AS stress in the financial sector deepens and drags economies into recession, it would seem as if Singapore's much vaunted strategy of fashioning itself into a wealth management hub to rival Switzerland might be derailed.

The vicious bear market has decimated wealth. A conservative estimate of the extent of wealth destruction would be about 30 per cent, going by a recent global wealth survey; based on equity market indices, the damage is likely to be even deeper at well over 40 or 50 per cent. But, arguably, the more disquieting development as it relates to Singapore's ambitions is the sea change in banking itself as risk-taking is curtailed, investment banks disappear, and banks' traditional sources of revenue - in the past, fuelled by easy credit - now dry up.

To be sure, many of the factors that argue in favour of Singapore's pre-eminence as a financial hub remain.

These include its strong regulatory framework and tax- friendly policies towards corporate, onshore and offshore wealth; fund managers who have taken the plunge to set up an office here often express surprise at how pain-free the process is.

Ancillary services such as legal and accounting are also less costly than those typically quoted by European offshore centres. And not to be underestimated is the perception of Singapore as a safe haven in Asia.

There are obvious challenges. Over the next year, net inflows into wealth managers' books are set to be crimped by investors' risk aversion and the difficult macro-economic environment.

There are more specific issues as well, as institutions re-examine their business models and risk profiles. Is the hybrid model of wealth manager-cum-investment banker still relevant? Or, might this crisis herald the rise of independent and dedicated wealth managers?

The silver lining is that while the culling of jobs, particularly in investment banking, is severe, most institutions continue to point to wealth management as a bright spot in Asia, where they are relatively more circumspect in their job cuts. Yet another silver lining is the dampening effect that the economic downturn is having on business costs, including rentals and staff costs - surely a boon to wealth managers.

Make no mistake: Singapore is on track in its wealth hub strategy even if industry growth is muted in the near term. Growth will eventually return, although revenue drivers for banks may shift.

For one, banks will have to be content with smaller shares of clients' wallets as the wealthy seek to hedge counterparty risk by spreading their savings even more widely over several banks.

On product offerings, exotic structures are likely to get short shrift and banks will have to return to the basics - plain vanilla deposit-taking and simple products, earning relatively less in margins and fees.

A truly open product architecture will also be key as customers wise up to embedded product costs and conflict-of-interest issues which are rampant when banks seek to sell their own products. Going forward, advice will be key and banks will be scrutinised for their ability to preserve wealth for clients.

This article was first published in The Business Times on January 08, 2009.