Private Wealth Management in Asia: Adapting at a Time of Dramatic Change
Jul 3, 2019
A high-powered panel of private banking leaders in Asia assembled at the first panel of the day at the Hubbis Asian Wealth Management Forum in Singapore to offer their expert insights on the evolution of the wealth management model, and how that impacts their business in the region.
The Key Takeaways
A global proposition helps, especially in the UHNWI space
In an increasingly global environment in which corporate and family wealth is so connected, as it is in Asia, global expertise across private banking, investment banking and securities is a massive advantage. Add this to a US HQ, said one banker, and it is a compelling story for UHNWI clients in North East Asia, who tend to have more connectivity to the US.
Financial stability essential
Asian clients in the decade since the global financial crisis need to be reassured of the financial stability of the private banks they work with.
The relationship must not be compromised
While digital solutions to day to day activities are increasingly liked by family offices and clients, especially younger generations, the larger transactions tend to still go through the RMs and clients continue to want a direct connection to those advisers and to their firms.
Keeping sight of human touch
While size clearly matters, there is room for large-scale boutique private banks that offer financial stability, history, and an open door for clients to the RMs and to the bank’s top management. Strong internal support for the RMs adds to the proposition.
Agnosticism of platforms
The panel agreed that best-in-class products trump in-house products as clients demand objectivity and transparency.
Active still plays a core role
Passive funds such as ETFs play an increasing role in offering exposure around the globe at low entry costs, but for more specialised market activity, for example, emerging markets and others, active still has a core role to play.
Bespoke offerings away from the commoditised mainstream debt and equity markets are increasingly well received by clients in Asia, who are prepared to sacrifice liquidity for stability and more predictable returns, from, for example, private debt, private equity, commercial real estate, or other alternatives.
Decisions and lifestyle
Family circumstances often drive global needs and investment decisions. Many investment and estate planning decisions amongst Asia’s HNWIs are driven by their family situations, for example when children or grandchildren attend university overseas the families might invest in those markets. The ability to offer global connectivity and expertise is vital.
ASEAN’s world of opportunity
ASEAN countries and the fast-rising population, already at more than 600 million, offers an enormous opportunity across the entire spectrum from newly affluent to UHNWIs and everyone in between. This offers the banks a long-term client base and the RMs a career path ahead, as they can grow their skills through these different wealth segments.
The shallow talent pool
Banks will continue to poach talent from other banks, but to rely on that approach for success is a recipe for failure, as ever more pervasive regulatory and compliance hurdles argue against that type of behaviour continuing. The best bankers need to understand highly complex financial products, be versatile and energetic, and think ‘out-of-the-box’.
Adapting to volatility
The world is more volatile in 2019, and is likely to remain so for some time, so risk management is increasingly important, both for portfolios and for family wealth planning. A migration towards more illiquid, longer-term assets is advised.
A private banker whose core mandate is ultra-HNWIs began. “Our focus is the ultra-segment,” he reported, “major corporate and asset owners who are based in this part of the world, but principally the Greater China region, as well as the key family offices based in Singapore. As we are aligned to our global investment banking and securities operations, we are able to offer full advantage of that core competence to offer what we hope are differentiated investment solutions, wealth planning and hedging solutions to our clients, particularly entrepreneurs who are seeking to invest and expand from this part of the world.”
“As there is considerable uncertainty right now,” he continued, “we believe that as a quality private bank we can help them greatly, especially as many of the clients are closely involved with the US, which is our power base, and also with regards to wealth planning, an expensive proposition and therefore a service we must combine with other areas where you hopefully can get those clients to pay for the whole package.”
The global access game
Another banker agreed that a global presence is extremely beneficial for clients. “It is a huge differentiator for us,” he said, “and actually becoming even more powerful as the world becomes a smaller place and clients look for more global access. Not only are we global but with such an extensive onshore presence in 90 countries, we are able to offer local teams in those jurisdictions. For example, if we have a Singaporean client buying a hotel, for instance in New York, we’ll get them a team in New York to work with the team here in Singapore. It all adds up to an incredibly fast-growing business for us.”
The RM’s place
He remarked that more of the family offices and the younger generation of clients want to go digital, but this in his view does not replace the relationship manager. “As things become more complex, RMs actually have an even more important role, especially for the advisory side of the business, and particularly where there are much larger transaction amounts, ten and hundreds of millions of dollars in one go. In those cases the clients want to be connected to the advisers, to have feedback on the market and other information. For consumer banking, digital is increasingly required, and we actually have a team in the US that invests in fintechs that will bring us the latest innovations.”
As to products, the same banker explained that his firm is entirely product agnostic. “We do what is best for clients,” he reported. “We think there is an edge in active management but we often also use ETFs for some of the easier market points, where they can play a very key role keeping costs down and giving exposure, providing liquidity. Whereas for example we go more active for specialised areas, for instance emerging market debt in South America. But our position is to provide the best for clients, which results in a very loyal long-term client base.”
