98 Finance & economics The EconomistDecember 21st 2019
2 high-net-worth offerings, competition has
squeezed margins. The market value of a
panel of 100-odd wealth managers has
dropped by 15% in the last year, using
Bloomberg data.
Third, negative interest rates are erod-
ing the money held by the masses, about
half of which is in cash deposits. So clients
are crying for help.
That has sparked a race between banks,
fintechs and investment firms. Wealth
managers need several strengths to suc-
ceed, says Matthias Memminger of Bain, a
consultancy: technology, trusted brands,
marketing dollars and a human touch.
Private banks have the last three, but score
poorly on it. They also fear cannibalising
their high-net-worth business. ubs shut its
robo-adviser in 2018, a year after launch.
Investec, a bank, folded its own in May.
Startups have the opposite profile. Their
robo-advisers generate recommendations
by asking simple questions, keeping fees
down. They allow customers to buy frac-
tions of shares, and net out orders to re-
duce trading costs. But their brands are
weaker, so acquiring customers costs
more. And clients entrust them with only
smallish sums. Launched in 2011, Nutmeg
manages just £1.9bn ($2.5bn), and Wealth-
front, a decade-old American firm, $22bn.
Brokers and asset managers also have
good technology, which they use to com-
pile data and execute trades. They pile cli-
ents’ money into cheap exchange-traded
funds and have cut fees to rock-bottom,
hoping to cross-sell premium products.
Charles Schwab’s robo-adviser manages
$41bn; Vanguard’s, $140bn. But their exper-
tise lies in manufacturing investment pro-
ducts, not distributing them. They help
people pursue single investment goals, not
plan their financial life.
To tick all the boxes, contenders are
combining forces. In May Goldman Sachs
paid $750m for United Capital, a tech-savvy
manager. It has also invested in Nutmeg.
BlackRock has backed Scalable Capital, a
digital service whose robo-adviser is used
by banks including ing and Santander. In-
surers are jumping in, too. Nucoro, a fin-
tech, recently said that it would power
Swiss Risk & Care. Allianz has tied up with
Moneyfarm, a British robo-adviser.
The logical endpoint is financial plat-
forms—perhaps super-apps that sit on
smartphones—which would let customers
stitch their patchwork of financial pro-
ducts back together. But the model has not
yet been tested by rough economic weath-
er. Volatility makes financial clients prize
human contact, says Christian Edelmann
of Oliver Wyman. The consultancy reckons
the average cost-to-income ratio for the
biggest wealth managers would jump from
77% to 91% in a recession. It remains to be
seen how well mass-market wealth manag-
ers will perform in a downturn. 7I
t has beena difficult time for anyone
betting on oil. Climate change threatens
long-term demand. In the past year ample
production, trade disputes and fears of an
economic downturn have weighed on the
price of crude. On December 3rd Brent
crude fell to $61 per barrel—18% below its
April high. Yet by mid-December forces
were aligning to support oil prices again.
The Organisation of the Petroleum Export-
ing Countries (opec) and its allies agreed
on December 6th to lower output by more
than 2.1m barrels a day.
Adding to the optimism, Saudi Aramco,
the world’s biggest oil company, listed 1.5%
of its shares. On December 12th its market
value surpassed an astonishing $2trn. And
on December 13th President Donald Trump
announced a preliminary trade agreement
with China (see next story). That bumped
oil prices higher. As The Economistwent to
press on December 18th, Brent crude had
risen to $65.74.
Even so, oil gamblers are wrestling with
two big uncertainties. The first concerns
America’s output. The country pumped
17.8m barrels a day in November, compared
with an average of 15.5m in 2018 (see chart).
But investors have grown impatient with
frackers’ meagre profits. The cost of capital
for American exploration and production
companies has jumped by about 50% since
mid-2016, according to Goldman Sachs. At
the start of December 663 rigs were operat-
ing in America, about a quarter fewer than
a year earlier. America’s oil output will notshrink in 2020, but its growth may slow.
The question is when, and by how much.
The second uncertainty concerns
whether the members of opec’s 23-country
expanded alliance will stick to their new
deal. The past 12 months give reason for
scepticism. In December 2018 opecand its
partners agreed to reduce output by 1.2m
barrels a day. Iraq, Nigeria and Russia,
among others, have regularly exceeded
their allowed limits. To compensate, Saudi
Arabia, opec’s most powerful member,
slashed its own production by an average
of 500,000 additional barrels a day, accord-
ing to the International Energy Agency.
Analysts at Morgan Stanley estimate
that in 2020 1.8m additional barrels a day
will be pumped in countries outside the
opec alliance, including Brazil, Guyana
and Norway. In the run-up to opec’s meet-
ing in Vienna in December, it was doubtful
whether the group would sustain the cuts
agreed to a year earlier, let alone go further.
In the end Saudi Arabia’s new oil minis-
ter, Abdulaziz bin Salman, wrangled an im-
pressive deal. The alliance’s 1.2m-barrel cut
will extend to 1.7m in January. Additional
reductions led by Saudi Arabia will push
the total to 2.1m barrels a day. The broader
group’s collective output will be 1.3% below
its level in November. It remains to be seen,
however, if the cuts will materialise—or
last. The new agreement covers only the
first quarter of 2020. It also allows Russia to
increase its output of condensate, a type of
light crude.
Saudi Arabia remains keen to support
prices, both for its budget and to make
Aramco’s listing a success. The firm’s soar-
ing valuation in early trading may not be
sustainable. Many big global investors
were repelled by its low dividend yield, se-
curity risks and state control. But local re-
tail investors piled in, attracted partly by
the sweetener of an extra free share for ev-
ery ten they buy and hold for six months. If
Saudi Arabia’s allies fail to stick to their
promised cuts, the kingdom will have a
choice: slash its own production further or
let prices fall. Neither is appealing. 7NEW YORK
opec, the quarrelsome oil cartel,
manages to massage the oil price upOil marketsPush-me-pull-you
Oil in the family
Crudeoilproduction,barrels per day, mSource: IEA *Not in OPEC+NigeriaKuwaitUnited States*IraqSaudi ArabiaRussia9630 12 15 182018 Q3 2019Pump up the volume