Local Wealth Management in Asia – Embracing Digital to Boost the Proposition

The August 20 Hubbis Digital Dialogue looked intently at the regionwide acceleration of digital solutions in the world of local wealth management, including assessing what impact the pandemic has had in accelerating the rollout of digital solutions across the local markets of Asia, especially Southeast Asia. The course of the pandemic remains unclear, but what we do know is that the role of digital technology and solutions will have been made more compelling than ever due to the ongoing shutdown of business travel, of business meetings, and even of social and family gatherings. But this is a further evolution along the journey already underway, it is not a sudden or unexpected revolution. The path towards digitisation has been clear for some years already; it is simply a question of the pace and effectiveness with which this is embraced. Where precisely along this chain will digital solutions be in even greater demand in the months and years ahead? How are local banks improving their digital platform and capabilities? How can banks and wealth managers serve the mass-affluent segment better and improve the proposition? How must they evolve their operating model? What’s their strategy to build the wealth business? How can they increase profitability and reduce cost? How can they build digital solutions that see to the clients’ needs first, and then work backwards from there to implement the optimal outcomes for all parties? Can the locals compete effectively against the international banks and firms? These topics and a variety of other fascinating issues were debated by our panel of experts at the August 20 discussion.

The discussion opened with a guest offering his insights to some of the challenges that local many local wealth management firms face today in Asia. He explained that the competitive landscape is shifting, with newer digital-enabled players taking on some of the areas of the banks, who themselves are making significant efforts to digitise themselves. The mass-affluent segment is where the digital-driven players are coming in most visibly, while the higher end of the private banking spectrum, the HNW and UHNW segments are seeing greater shift from offshore to onshore. “All these shifts are representative of both opportunities and challenges,” he remarked.

He observed that there is digitisation of different parts of the business, and the overriding consensus is more players are technology-led, rather than being truly business-led. “Another challenge,” he reported, “is the lack of talent available, so for the under-served mass affluent segment trying to find the right levels of advisory expertise is difficult, and it is difficult to drive the productivity of those advisors. And the role of digital on the mass affluent side, to provide digital advice to the clients directly is very important; their needs are less complex, the ticket sizes are smaller, and therefore digital advice, including robo-advisory are more valuable there. However, as you move into the higher wealth segments, digital is more to enable organisations and advisors to help move away from the product-push type model to a lot more advisory centric model.”

Expert Opinion - Julien Le Noble, Senior Director, Finantix: “The question is no longer if digital is top of every wealth managers strategic agenda, but rather how far can digital tools be leveraged to strengthen their value proposition and deliver the optimal customer experience to their clients.”

Expert Opinion - Karsten Kemna, Managing Director, Asia Pacific, CREALOGIX: “Banks can improve their customer service by adopting innovative digital technologies. With new competition on the rise, an enhanced digital journey leading to greater customer engagement seems to be the most powerful strategy to win the race.”

Expert Opinion – Will Lawton, Global Head, QUO: “The challenger banks are leading the way in reducing the number of steps required for many aspects of their service yet still maintaining compliance and rigorous risk controls. Similarly, with the HNW space digitisation still has a considerable way to go. Just one example is FIX connectivity for trading protocols – It has been the standard approach for execution across all asset classes in the institutional space globally for many years, yet most Private Banks in Asia have not even started to use FIX – energy and time should be spent by private banks on servicing clients and not paperwork and antiquated manual execution and order management methods which they lead to slippage, time-wasting, errors and ultimately cost to the client.”

He also remarked how there is significant digital evolution taking place, and also needed, at the back-end, while at the higher end of the private banking segments, especially with the intergenerational transfer of wealth, younger clients are looking to engage very differently compared to the traditional model offered where it has been a very RM-focussed and private banker-focused model.

Different segments, different dynamics

“So,” he said, “this all adds up to what we are seeing as different dynamics in each segment. The role of digital, the importance of it and the role that they will play is different, but one thing is for sure, digital is not just cost or efficiency focussed investment, it has great potential to drive productivity. So, if you can drive a lot more automated advice at the lower end, you are helping and making the investment process a lot simpler. You are also making that lot more scalable; you are making it a lot easier for clients and you're driving education, so revenues can improve and there is also an overall cost and scalability advantage of digital banks.”

