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 4: How does the value proposition need to change in the face of all these factors and in order to be competitive in the next decade?
There are many key areas for private banks and wealth management firms operating from Hong Kong, and of all sizes, to focus on as they assess and refine their value proposition and USPs for the decade ahead in what promises to be a private wealth market that will continue its dynamic expansion.
Wealth management firms must attune their skills, culture and their investment to the rapid growth of private wealth in China, especially as Hong Kong is the closest offshore entrepot and financial services centre to the mainland. The competition will be intense and, in many cases, propelled by new digital technologies but for those foreign firms operating out of Hong Kong, the opportunities are abundant.
Banks and other wealth managers must recognise that we are at the end of the original era of Asia’s wealth creation, as the first and even second generations age, pass away, or pass on their wealth to younger generations. No longer will it be simply the patriarch, or matriarch, who calls the shots, as wealth will be more widely spread amongst family members, most of whom will be younger digital natives and not necessarily as brand loyal, or even relationship focused as the older generations.
The multi-trillion transfer of wealth from older to younger generations offers banks and advisory firms an enormous opportunity to help strategise and implement transparent, compliant structures. Skill sets need to improve and a wider angle of vision away from transactional revenues and more towards advisory and recurrent revenues must emerge.
Wealth management firms should recognise the growing scale, number and sophistication of family offices, an area the Hong Kong government has been eager to encourage. Decisions by more experienced management, rather than owner-creators of wealth will present challenges, but also opportunities.
The value proposition should more fully take into consideration the clients’ interests. There is a threat that substantial wealth clients set up their own family office and use banks as execution only. Some family offices even obtain Asset Management and Brokerage licenses and no longer on banks and wealth managers. The wealth management industry must adapt to these challenges and enhance the apparent need for their services and capabilities.
Regulation and compliance will only continue to be as time and cost-intensive as it is or become even more demanding. As more and more HNWI clients realise that transparency is the only game in town, they will demand more expertise and more acute solutions from their wealth management providers, or they will simply migrate to family offices, or to legal or accounting firms. Wealth managers must balance off these needs with a deep understanding of the world of investments, both public and private.
Digitalisation should be embraced as a means of improving efficiencies and reducing costs. But caveat emptor, as this is a highly technical area, which requires a clear strategy for investment and implementation, as both time and money can be frittered away so easily.
The value in tech adoption needs to be seen two-fold and impact the P&L via cost reduction and efficiencies and leaner operating models, as well as help increase the volume and scalability of the existing infrastructure. All this needs to be achieved while offering a hybrid model including human advisory expertise where it is required.
The value proposition has to be centred around performance and the delivery of the platform and experience. The competition will intensify from the more adept technology-enabled firms and from BigTech/Silicon Valley/ChinaTech, all of whom may have better funding to address the new world of wealth management.
Banks should also focus on greater value-added areas such as total portfolio management, rather than relying so heavily on transaction revenues. There is of course demand for the latter, but they are unpredictable and partly at the whim of the markets, whereas wealth managers need to bolster recurring and predictable revenues as well.
Consolidation might be inevitable for smaller firms, in the face of ever-rising office, personnel, compliance and other costs. While there has been a rapid growth in the world of IAMs and EAMs, they should consider strategic partnerships and mergers in order to compete more effectively in a world in which bigger should be aligned with niftier.
Client-centricity is at the core of all the answers in our survey. While there will be greater digitalisation, greater automation and more artificial intelligence involved, all these elements should be formulated and delivered based on the client experience. The institutions must get to know and understand the motivations and needs of their clients, in order to tune their services and advice to them more accurately.
Transparency of the relationship is also paramount, so retrocessions must disappear, and fee structures be presented in a less opaque manner, with a more evident justification.
Finally, recognise that clients are getting more sophisticated, can access information at any time through the click of a button, a tap on an icon or by asking Siri or Google or others. They can then receive that information 24 hours a day through any chosen mode of delivery. Accordingly, wealth managers and private bankers need to become more sophisticated and more proactive in order to stay ahead of the game if they are going to hold onto their key clients.