Private Wealth Management in Hong Kong : Part 2 of our SURVEY 2019

Hubbis conducted a Survey in late January focussed on the future development of the private wealth management market in Hong Kong. We are pleased to reveal Part 2 of our series.

We did this ahead of our Asian Wealth Management Forum – our flagship event for 2019 -taking place on February 26th at the W Hotel in Hong Kong. As many of these topics will be discussed at the event.

Please view the website here.

Part 2 - What are the challenges that will prevent growth in private wealth management in Hong Kong?

Numerous challenges face the wealth management industry in Asia. Regulatory tightening, the intensifying burden and cost of compliance, competition from fintech companies and fintech-enabled start-ups, the growing threat from Big Tech, and the rise of multi-family offices that bypass many services offered by the traditional private wealth management providers.

Consolidation might need to take place in the industry, according to some experts. Fees and commissions are being compressed by transparency driven by the regulators, and also by external competition such as from the fintechs.

There is a broad consensus that the whole industry must become more professional and invest in more technology and digitalisation.

The massively growing HNW wealth in China represents a world of opportunity for Chinese banks and new home-grown competitors, but there is a question mark on whether the foreign firms that are well-established in Hong Kong will be able to compete effectively in the near and longer term against the expanding wealth arms of the major Chinese banks and other local, PRC-specific entrants.

The whole industry needs to be extremely careful in their advice and the products they promote, as well as in the transparency of their fee structures. Ironically, these demands are occurring at precisely the same time as wealth advisory providers are trying to increase their percentage of active asset management and increase advisory fee income in general.

To do so, wealth providers need to increase their focus on long-term wealth preservation and creation for their clients, rather than focusing, as has often been the case, on selling clients what is either easiest, or most profitable, for the distributors.

The transfer of wealth from first or second generation high-net-worth individuals (HNWIs) and families to second and third generations presents challenges to continuity of relationships with traditional wealth management firms, especially as the younger generations are more receptive to the growing ranks of digitally-enabled competitors, offering innovation, digitalization, fintech-originated mobile applications, robo-advisory and other ‘nifty’ solutions.

Independence is essential. Hong Kong, it appears, must continue to evolve its regulatory systems and maintain the independence of its tax, judicial and administrative structures. This is especially important, given the fear that the PRC is taking ever greater control of Hong Kong, especially in relation to its mainland China citizens. Independence of thought and action are essential.

With intensifying regulation, there will be growing challenges as the major private banks and wealth managers curtail what their bankers can do and say amidst an increasingly assiduous global regulatory regime. They will also need to be increasingly wary of what business they conduct in other regional markets, in order to not fall foul of local regulation and compliance. This will make it tougher to exploit Hong Kong’s traditional strengths as a regional hub.

With mainstream global financial markets having teetered and then struggled during 2018, HNWIs will be increasingly wary of the stock markets and with rising interest rates the opportunities in fixed income are more challenging. Leveraging will be more difficult in a higher rate environment and one in which bond prices are flat or falling as rates tick up and as creditworthiness erodes.

If the mainstream financial markets remain challenged there will be fewer opportunities in the private markets, as the ultimate refinancing outlets into the public arenas diminish. Wealth managers must be circumspect about finding the best private debt, equity, property and other opportunities and ensure that they do not foist their HNWIs with illiquid, poorly-performing assets.

Singapore is drawing more and more wealth management business to its shores, especially the growing hordes of wealthy PRC citizens, who prefer the island republic’s apparent independence and regulatory stance. Hong Kong will need to boost its professionalism, its skills and be supported by the authorities in order to fight back and compete.

Other issues include negative media coverage, and many professionals and HNWIs moving elsewhere for lower living costs and perceived political security. This might also impact the depth of real talent and experienced wealth management practitioners, especially if the perception of an overly-regulated industry environment drives clients to other regional booking centres.