Leveraging Digital Tools to Boost Investment Curation and Engagement in Asia’s Private Wealth Market

As we all continue to endure the ebbs and flows of the Covid-19 pandemic, the vital role that technology and digital transformation have to play in the financial services industry has become ever more visible, and indeed more widely accepted, and nowhere more so than in the challenged world of client engagement after some 18 months of lockdowns, lack of face-to-face meetings and the inability of advisors and clients to travel as they did before. The Hubbis Digital Dialogue of August 5 focused attention on how digital tools and solutions and data, if properly handled and delivered, have been helping these client-facing bankers and advisors remain engaged with their clients and helping drive elevated curation of investment products, advice and portfolio management. The new wealth model also aligns both the human and the digital in a seamless collaboration for the delivery of optimised investment products, ideas and solutions for Asia’s private wealth clients. The panel discussed where and how digital solutions can enhance and sometimes replace the human elements in wealth management, how digital can help boost portfolio solutions and optimise allocation, and how the solutions can help to identify and filter out best-in-class ideas and products for an increasingly discerning client base. Digital tools can also help mitigate risks in the portfolios and help identify additional elements of suitability and client preference, for example to boost sustainability and ESG-driven investing. The right digital solutions will also help the RMs and other advisors keep on top of their clients’ needs and expectations, through a more efficient monitoring of client portfolios, opening the doors to more relevant conversations and, as a result, of course improving client retention and loyalty. In short, digital enhancement of the private client investment model is the future today.

The Panel:

• Helen Kan, Executive Director & Alternate Chief Executive Officer - Personal & Business Banking Group, China CITIC Bank International
• Marc Lansonneur, Managing Director, Head of Managed Solutions and Investment Governance, DBS Private Banking
• Valentin Laiseca, Executive Director, Client Coverage, MSCI
• Juan Aronna, Head of Investments, Asia and the British Isles, RBC Wealth Management

The Key Observations

There is rising pressure to deliver optimal ideas, products and portfolio solutions

There is increasing pressure on private banks, fund managers and other players in the global wealth management industry to deliver best-in-class portfolio solutions and investment advisory. It is therefore of great importance to assemble and leverage the right tools and services that help to empower clients to make better investment decisions by delivering customised solutions. Such solutions help the clients better understand investment risk and return, so ultimately they have more confidence in the investment process and greater trust that they are building optimal, efficient investment portfolios.

Expert Opinion - Valentin Laiseca, Executive Director, Client Coverage, MSCI: “We can certainly help to improve portfolio curation and solutions for clients. MSCI’s mission is to support investors to build better, more sustainable portfolios. We partner with our wealth market clients to help them source personalised portfolios at scale by providing all the necessary building blocks. The starting point would typically be an index, with ESG/climate/thematic data to aid customisation and optimisation tools to create and rebalance clients’ portfolios efficiently. This bodes down well with the emerging trend we are seeing in the US with regards to direct indexing, which offers investors the opportunity to own direct holdings via SMAs. This has the potential to be a very large market in Asia over time.”

Expert Opinion - Helen Kan, Executive Director & Alternate Chief Executive Officer - Personal & Business Banking Group, China CITIC Bank International: “Covid and social distancing have certainly propelled digital adoption by many customers of banks. With new technologies and applications that customers start to experience, their expectations to be served in a frictionless, time saving and personalised fashion heighten. Customers do not demarcate rigidly whether it is digital, phone calls or face to face. They expect the most convenient, easy to use and value-creating engagement mode, which banks call omnichannel.”

Targeting portfolio optimisation by filtering data and information and delivering with relevance and suitability

The right data, better research protocols, enhanced advisory and investment expertise, and independence (lack of bias) are all key elements in improving portfolio curation and solutions for clients.

Personalisation, suitability, and speed are core to an elevated investment proposition

The wealth industry, in all its guises, should have both a mission and responsibility to support investors in build personalised portfolios at scale by providing all the necessary building blocks. Personalisation, suitability, and elevated due diligence around products and funds are all key goals in optimised portfolio construction. In an era of digital disruption, the banks and other firms also need to be able to deliver these solutions faster, more seamlessly and with a better client experience.

There is increasing and accelerating impetus towards sustainability, impact and ESG

Sustainability, impact and ESG-driven investing are all increasingly important in the world of investments and for more and more private clients, including in Asia. There are several trends underpinning this growth. There is more scrutiny and understanding that emerging ESG risk factors may impact performance, and what was previously unmeasurable can now be measured and rated. And as there is also more ESG data and a more accurate assessment of ESG performance is now possible, more and more fund managers and the providers of those funds are less and less tolerant of corporate ESG weaknesses and failings.