Another banker remarked that his interface with clients in the region highlights that they all tend to look for a long-term relationship with a RM. Secondly, they look for financial strength and stability of the financial institution. And they look for a customised investment strategy.
“Our focus is very much on delivering the latter,” he explained, “and to do so we work very closely with our asset management business as a partner to build customised mandates for family offices and clients who have more than USD10 million with us, and then secondly, we believe that the most important relationship in the institution is the client and the RM, so we want to give the bankers the tools to provide advice to their clients, a broad range of products and a very transparent and fair remuneration structure as well.”
He added that each RM typically covers 20 to 30 clients and USD200 million or more or assets.
Keeping it human
Another banker noted that a core element of their differentiation is a USD1.4 trillion AUM asset management firm, as well as the group’s global investment bank. “And we are human size in Asia, with around 400 people in the region,” he noted, “and we size ourselves to be connected to our clients here, to emphasise the human touch. And for our clients to feel a friendly environment. Clients are overwhelmed by information, so the role of the RM is essential and the RM knows that they have the full support of the management when it comes to speed of decisions, to facilitate the best client experience.”
Rocks against storms
A banker added that since the GFC, the solidity of the financial institution has become of greater importance for the client. “We all have similar offerings in the world of private banking,” he remarked, “but one differentiation we focus on is private equity, an area we have made a specialisation form more than 18 years and where there has been great growth.”
“We take a portfolio approach to private equity,” he elucidated. “So, each year we select 20 funds and under an advisory model the client is paying a fee of 1%. There is no payment at all from the asset manager, it is a platform of funds we offer, and the clients then decide on country allocation, type of underlying assets and so forth.”
Follow the family
A banker reiterated the importance of face to face advice for significant decisions, but stressed the importance of seamless execution and online capabilities, as well as seamless integration with their banking. “We find many of our HNW clients make investment decisions that are actually linked to their family circumstances and their lifestyle, for example an overseas property where a child might go to university, or where they might want to spend time in retirement. Their family circumstances often drive their global needs and their investment decisions. We are able to offer them connectivity and expertise across all of these countries and solutions. This is particularly important in a world where the wealthy have more and more investments overseas, and that is an ongoing trend.”
ASEAN’s vast opportunities
A banker whose core focus in on ASEAN and its 600 million, rapidly-expanding population. “We are a universal bank and a regional investment bank, we even have our own insurance arm and asset management,” he reported. “We cover all segments, from emerging affluent, mass affluent, and then HNW and ultra-HNWIs. This helps us retain RMs, as they mature and move up the wealth spectrum, so we offer a career path as well as a job. It also helps retain clients, as they move along the spectrum.”
He observed that the plain vanilla wealth management space is commoditised – generic products such as equities, unit trusts, bonds, and so forth. But for the wealthier clients, the solutions the bank offers help them solve more complex business and family matters. Around the region, we cannot compete in every space, so we look at where we can best compete, where we best add value and to achieve these best outcomes, we pride ourselves on our internal collaboration, which is one of our best attributes.”
The talent pool
Turning to the topic of talent, a banker observed that the energy of the RM in developing new approaches is a vital factor. Embarking on new initiatives, for example dedicated events to connect women RMs with women clients. “We cannot rely on clients transferring from one bank to another, and honestly we are less and less keen to attract those types of RMs. We seek energy, new ideas, out of the box ideas.”
“The hardest part of my job without a doubt is finding talented bankers,” added another voice. “In London in recent years it was much easier, but in this region very tough. We need bankers who can deal with UHNWIs and deliver a very complex platform. I interviewed 90 bankers in the last 12 months and hired five. We also need to keep good bankers longer, they tend to stay only a few years in this region, whereas in the UK it is seven or more years on average.”
Keep invested, but up the risk management
As to advice for the prevailing market conditions, one banker noted how the bank keeps very close to clients to help them rebalance portfolios in these more volatile and unpredictable times. “We advise them to stay invested,” he said, “but adjust. Time in the market rather than timing the market, we always advise.”
“More direct investments,” came another voice, “as that is what our clients are increasingly asking for.” For direct investments, there is considerably less correlation to mainstream listed markets, making a compelling case for these less liquid investments to occupy a larger space in HNWI portfolios.
“We agree that it is now towards the late end of the cycle but there are some opportunities out there,” said another banker. “Clients should remain invested, but perhaps buying more protection on the downside, moving long-only exposure to hedge funds to maintain that upside exposure but to reduce downside exposure, should things go pear-shaped.”
“The world is more volatile in 2019,” noted another expert, “so risk management is essential, not just in terms of financial risk management, but family risk management, and corporate risk management. Here in 2019, all of us have a duty to try to help our clients to avoid the pitfalls out there.”