He also warned that while there is a clear drive for digital solutions and greater technology, the organisations should more often start off with what really customers value. “There is a gap there,” he said, “so the organisations need to fully understand and become more customer-centric, as well as more advisor centric, and then think about the right solutions. Your technology roadmap, your digital investment roadmap will depend a lot on that rather than trying to lead with the solutions.”

Expert Opinion – Will Lawton, Global Head, QUO: “The Covid-19 crisis has and will continue to impact and change the way the wealth management process is conducted, not just for retail clients, but the full spectrum of client segments including UHNW. Clearly, like most industries, digital and particularly cloud solutions will be prerequisites; however, the investment and advice workflows will also need to change significantly with both the end client and the RM being given more tools to support the advice process.”

Expert Opinion - Karsten Kemna, Managing Director, Asia Pacific, CREALOGIX: “As the world will not be the same after the pandemic, the right digital strategy is even more crucial to the survival of businesses. Financial institutions and banks must be innovative and accelerate their digital transformation to better their end customer proposition and stay ahead of their competitors.”

Another expert observed that he is surprised that some of the basic digitisation at the HNW segment hasn't really been completed yet, or engaged by many of the banks, particularly here in Asia. “I think for the digital advisory to be particularly successful at the upper segments, it needs to be very detailed for specific customers, so AI and really advanced digitisation will be required for digital advisory at those levels, there are many advances to be attained to help make the RMs jobs a lot easier, and also reduce a lot of the paperwork that he may require.”

A fellow panellist pointed to the need to see the private banking space as very different from the retail space. “For me,” he said, “it is a question of whether you really build it on something that is just based on cost or if you need to have something different, which is also customer driven, creating different customer journeys and therefore allowing the bank or wealth manager to be different compared to anybody else on the street as a competition. The really important thing is that you have a more consultative approach, and that you have the direct discussions with the customers. That has become tougher this year for obvious reasons, but the direct interaction, the Q&A sessions, the technical value propositions that you can provide to your customers are essential, we believe. We need to see and overcome their pain points and we also need to learn from a good nucleus of existing customers to understand how they have embarked on their journey of digitalisation.”

Digitisation clearly top of mind

Another expert explained that his FinTech had been present in Asia for many years, working across the lifecycle of the client journey and the advisory space from acquisitions, to onboarding, to investment recommendations, and portfolio management, in short the whole spectrum of services that wealth managers and private banks need. “We found through a study recently that 47% of HNWIs would prioritise innovation, improvement in services, and their client experience, while 54% of banks were making digital a high priority. So, the question is no longer whether digital is on top of the strategic agenda, but rather how can digital tools be leveraged to strengthen their value proposition and deliver basically the customer experience that their clients need and really require.”

Content & Interaction

He continued, remarking that different banks and institutions take different approaches to achieving that. “We have seen over many years in Europe and the US that you have two aspects of wealth management that deserve to be looked at when it comes to digitising. So, first, you can digitise the advisory content. And second, you can digitise the interaction with the clients. As to the advisory content someone said earlier that it's surprising that in the high net worth space that more has not been done and I would tend to agree with this, whether it's about analysing the investment needs and objectives of the customer or it's about defining the investment strategy, implementing that strategy with suitable products, following up, monitoring. Highly personalised content as well as interaction is what is going to be actually a clear differentiator going forward.”

Audience Perspectives

Hubbis sent out a post-event survey to attendees of the discussion, asking them for their views on the evolution of digitisation in the local wealth management markets in Asia. We have selected the following insights from their replies.