Hubbis: How can investment ideas and solutions be enhanced using digital tools?

• Digital Tools may allow more transparency of data to be captured quickly and easily and allow more real time investments ideas and solutions to be developed by banks.
• Tools such as MSCI data and solutions for asset allocation optimisation and to then help clients analyse their existing holdings.
• Rapid screening of vast amounts of data, delivering greater relevance and interest to clients.
• Elimination of bias amongst advisors and providers.
• Broader access at scale to more information that is delivered in an engaging and easier to digest manner.
• Timeliness in the delivery of market data, portfolio allocation, performance, risk metrics, rebalancing, and so forth.
• The augmented RM, IC and CIO have information and data filtered at a huge speed and therefore offer more relevance, better advice and more interesting and valuable content.
• The rapid comparison and extrapolation of portfolio scenarios, risk attribution, position sizing, risk metrics comparison and optimisation, probability curves and so forth. In short, the alignment of data and the clients’ needs and expectations to the delivery of advice and expertise.
• Delivery of suitable products, concepts and advice so easily through omnichannel media such as e-mail, secure chat apps and online.
• In the absence of face-to-face meetings in the current environment, digital tools are really vital in helping to explain and promote investment ideas and portfolio conceptualisation and management remotely.
• The delivery of more client-centric decisions that are less driven by bias and/or the profits of the banks and wealth firms.
• Personalisation: the first step is gathering a huge volume of data about the client through a comprehensive questionnaire refining the "profile" over time. Then, using AI and ML to recommend securities and funds within the CIO/Investment Committee's views but keeping in mind the likes and dislikes of the client, as well as their risk appetites and preferences, for example for sustainability/ESG.
• Automatic portfolio monitoring to alert clients of opportunities and risks.
• Ease of preparation of relevant updates and portfolio reports, and calls to action, such as rebalancing or more significant allocation amendments.
• For discretionary portfolios, the scope is for data mining, analysis, model building and scenario analysis so that the CIO and his team can arrive at the correct asset allocation decisions. Once allocated, then easier and more accurate and timelier continuous portfolio monitoring is possible.
• Much better understanding of and alignment to the exact client investment requirements and risk profiles.
• Investments become more interactive, as these latest digital tools allow for scenario and impact analysis.
• I believe these tools and concepts help client conversations veer away from process and become more about the client's intentions and goals. The digital tools can be used to facilitate those conversations.
• They provide educational and informative channels for the investor to perform their own hands-on analysis and therefore help involve them in a more professional and less reactive manner in their investment decisions, working with the banks and other firms, and thereby achieving better outcomes.

Expert Opinion - Helen Kan, Executive Director & Alternate Chief Executive Officer - Personal & Business Banking Group, China CITIC Bank International: “Banks have to re-imagine and re-design the client engagement journey. The scope and possibilities are huge. Imagine data and content visualisation and client reporting which are customer-centric and dynamic. Imagine an intuitive portfolio health planning process. Imagine an easy to navigate self-directed investment decision-making solution. Imagine the right mix of digital and high-value relationship managers which in combination deliver the best level of trust and confidence to customers.”

Expert Opinion - Valentin Laiseca, Executive Director, Client Coverage, MSCI: “We can do much to help increase client retention with value-added insights. Differentiated content is critical in order to drive client engagement and adoption of the proposed solutions. We find ESG, climate and thematic more and more relevant these days especially as we see the rise of a new generation of investors. An advisor could showcase how a new proposed solution lowers the carbon footprint of a portfolio and how that may translate to the number of flights taken in a year. Another investor may be interested in how his/her portfolio aligns with the UNSGD goals like quality education or clean water. Wealth managers that offer this level of content differentiation will be in a better position to drive retention amongst ESG-focused and climate-conscious investors.”

