Onshore or offshore, or hybrid – which model is winning favour?

The rising share of global GDP from the Asia Pacific region is virtually assured, but somewhat less certain is the balance between onshore and offshore wealth management. Hubbis invited experts to share their views in the second panel of the forum.

These were the topics discussed:

• How are the wealth management markets developing onshore?
• Offshore / onshore. Where is the long-term opportunity?
• Who is making a commitment to building an onshore business?
• Is there a hybrid model where international banks can work with onshore banks?
• Right partner and right market? What’s the potential to collaborate? Will it work?
• Cross-border challenges – CRS and AEOI
• How is Singapore is changing the Wealth Management global landscape?
• How important is Singapore today as a center for wealth management from Chinese clients?
• Is international private banking in structural decline?

The Forum was an ideal location in which to discuss the evolution of wealth management strategies in Asia related to onshore and offshore solutions and services. 

“Regulation in the form of CRS, FATCA, Automatic Exchange of Information and other new directives are drivers in the onshore-offshore debate,” one banker reported. 

Another noted that the profile of HNW [high net worth] individuals is such that they are increasingly regional and global in their business and personal lives, with rising knowledge of opportunities outside their own home market. “Accordingly,” he said, “we allow our RMs to recognise AUMs and revenues booked outside their home market, with a defined profit sharing practice. Having said that most of our growth has been onshore assets, as we mostly follow corporate clients. But in the future, we will pursue more offshore opportunities as well.”

One guest noted that its base in the region in Singapore demands that it pursue an offshore strategy there. But its history, style and culture facilitate an offshore approach to many other markets in Asia. 

Chinese wealth looking for a home away from home
He cited, for example, a report that stated Chinese HNWIs have almost $6 trillion of wealth and of that some half is already offshore. “We are therefore following what we might term a ‘hybrid’ model of blending onshore and offshore talent, strategies and focus. Onshore in Singapore, for example, we have developed an app and offer online trading as a means to compete in certain niches against the major players here.”

He noted that Singapore and Hong Kong had served his firm well for the past two decades, as clients based around the neighbouring countries feel rather safe with their assets being held and managed from these locations,” explained one expert. “Having said that we are venturing opportunistically to our neighbouring countries as a wealth manager.”

Unlike in Liechtenstein or Switzerland, the historic homes of offshore private banking, a banker highlighted that in Asia it is extremely difficult for an offshore bank to judge exactly the best providers in terms of the quality of the services, the quality of the advisors, and the quality of the products, as there is less history and fewer credible benchmarks.

“Accordingly,” he explained, “we have to understand what motivates a client to keep their connection with the bank or with the relationship manager ongoing. Understanding client profiling much better, especially when it comes to offshore clients and what is behind the numbers, is essential to suitability and sustainability in this industry. I think there is a need for hybrid models here from the customer perspective, especially when we talk about the ultra HNWIs.”

Switzerland – the Singapore of Europe? 
A guest noted that it had been stated that in 10 to 15 years Switzerland will be known as the Singapore of Europe, meaning Singapore will be bigger than Switzerland for offshore money. “It is already happening,” he said, “as vast amounts of Chinese wealth have moved into Hong Kong and increasingly now Singapore. India, Indonesia, Malaysia, the middle east countries are all moving huge swathes of money here that might typically have been directed through Switzerland or London. And the growth of HNWIs here is remarkable.” 

Another expert noted that wealth clients are moving from the first to the second and third generations, and as that happens family wealth advisory services are increasingly at the centre of value proposition. 

“Family governance,” he said, “wealth planning, succession planning and all these areas are great growth areas and where Singapore has a deep talent and expertise pool to serve these clients across the region. But a key challenge is to keep talent here, while competition from other locations in the region increases. And we need to ensure that as private banks or wealth managers we bring the value to the client.”

Expanding on the point about competition from within the region, one guest commented about how positive he is about Kuala Lumpur as a wealth management centre. 

