidence and was eliminated by Congress. Re-establishing trust was a very difficult challenge for the newly-created RTC, charged with managing the highly unpopular and misunderstood task of resolving hundreds of S&L closings. Congress and the public had very little understanding of the new RTC’s mission and authority, let alone the organizational, staffing, information, and funding challenges that we were facing. We quickly learned that we should have focused on reaching out to the public and stakeholders at the very start to help them understand our challenges—and our progress.
As Treasury Secretary Geithner grapples with finding the right strategy to reverse the enormity of the banking crisis, I offer a few recommendations from my own experience to get a running start in rebuilding public trust.
- Design a transparent resolution strategy that is cost effective and makes sense to the public. Minimize perceptions of a banker bailout; remove nonviable banks from the market place with as little disruption as possible. Identify and isolate “toxic assets” to be managed separately from banking operations by qualified and properly incented professionals. Minimize perceptions that errant bankers are being rewarded for their mistakes or relied upon to solve their problems at taxpayer expense. Do not place healthy banks at a competitive disadvantage against assisted banks.
- Base decisions and measures on reliable information. You need to know where you are to figure out where you are going and how to get there. Confidence in everything you do will suffer when unreliable information results in repeated funding requests to Congress.
- Make every effort to minimize taxpayer losses by operating effectively and efficiently and pursuing those who caused the loss.
- Develop and disclose meaningful performance metrics as soon as possible. Confusion and misunderstanding about RTC’s mission and its accomplishments were ameliorated once RTC established measures regarding resolution and asset sales activity.
- Focus on eliminating waste, fraud and abuse. High taxpayer costs and demand for results made RTC more vulnerable to claims of waste, fraud, and abuse in the areas of contracting and contract management, information systems, and asset management and disposition. RTC expanded and enhanced its internal control programs and employee training to complete a very large task without any serious incidents of operational mismanagement.
- Vigorously pursue claims against bankers and other professionals who contributed to losses. The claims that FDIC and RTC filed against former failed institution directors, officers, attorneys, accountants, appraisers, brokers, and other professionals contributed significantly to cash recoveries.
I can say first hand that resolving failing institutions using taxpayer money will be a very unpopular challenge. Mistakes certainly will be criticized much faster than accomplishments are recognized. Building trust and confidence will not be easy and will take time but following the principles outlined above will help the new administration get there. I look forward to reading what you have to say on this topic so please leave a comment below.
About the David
David Cooke gained lots of experience with failing banks and thrifts during his career at the FDIC and while serving as Executive Director and COO of the Resolution Trust Corporation (RTC) with responsibility for the new agency’s organization, staffing, and operations that involved managing the resolution of several hundred failing Savings & Loan institutions and many billions of illiquid assets. David is currently serving as a senior government advisor to BearingPoint. For related information, please visit www.bearingpoint.com/financialrecovery.
Posted in thinking
Tagged asset valuation, bad bank, bank modernization, bank nationalization, Bill Seidman, bridge banks, Dave Cooke, EESA, failed bank, Fannie Mac, FDIC, financial crisis, Financial Institutions Regulatory Modernization, financial sector reform, financial sector strengthening, financial stability, FiSERV, Freddie Mac, HUD, load modification, loan management, mortgage asset financing, Mortgage servicing and refinancing, public trust, small loans, TARP, Treasury, troubled asset, William Seidman