MSCI offers its flagship ESG ratings that are increasingly widely adopted by the wealth management industry

MSCI’s flagship ESG rating research product, MSCI ESG Ratings, has become a core standard for ESG ratings globally, much like the major brand name credit ratings agencies are the standard for rating borrowers and their obligations. And the firm has ESG Fund Ratings that looks at funds based on the ESG qualities of their portfolio, providing greater ESG transparency for more than 32,000 equity funds, fixed-income funds and ETFs globally. MSCI’s focus in its ESG rating process is two-fold. First, the firm is looking to assess corporate risks from an Environment, Social, or Governance perspective that could affect the enterprise value and of course the share price. And secondly, MSCI seeks to understand what the management is doing to control or to improve or mitigate this risk. Its own research shows how on average, companies with higher ESG ratings typically tend to show better characteristics in terms of investment and better financial performance, as well as also a higher dividend yield, yet also on the flip side, typically they avoid some downside risk.

Risk mitigation should also improve with better ESG

Using ESG metrics, there seem to be fewer incidences of the share price being affected by either idiosyncratic tail risk or any systematic risk. Accordingly, experts believe that ESG provides premium risk mitigation for investors, while on the other hand, companies that score lower on the ESG ratings typically suffer a higher cost of capital and increased volatility in the share price. The global pandemic has highlighted both the value and the role of ESG and is accelerating adoption among institutional investors, according to the respondents of MSCI’s recent 2021 Global Institutional Investor Survey. The recent survey of sovereign wealth funds, insurers, endowments/foundations and pension funds found that 79% of investors in Asia Pacific (and 77% of investors globally) increased ESG investments “significantly” or “moderately” in response to Covid-19, with this figure rising to 90% for the largest institutions with over USD200 billion of assets. The trend is also definitely spreading through the wealth management market.

Sourcing and delivering best-in-class solutions – vital to portfolio optimisation

The sourcing of the best-in-class products must take place within the context of careful analysis, a wide-angle perspective of the markets and the world at large, objectivity and transparency, and through the leveraging of the best data delivered to either (or both) the RMs/advisors and the end clients.

Direct indexing – an interesting new trend to watch out for in Asia

There is an interesting emerging trend that is especially noticeable in the US, namely direct indexing. Direct indexing is about offering the opportunity for investors to own direct holdings via separately managed accounts. This allows a high level of customisation and also provides cost benefits to the client. Customisation used to be something that was only offered to the HNW and UHNW segments, but now it is available to a far wider set of clients. This is made possible thanks to some technological advancements such as fractional shares, low trading commissions and portfolio rebalancing technologies. Direct indexing is already worth USD350 billion in the US, and it is projected to rise to USD1.5 trillion by 2025, according to based on certain reports from Oliver Wyman consultants.

The hybrid model is the model of choice for leading private banks and wealth firms

There is a powerful school of thought that the hybrid wealth management model that leverages both human advisory, digital tools and an enhanced digital experience is the right way forward, and also helps the banks and other providers scale up to serve the mass affluent market, thereby helping with cost-effectiveness and the democratisation of wealth management and elevated advisory. Many experts believe this approach is critical for all the different parties involved and is producing greater client satisfaction as well as better outcomes.

With the hybrid model, the RMs and ICs are also both liberated and empowered

It is not a black and white question whether it is human or machine. Machines and digital solutions can deliver impeccable experiences, yet, in the sphere of investment engagement and at times of major financial decisions, the personal and human touch still goes a long way. Accordingly, digital can be used efficiently to empower and liberate the RMs and advisors, freeing them up from onerous daily tasks that can be automated, providing them with filtered, tailored, relevant and accurate information that they can then use to offer better advice and recommendations, and helping them to engage with greater relevance with clients and to be more productive, whilst also helping improve their own job satisfaction and the client’s experience.   

Hubbis: Is hybrid the optimal approach for Asia’s wealthy private clients, and if so, why?

