Financial advice is just a mouse click away. Mutual funds are increasingly available —some with initial investments of just $50. And private banks that offer personalized customer service are beefing up staff. These are some of the most visible signs of the growing competition among financial firms—domestic and global—as they jockey for a piece of the wealth management business in Latin America.
To be sure, the region lags the pace of wealth generation in Asia and accounts for only a sliver of the $63.1 trillion in investable assets worldwide. But consultancy EY estimates that net investable assets in Latin America will grow 4.5% through 2021 to $3.3 trillion.
That’s a growth rate equal to that of Western Europe and reason enough for many firms to better position themselves in the marketplace. BlackRock’s acquisition of Citibanamex’s asset management business is a good example. The deal, which closed last September, doubled the firm’s assets under management in Mexico to more than $60 billion.
“Over the past decade, we have seen the wealth management industry in Latin America evolve significantly,” says West Lockhart, head of wealth for Latin America at BlackRock. “Many savers have become investors, and portfolios have expanded beyond local fixed income to local equities and international strategies. However, we believe that there is significant evolution to be made in the years to come.”
Traditionally, much of Latin America’s personal wealth was parked offshore or in relatively risk-averse investments, such as fixed-income vehicles and real estate. The strategy reflects challenges of preserving wealth in a region ravaged by spikes in inflation and political upheaval.
What’s more, individuals had few domestic investment options. “Many Latin American high-net-worth investors currently invest offshore due to a lack of investment variety in local mutual funds,” says Sophie Del Campo, who leads business development in Latin America at Paris-based Natixis Investment Managers.
But the culture is changing, a transformation driven in part by family offices, or private advisory boutiques dedicated to serving ultra-high-net-worth individuals, which are among the first adopters of investment trends that help drive innovation locally.
The region enjoyed two large wealth creation cycles in recent decades. The first happened when industrial firms like beverage bottlers and construction giants took off during the 1930s and 1940s. Another wave rode what has been dubbed the “middle class miracle” of the 1970s, when a broader consumer class sprouted in several countries.
Now, as the initial wealth creators age, their heirs are adopting new ideas about wealth management. They care about sustainable investing, gender equality and low-key but tailored service. More sophisticated individual investors are looking for creative, potentially higher-yielding solutions closer to home. The wealthiest want the chance to invest in private equity deals, hedge funds and mergers and acquisitions.
“We are seeing generational shifts,” says Renato Grandmont, managing partner and chief investment officer at Link Capital Advisors, a multi-family office dedicated to wealth management for global and Latin American families.
A growing pool of investable assets are sprouting onshore, thanks to recent economic gains and tax amnesties that encouraged individuals to repatriate their money. In the case of Argentina, $116 billion was declared in 2017. Brazil’s 2016 amnesty turned up $50 billion in offshore assets. And Mexicans repatriated $20 billion.
In response, banks and asset managers are offering an expanding menu of products. Hundreds of international funds are now available for purchase in countries like Chile and Mexico. Some allow investors to buy European equity funds in pesos. Further down market, large banks such as Mexico’s Citibanamex, are offering entry to mutual funds with investments as small as $50, in hopes of creating a large retail market.
Investors in Brazil and Mexico can now invest in “offshore” funds via “onshore” vehicles for greater diversification. In Brazil these vehicles are known as feeder funds that are distributed via local financial institutions. In Mexico, individuals can purchase hundreds of international exchange-traded funds (ETFs) on the Mexican Stock Exchange’s International Quotation System (SIC), with the added bonus of tax savings, paying just 10% in capital gains versus 35% for a European-domiciled fund accessible via US brokers.
BlackRock has been a key driver of what some see as a “democratization” of investing in the region through the introduction of low-cost, passive funds. Through its iShares family of funds, BlackRock is one of the world’s biggest issuers of ETFs. The US firm manages $148 billion on behalf of institutional and wealth clients across Latin America.
Part of the region’s allure for global asset managers is Latin America’s comparably young population: the median age in Mexico, for instance, is 28 versus 41 in France. Meanwhile, Latin Americans are living longer and not saving enough. The average Latin American will live 75 years, five more than in 2000, according to the World Bank.
“It makes a lot of sense to have bets on this region, to create a long-term savings approach that we have in other parts of the world,” says Del Campo of Natixis. One of the world’s largest asset management firms with about $1 trillion under management, Natixis is among more than a dozen European firms seeking to make inroads in Latin America.
Along with more investment options, investors are looking for more personalized attention from their wealth advisors, says Frederico Ventriglia, a partner with EY’s Latin America Financial Services Advisory. Once a family pierces the $5 million net worth threshold, some feel it makes sense to seek a family office approach rather than cookie-cutter service from the large investment banks.
“Client-centricity” is paramount, notes Ventriglia, who equates the job of a high-end private banker to “a family doctor,” diagnosing problems and prescribing immediate and long-term solutions. Advisor pay structures vary. Some collect commissions and fees for products sold, in addition to negotiating retainers or taking home a percentage of revenue or assets under management.
Maricé Brown, head of J.P. Morgan Private Bank Mexico, says her bank is “significantly” expanding its presence in Houston due to client demand, having hired seven new advisors for that market in the past 12 months and with plans to hire more this year.
But rising compliance requirements in the US have led to tougher scrutiny of new wealth accounts and weeks or months of paperwork and due diligence to bring a new wealth client onboard. Even long-term clients are being subjected to tedious updates of their profiles and requests for documentation going back decades to prove that wealth is licit.
Know-your-client practices are driving up costs and, along with them, higher account minimums at the large wealth management brands. Whereas Citibank and Wells Fargo will still take on a client with only $500,000 in net investible assets, the entry price at UBS is $2 million. Industry veterans say about 75% of wealth clients in Latin America fall within the $500,000 to $2 million range.
The difficulties in getting new clients through the gate, and holding onto established relationships, are driving droves of financial advisors to strike out on their own and have led to a proliferation of smaller boutique advisory firms.
“Every day it gets more difficult in the big institutions,” says José Salazar, head of sales for US offshore at Miami-based Insigneo Financial Group, an independent broker-dealer with close to $9 billion in assets under management. Salazar joined Insigneo in February after more than five years at Morgan Stanley, with the objective of boosting the firm’s network of 130 independent financial advisors to 300 by 2022.
Lower entry levels and fewer compliance hurdles are favoring domestic wealth management firms, such as Vector and Actinver, two Mexican firms that have growing offshore businesses in Texas. The Mexican firms have either no investment minimums, or minimums set by the brokers themselves. Brazilian wealth juggernaut BTG Pactual is another beneficiary of the trend toward smaller accounts.
Natixis’ Del Campo describes this fragmentation as the “atomization” of wealth management in Latin America. For many, it’s just the next step in the industry’s evolution.