“The regulators there are conscious of the fact that they need to improve and deepen the financial markets just to stem the outflow of capital,” he observed. “In terms of valuation, it looks attractive, and with the ‘One Belt One Road’ initiative we do see more Chinese being very open to investing in Malaysia and more broadly ASEAN.” 

And with the success and importance of Malaysia as the largest Islamic finance centre in the region, Malaysia can be an ideal meeting point for China and the Middle East. 

A banker noted that between Singapore and Hong Kong his personal opinion is that Singapore will continue to stay very relevant because it also offers offshore and is not part of China. 

Hong Kong – identity crisis looming?
“Hong Kong has benefited from the opening up of China because of its location and because it is part of China,” he observed. “But the political connection to China is perhaps a negative in the future. I also think the Chinese government will develop Shanghai more vigorously and as the Renminbi becomes more internationalised and becomes a reserve currency then there is less reason for money to flow out of China. For the money that the Chinese have and will have offshore, Singapore is an ideal entrepot.”

Another panel member cited the recent Monetary Authority of Singapore Fintech event, noting that the Singapore authorities are very active in promoting these events and therefore Singapore as a financial hub. “This is almost unique,” he observed. “In other countries the regulator has a purely regulatory role, but here they are also very focused on building Singapore as the central Asian player and then also have their sights set globally as well.”

Returning to the theme of Chinese money in the offshore markets, one guest explained that when he first went to market his firm’s Singapore-based wealth management services in China, less than 20 years ago, many of those he met were not even sure exactly where Singapore was located. 

“But,” he said, “in the past two weeks I have been meeting more than 20 Chinese entrepreneurs who are coming here to open accounts. They are attracted to Singapore due to its organisation, legal system, education, healthcare and also because it is a fun place with lots to do.”

“Some say that just as Miami is the capital of Latin America, Singapore is the capital of ASEAN,” a guest added. “The next stage can be boosting Singapore’s power amongst North Asian countries and HNWIs as Singapore is definitely winning out over Hong Kong in the eyes of many Chinese investors.”

Traditional geographical, cultural divide still exists  
But on a more positive note for Hong Kong, a banker noted that the traditional divide was Hong Kong-North Asia and Singapore-South/SE Asia. “Hong Kong has always had a deep and important domestic market and there is still a huge array of investment banking know-how, so the mega billionaire Chinese companies and owners still focus on Hong Kong and keep houses there as befitting Chinese oligarchs.”

Turning attention to the concerns facing the wealth industry one panellist said that investors could at some stage decide it is preferable to preserve the wealth within their own countries they might then eschew offshore bankers. Regulations could drive this potentially. 

“Accordingly, although this is not an immediate risk,” he said, “the offshore banking model cannot be a sole strategy of the bank, it must be a hybrid approach, both onshore and offshore. We have seen quite a few banks already start the onshore inroad into different markets. However, for the time being and foreseeable future offshore banking is still required but we maybe need to adapt and modify in order to facilitate global asset allocation.”

Another banker said that he considers regulation the single biggest risk in the viability of offshore private banking model. “We could see regulators tighten capital flows, we have got CRS, we have got tax amnesty in Indonesia, so I think that is going to make the suitcase banking model a lot more difficult.

Another expert concurred that regulations are a major concern, while noting that political trends and competence are also major worries. “Protectionism such as America First and other initiatives could produce damage.”

Reinvention for a globalised world
And another panel member for me the biggest risk would be the capability for the offshore market to reinvent itself, to rethink everything and continue to bring value to the clients. As soon as all the local markets in the region would have a comprehensive and global access to the markets – and that is an ongoing process of liberalisation - the offshore centres will have to rethink where they add value.

The chair concluded the discussion with a view that money is fungible. “If you cannot hold it locally, it will go offshore, so it appears important to create a hybrid model, so banks can be a significant player in the onshore market as well as a significant player as people – for whatever reason move their money outside.”