• Yes, to a certain extent. If we are able to optimise the usage of digital tools to our advantage, we will be able to provide a good approach to the delivery of products and services to clients.
• Yes, clients need both human touch and digital empowerment as the banks can’t have an army of RMs and ICs, that would be too expensive and they would not be able to reach the mass affluent market, only the HNW and UHNW clients.
• Yes, clients still want the personal touch that computers cannot replicate.
• Definitely. The personalisation expected by wealthy clients can be support only via a combination of technology/digital and the human/RM/advisor.
• Yes, it is vital to maintain a suitable level of personal touch but also to boost quality of information, deliver better advice and boost relevance and interest.
• Remember that not all investors are tech savvy or even want to be purely digital, they often liked the original style and approach of private banking and bespoke wealth management.
• In my experience, as a general rule, clients with greater wealth tend to have greater complexity in assets and jurisdictions and structures, so reaching an optimal solution may involve several options. A skilled advisor would be capable of generating then facilitating a sound and nuanced discussion of these options. Therefore, human interaction with a skilled advisor is still very desirable. At the same time, there are many rules-based functions that can be swiftly, efficiently and accurately serviced through skilful automation. Hence in such situations, a hybrid model is ideal.
• Yes, but I fear that sales and marketing people will still manipulate the system for their own ends.
• Yes, hybrid is the optimal approach because: a) there are areas that require human intervention especially at the higher end of clients in the HNW and UHNW segments; b) the importance of areas such as wealth transfer, bespoke discretionary portfolios that family members can subscribe to, based on their risk profile and preference; the areas that require soft skills, such as family governance and wealth transfer; and the delivery of optimised risk profiling and risk mitigation.
• Yes, as there are clients who are not comfortable using digital platforms. It takes time to educate clients and not all of them like the digital avenues. In addition, it's also important to have face to face meetings to strengthen RM and client relationships, which cannot be replaced in digital platform, even if such meetings for the time being are conducted via video calls remotely; at least this is direct and more personal engagement.
• Hybrid is the optimal approach for sure. We need to cater to different customers from different age groups. Some of whom are more or less comfortable with digital tools. Furthermore, some conversations are better had face-to-face, particularly during moments of hardship. But clients also don't want to spend hours and hours with their wealth manager. They want to be able to also do thins quickly and smoothly which is where digital tools facilitate this.

The democratisation of wealth management is within the grasp of the banks in Asia

Looking ahead, a major issue for banks in the region is scalability, as it is not economically viable for the RMs to manage all the clients and get round to handling them in a perfectly hands-on manner each day, as it would not be economically viable to hire in vast numbers. However, the banks also want to offer as much direct involvement as possible, as clients deserve at least regular portfolio reviews, alerts, switching and re-balancing proposals, and other solutions and advice. That is why those banks that offer a really strong digital platform, focusing not only on execution, which might be self-directed, but also on portfolio advisory and enhanced engagement with clients. To make sure that 80% of clients are really served regularly, you really need to have automated tools, you need to provide virtual investment counsellors, and so forth; that is the way forward to scalability in the wealth industry.

Greater digital adoption comes hand-in-hand with improving USX

As the digital journey for the leading private banks continues, so they must strive to directly improve digital capabilities and the user experience. In the past couple of years, most wealth management industry incumbents have seen a huge increase in the adoption and capabilities of their digital platforms, with those ahead in this field reaping the most rewards. As with other banks and firms, this adoption has accelerated since the pandemic hit, with the greater adoption coming not only from millennials, but from all clients, or all ages. You need the relevant vision and capabilities, and you need to keep improving the technology in order to provide even more proactive engagement on investment portfolios, in other words, more slated towards advice than simply execution.

Expert Opinion - Valentin Laiseca, Executive Director, Client Coverage, MSCI: “The sourcing of the best in class products is central to the proposition. When analysing products and run manager due diligence, it is key to have transparency of the underlying holdings of the fund/ETF. This transparency allows us to provide a full range of analytics including stress tests, risk contributions, performance attribution as well as ESG ratings, climate scores to assist managers selecting the most appropriate fund for their needs. When it comes to structured products, we have collaborated with banks in Singapore as well as elsewhere on successful launches based on our thematic indexes where the interest levels continue to be remain high. Finally, we see alternatives as a growing asset class across the board. But you have to justify why, so the ability to count on data and analytics that can help offer insights into how the client portfolio is benefiting from incorporating alternatives is going to be a selling factor.”

Expert Opinion - Helen Kan, Executive Director & Alternate Chief Executive Officer - Personal & Business Banking Group, China CITIC Bank International: “It is not a black and white question whether it is human or machine. Machines can deliver impeccable experiences that humans often fail. Yet, in the sphere of investment engagement and moments of major financial decisions, personal human touch still go a long way.”

The banks also need to re-imagine and re-design the client engagement journey

Imagine data and content visualisation and client reporting, which are customer-centric and dynamic. Imagine an intuitive portfolio health planning process. Imagine an easy to navigate self-directed investment decision-making solution. Imagine the right mix of digital and high-value relationship managers which in combination deliver the best level of trust and confidence to customers. These are all viable objectives for the wealth management industry of the future, thanks to digitisation and these new approaches.