• “For local banks to improve their digital platform and capabilities, a proper strategy for
• digitalisation approved by senior management will be crucial. Due to Covid-19 hindering the face-to-face aspect of a small boutique bank experience, an effective all-in-one platform for easy access by clients is an absolute must. As such, these banks will need to adjust their corporate mindset to cope with a smooth transition to a digital focus. Likely, they will have to advance their back-end support, customer services as well as various IT aspects amongst other things.”
• “It is vital to enable end to end digital processes, if not already implemented. Firms should also try to understand needs of its end clients/employees before implementing new digital enhancements, this will help to ensure the new technology will not turn into a white elephant in the room.”
• “As products are nowadays the simple fix, I assume that banks would be looking to enhance their platform’s functionality during this pandemic period. However, I think the trouble is that they often try to include too much to support in-house teams/staff as well as clients. In the end the risk is that neither really gets what they want or need.”
• “As to whether local banks and wealth management firms will be able to compete effectively against international firms in the coming years, yes, local banks often have longer and deeper relationship with clients.”
• “Local wealth managers in Asia are more likely to collaborate rather than compete with international banks and firms.”
• “Due to the current pandemic and potential drastic aftereffects in the years to come, a large number of local banks and wealth managers will likely not survive. Not only will the necessary digitalisation take a heavy toll on the companies' expenditure, but it will also impair their ability to attract the majority of walk-in customers they rely on due to lack of face-to-face contact potentially. As such, these firms could either face bankruptcy or potential acquisition by (stronger) international firms.”
• “In some SE Asian countries there is no great impetus for change, the wealth firms are happy to stay as they are and are rather resisting change.”
• “The governments and regulators in many of the countries in the region are pushing to increase the skillsets of the local banks and wealth managers. There is no doubt that they will be effectively competing against international firms in the coming years.”
• “Local banks are adopting digitalisation at a fast pace. Local banks are taking initiative and have the end goals in mind that to reach the international firms' level in the next few years.”
• “Local firms are already quite advanced in terms of capabilities and their digital journeys. To compete effectively against international firms, local firms will need to focus on how to better monetise their new technology.”
• “The digitalisation taking place and the resulting accessibility across the board will likely increase the offering for both mass affluent and HNW clients so that they are on equal footing. From there, it will be up to the individual firms to differentiate and allow their HNW clients to feel special.”
• “With digitisation, the provision of information and products will be more transparent and accessible to broader range of clients.”
• “The growth of mass affluent individuals has been very significant, especially in Asia Pacific, and firms have increased their product offerings and services to better cater to this targeted segment, including robo advisory delivery.”

Another guest shifted the focus somewhat to hindrances at the larger banks and organisations in terms of their legacy back end systems. “That means that from a processing perspective, it's pretty difficult to drive down costs, do straight through processing and get to what you need in terms of being able to lower their fees and be more competitive,” he observed. “Our mission as a technology and outsourcing provider through the whole of the financial services industry and wealth management will be how to enhance the backend systems. How do we take digital to the core of the organisation? And once we've done that, then take all that data available from an AI perspective, from an analytics perspective and drive the personalisation that's needed on the advisory and on the investor side.”

Pressure on costs continues

Another guest agreed, adding that as digitalisation of various processes within banks and wealth management firms accelerates, the industry will continue to see tremendous pressure on revenue and margins, coming from several angles. He observed that in response to this and to competition, also potentially from BigTech, the wealth management industry and providers may need to shift their focus and instead of focussing on product and AUM, as far as revenue generation is concerned, they will probably need to look at a different formula. “I don't have the magic formula to offer them,” he said, “but I think it will revolve around client relationship, the dynamics of client interactions, personalised content and insights. Whether there is an element of performance based or fixed fee, in addition to assets under management, I think the formula will inevitably change as digital tools really accelerate how banks interact and serve and advice their customers.”

Another expert redirected the discussion somewhat to the RM. “How do we make sure there are enough good quality RMs around and how can you reallocate these RMs to the clients that really have money in order to make more money for the institution. That means for mass affluent clients, the delivery must be more on a robo-advisory level, to be able to be automated as much as possible, while the institutions focuses its quality people where the big AUM is. With technology, I believe you can actually create a good mix there between the mass affluent delivery and the HNW and upper end personalised delivery.”

Thailand – a good report card

An expert focused on Thailand as an example of a local market that is making positive strides forward with its digital proposition. “The market from a product access standpoint has definitely opened up and its lot more sophisticated than it was five years back,” he reports. “The role of digital in this really boils down to offering the advisors the right data, the insights and therefore helping guide the clients on their investment journeys. Digital won't be able to solve everything, but digital can truly support the advisors. And for those self-directed clients, digital can enhance straight through execution online or via smartphone and so forth. Banks want to offer that one-stop experience.”

