The line between onshore and offshore private banking is starting to blur in Malaysia as private banks rethink their proposition to meet the demands of a more global generation – driven also by the new era of cross-border tax transparency.
One of the goals for CIMB Private Banking, for example, which is one of the country’s leading private banks, is meeting the demands of the second and third generations of HNW clients.
They want a more diversified portfolio to hedge their lifestyle, in tandem with their global mobility.
“There is a global transitioning happening within the families of the HNW and UHNW, and this is creating the need to split the pot,” says Carolyn Leng, head of CIMB Private Banking in Malaysia.
Diversification the way forward
The bank’s product platform reflects its new approach. Not only is the range of offerings much wider today than it has been previously, but Leng says it is getting to be on a par with what is available at private banks in offshore jurisdictions.
“We offer currencies, listed stocks, currency bonds, FX hedging, overseas mortgages [and more],” she explains. “As many of our clients are sophisticated investors, we need to match this with diverse offerings - both onshore and offshore - to fulfil their risk profile, as well as business and investment objectives.”
So for example, CIMB Private Banking’s clients can also use their local account to take out a FX credit limit, an overseas mortgage in GBP, pledge Malaysian securities, and draw down on any of the G7 currencies.
Foreign mutual funds are on offer, too, through a feeder fund structure. “One needs to create a wholesale fund that specifically feeds into the fund,” says Leng.
Yet offering everything possible to its clients is not what Leng is aiming to do.
Instead, at the heart of the bank’s customer value proposition, is a desire to construct a portfolio that will be able to weather volatility from a risk-return perspective.
“At the end of the day, what clients want is to sleep at night. So with that in mind, typically we don’t go by product, we build a balanced portfolio,” explains Leng. “Ultimately, it is all about presenting a risk-return profile that will fulfil the client’s investment objectives.”
Key to achieving this strategy is driving the concept of goals-based investing.
At the same time, however, this requires a need to invest in training and educating relationship managers (RMs), to ensure they shift their mind-set from pushing products to focusing on the needs of clients.
CIMB Private Banking is not there yet, but Leng is confident that in three years’ time, it will have a large enough pool of trained RMs to support its endeavour to deliver better value by really understanding the clients’ needs first.
Finding new opportunities in CRS
Moving the capability and capacity of her team in this direction will also enable the bank to take advantage in the coming years of the need to guide clients through the uncertainty of regulatory obligations stemming from initiatives like the Common Reporting Standard (CRS).
In line with this, Malaysia’s central bank, Bank Negara Malaysia, has in recent months put the risk management practices of all banks under greater scrutiny. “[BNM] wants to see how we are onboarding clients,” says Leng.
As a result, compliance has had to step up. “A lot of monitoring is in place and we need to retrain our RMs to also have the compliance mind-set,” she adds.
More broadly, Leng believes that the move towards tax transparency will be a catalyst for the CIMB Private Banking business.
“Today, institutions are starting to look more at onshore because with the implementation of CRS, clients see no difference in putting money offshore versus onshore,” she explains.
As and when this gathers steam, the ability to generate returns for clients via an enhanced and more diversified product platform will be crucial to tapping this opportunity. “If I can generate decent returns [for clients] with the right amount of volatility, a lot of clients will start to consolidate onshore rather than having to move the pot,” explains Leng.
RMs will have a vital role, too, in engaging clients and constantly looking at ways to add value to them.
In order to build lasting relationships, Leng says they will need to start asking questions such as: how can they add value to building or increasing their existing wealth? How can they get closer to the next generation? And how can they stand a better change at managing clients’ wealth than offshore bankers?
To reap the benefits, however, CIMB Private Banking will have to ensure it can find ways to overcome the challenges that the private banking industry faces – such as rising costs brought on by regulatory changes. There are also hurdles on the product front.
In Leng’s view, for wealth management in Malaysia to be “unshackled” and truly flourish, the different forces within the industry need to join forces.
As things stand today, the individual associations of bankers, financial planners and asset managers don’t have a uniform approach to address the industry’s problems.
“We don’t have unity because everyone is too busy trying to fight their own battles,” she says. “We need to agree on one approach and then go forward and engage BNM and the Securities Commission.”