The pandemic has oiled the wheels of digitalisation in wealth management

The onset of the Covid-19 pandemic and social distancing have certainly propelled digital adoption by many customers of banks. With new technologies and applications that customers start to experience, their expectations to be served in a frictionless, time saving, and personalised fashion heighten. Customers do not demarcate rigidly whether it is digital, phone calls or face-to-face. They expect the most convenient, easy to use and value-creating engagement mode, which the banks call omnichannel.  

Scalability and the rollout of robo-advisory: vital for the mass affluent market

Scalability is a key factor in rolling out a viable and valuable wealth management and investment proposition to the extremely important and rapid growth mass affluent segment in Asia. Without this, the FinTechs will easily beat the incumbent brand name banks, so defending natural and captive markets is essential, especially for the regional banks, which already have these customers as banking clients. Interestingly, the types of mass affluent customers who are warming to the robo-advisory offerings tend, at least in Hong Kong, to have an average AUM that is slightly higher than for normal mass affluent clients, which augurs well for the future. And if the digital solutions and robo-advisory offerings help free up human advisors, then the mass affluent customers can gain access to RM/IC advice if required, albeit at a lower level than for the HNW and higher segments of the market.

Expert Opinion - Helen Kan, Executive Director & Alternate Chief Executive Officer - Personal & Business Banking Group, China CITIC Bank International: “Transactional relationship managers will lose their value over time. Traditional product managers need to expand their skill sets. Technologically savvy financial advisors who can leverage on digital platforms will be in need. Process architects / data scientists / communication and behavioural experts will be the future talent needs for banks to transform their wealth management engagement model.”

Convenience and simplicity aligned through digital tools and a vision of the future

What is conducted today largely by the RMs can also in the future be delivered with greater ease and speed digitally, as people want access to such advice at their convenience and through omnichannel delivery as best suits their preferences. However, although different levels of advisory are available to different segments, the access to the products is as broad for the entry-level investors as for the far wealthier clients. And at the same time, there is access to human expertise and communication when required, with the ease and regularity of such access tailored to the different wealth levels of the clients.

Seeing the big picture – wealth management is about more than just asset allocation and portfolio assembly

The digital and human advice on offer should cover not just investment and portfolio advice, but more holistic wealth planning and again for this the hybrid approach is therefore ideal, with the RMs boosted by powerful digital capabilities and tools. Digital solutions offer the scalability for lower segments of wealth that otherwise the advisors and RMs would not be able to reach, but at the same time, these digital solutions also free up some of the RMs time to access those clients outside the HNW and UHNW categories, as well. Where there is absolutely no added value to be achieved from human interaction, purely digital is fine, but where added value is needed – and this is often the case - direct client engagement and the human element are vital.

The RMs, ICs and wealth management advisors must adapt to the new world

As the panel concurred that the human elements of wealth management will remain extremely important, even for the mass affluent market, they also agreed that the RMs and advisors must adapt for the future. Transactional relationship managers will lose their value over time, so traditional RMs and ICs from amongst the incumbent banks and other firms need to expand their skill sets. Technologically savvy financial advisors who can leverage digital platforms will be in greater demand. Process architects, data scientists and communication and behavioural experts will be the future talent needs for banks to transform their wealth management engagement model.

Optimised asset allocation and portfolio curation must be aligned to current market conditions

Digital solutions should help the banks to offer products and asset allocation advice that comprise only the best-in-class. But portfolios are also not static, nor are the markets, so digital tools to help clients and advisors build simulated portfolios online and test risk and other metrics against potential future scenarios are also highly valuable. If the tools can help the clients and/or the RMs with regular reviews and rebalancing of the portfolios, to make sure they are in line with current and future anticipated financial market and global economic conditions. Empowering clients and the RMs in these ways is a vital factor, especially as digital is employed not to remove the human element but to boost the human capabilities and reach.

Conclusion – great progress is being made in elevating the investment proposition

Portfolio allocation and risk management are key areas of expertise for most leading players in the Asian wealth industry, and delivering that to clients is a very important part of the value proposition. To achieve this, you must offer targeted insights, expertise and top-quality advice to ensure that the clients’ investment portfolios are properly assembled, resilient and geared towards the long term. The best in the industry are continuously elevating their proposition with new digital tools and solutions, bearing in mind the types of clients they have today and that they expect to have in the future. As a first priority, the banks need to fully understand the clients, and only then can they properly help tailor products and portfolios for their private clients. Partnering with the right data and information providers, with the right digital solutions providers and having the right vision of the future are all vital ingredients for success.