Sharpening advice in tougher markets

Another guest remarked that looking at the local wealth management scene in Asia, amidst the new world of technology, client access and client acquisition are critical. “You do not get the scale of client acquisition unless you're dealing on the wealth side properly,” he observed, “so the scale on offer is huge, but that actually also makes the complexity of serving the wealth market segments quite difficult. In the investment banking side, you're really dealing with a number of very professional clients, whereas on the wealth side, the complexity is the scale, the different levels of knowledge and the wide array of products and services that need to be offered. Consequently, the workplace needs to be absolutely as efficient as possible. We have had a golden decade since the GFC, when good advice has not been particularly difficult or challenging, but looking ahead, advice is going to be absolutely critical as the full repercussions of this recession are felt in the coming years and when the Fed and others stop injecting huge amounts of money, so advice is going to be critical and managing clients is going to take a lot more time.”

Accordingly, he cautioned that those institutions not prepared for that in terms of technical capabilities to dealing with many issues and simple challenges in a digital manner, will face some serious repercussions both for the end clients and for the organisations themselves. “Getting your digital shop in order right now and your workflows are absolutely critical for the five years ahead, especially as we will likely see more volatility and far more difficult markets to navigate.”

Growth all round

Another expert concurred with these views, adding that in Asian local markets there is growth both in self-directed clients and advisory clients. “There is a drive and need,” he said, “for the banks, the brokerages and others to diversify away from the purely transactional business model, and so the advisory/wealth management model is one key element. So, we see expansion in activity and in advisory requirements. Certainly in Thailand, that is a major trend we see. In the emerging markets, it cannot be just about pushing products and sending research and hoping that it will stick. It should be really about leveraging collaboration that is digital and for which the underpinning is really the enablement of decision making driven by the customer and the advisor at the same time. So we need the workflows, the processes that will enable both parties to go through their journey in a way that will lead, hopefully, to success.”

Additionally, he explained that leveraging AI and analytics to really increase the effectiveness of advice, the effectiveness of client acquisition is essential, as well as increasing the automation of some processes that are still yet to be to be further refined and automated, whether it's onboarding or reporting or executing transactions.

Watch out for the new entrants

Another panellist agreed, adding that the neo banks are also likely to shift more to wealth management, even in SE Asia, as a natural progression of their business models, adding further competition to the industry.

The discussion shifted to the customer and their choice of provider, with a guest highlighting the need for differentiation. “Definitely top of mind for clients in financial services is the brand and the trust,” he said, “so that is a challenge that a lot of the neo banks or new entrants face, especially if they venture into wealth management. Secondly, products are no longer a differentiation point, whereas the customer experience is. Accordingly, the work that we do on customer experience is very much focussed on laying out the target experience and how to improve that and then working backwards to map out every single step. It's not just technology, but it's processes, it's people, and forth. It might be an easy thing to say to improve customer experience but getting that right from an operating model standpoint, from a technology standpoint, becomes quite challenging.”

A catalyst for acceleration

The discussion drew towards a close with a guest reporting that the pandemic has been a major accelerator for discussions with clients and demand for solutions. However, he also conceded that the inability to really meet and engage with people was a limiting factor. “The new culture demands adapting your engagement, so these are clearly challenging times, but also times that provide a catalyst for some clients to push ahead. Perhaps this year has been our most successful period both in onboarding and signing up new clients.”

Expert Opinion - Julien Le Noble, Senior Director, Finantix: “The pandemic has significantly accelerated a shift toward adoption of digital tools by wealth managers, especially at a time when today’s customers are increasingly demanding to be connected with their banks virtually and with the right amount of real human involvement for content-rich and personalised services.”

An expert closed the discussion by reporting that the overwhelming top-of-the-agenda topic this year in discussions with clients had been digital collaboration on the one hand and the hybrid advisory space on the other hand.

“With our clients, we need to develop and deploy more virtual channels, whether chat, video, screen sharing, and so forth. We need to have the customers respond to calls to actions and really enrich the interaction virtually as much as close as possible as if you would go to the client office and meet with them in person. We are focussing on this as much as on the ability to provide customers with the core advisory elements of what they still need to implement, either to increase top-line productivity, or reduce the burden of inefficiencies in their operations.”