Published: Wednesday, 21 Oct 2009 | 5:54 PM ET

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High-profile fraud scandals and heavy-footed government tax crackdowns have "changed the DNA" of wealthy investors who now demand lucid, protective long-term counsel from advisers and bankers, an industry expert said.

Steven Crosby, head of Americas Wealth Management with PricewaterhouseCoopers LLP, said transparency had become the top requisite sought by investors in a global wealth management industry that was being invaded by intrusive governments seeking to tighten regulation and chase down tax cheats.

"We think that transparency has actually eclipsed brand and performance as the essence of wealth management and private banking," he told Reuters in Miami after addressing the Florida International Bankers Association (FIBA) Tuesday.

Crosby said the global wealth industry had experienced multiple shocks, both from notorious fraud scandals involving Wall Street financier Bernard Madoff and Texas billionaire Allen Stanford, and from increased government intervention into "what has historically been a very private business." Madoff is serving a life sentence after pleading guilty to running a $65 billion Ponzi scheme, while Stanford denies committing fraud and is awaiting trial in jail.

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"With Madoff, Stanford, and the aftermath of the financial crisis, the DNA of the investing public changed and now government action has cooked these changes into place with varying decrees and regulation," Crosby said.

PricewaterhouseCoopers (PwC) this summer published its 2009 Global Private Banking and Wealth Management Survey which presented increased government intervention in the sector as the new "Elephant in the Tent," placing increasing political, fiscal, tax and regulatory pressure on wealth managers.

"There are herds of elephants out there facing the industry globally," said Crosby, who noted European Commission proposals to regulate alternative investment fund managers and anticipated tighter U.S. regulation of hedge funds. "Now it's just a question of how much and how soon," he said.

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An ongoing crackdown against offshore tax havens by the Group of 20 countries meant that bank secrecy as it had existed in the past was "dying," Crosby said, to be replaced by what PwC calls "compliant confidentiality." In response, clients wanted much more transparent reporting and in some cases "forensic due diligence" from advisers.

"Clients want to know how their money is managed, where it is, what are the restrictions, if any, on getting information and access to their funds, what are the bona fides of their service provider, their downstream service providers, the custodians, the sub-custodians," Crosby said.

This, along with increasing "insertion of government" into the affairs of the wealth management industry, was bound to push up costs.

"I think it's almost an implied tax, and in my personal opinion based on the anecdotal evidence I am seeing may add 15-20 percent to the cost of doing business," he said.

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Crosby said PwC's 2009 survey showed that what investors were now seeking was what he called plain "vanilla—simple, straightforward advice" that involved a heavy emphasis on long term financial planning and full attention to tax issues.

"Clients are seeking the cool, calm steady hand on the tiller to help steer, guide and protect their wealth for the long term and across generations," he said.

Crosby said most companies and advisers in the global wealth management industry had lost at least 10 percent of clients in the last two years. Going forward, he saw successful future businesses focusing on long-term asset management.

While Switzerland and Luxembourg would certainly remain top financial centers, Crosby believed that Latin America was a somewhat unique market in its maturity compared with others and that it offered solid business prospects.

"The nature of wealth concentrated in this region tends in many instances to be decades-old; it goes well back across the generations.

This translates into a shared set of long-term values and vision, which is reflected in the maturity around the wealth and of the firms that serve investors," he said.

In contrast, he said, the "age of wealth" in other markets such as parts of Asia tended to be younger, newer, and often "much more entrepreneurial." This was also reflected in services offered by firms in those markets.

"The downside is that in less mature, often more aggressive markets you can find they've gone back to business as usual and they're pushing yield and performance again," he said.

In the Middle East, powerful, sometimes dynastic "family offices" can be a feature.

"Behind the sovereign wealth funds, you sometimes find a royal 'family office,' which are huge, diverse and represent a completely different family office service environment from those found anywhere else," Crosby said, referring to states like Qatar, Kuwait and Saudi Arabia.

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