Regulation and client demands driving structural change in private banking
Arjan de Boer has only been at Indosuez Wealth Management Asia for one and a half years, but he and his team have been growing and adapting the firm's operations to react to evolving regulatory and client demands, while at the same time improve the firm's efficiency and business strategies. He met with Hubbis to outline some of these key changes and challenges. Regulation is increasing the need for transparency and compliance. In Hong Kong, for example, the Securities and Futures Commission (SFC) will introduce its Fund Manager Code of Conduct (FMCC) in November, with many new demands then placed on the fund managers themselves and the banks or firms they work for. Allied to the European MiFID ii regulations, de Boer sees many new compliance challenges but believes Indosuez Wealth Management is well prepared to overcome these. De Boer is only modestly optimistic about the transition more towards advisory mandates and fee income in Asia, although he believes discretionary portfolio management (DPM) penetration in Asia is encouraging; now at around 10 per cent, it has become a key portion of mainstream private banking in the region. At the same time, he and his team are seeing more demand from second and third generation high net worth individuals in Asia for longer-term investments, especially private equity.
Arjan de Boer, Head of Markets, Investments and Structuring, Asia for Indosuez Wealth Management, spoke with Michael Stanhope, CEO of Hubbis, about the exciting developments taking place at Indosuez Wealth Management and how the changes will improve their offerings for clients.
“Let me focus on Hong first,” de Boer said in reference to the growing regulatory demands on wealth management firms. “On the discretionary management side, every fund manager will be expected to follow the fund manager code of conduct, which will come into effect in November. We believe we are prepared for that. It means that we must be especially transparent, particularly over any monetary or non-monetary benefits we receive as a bank from third-party funds. MiFID ii regulations will have a considerable knock-on effect on banks operating in Asia, especially if they have European clients. In my view, the regulatory changes are positive as they demand greater transparency and have the end-client in mind.”
Positive market outlook
Turning to the financial markets, de Boer reconfirmed the firm view that mainstream market outlooks remain positive, more so North America and emerging markets, and slightly less so Europe. “Corporate earnings look sound,” he reported. “Yes, we have a rising interest rate environment, but central banks globally are more forthright than ever. For example, last week the European Central Bank indicated that it will not hike rates until June 2019; one cannot receive much more specific guidance than that. This means that everything related to central banks and rising rates have pretty much been priced in. We therefore broadly advise our investors to remain invested.”
Advisory challenges, DPM growth
De Boer then focused on what he calls the journey for wealth management providers from execution only to discretionary in Asia. “What we have seen so far, as a generalisation, is that either the clients in Asia are very active and know exactly what they want, or they are happy to have someone manage their money. However, something in between where clients make decisions themselves but are asked to pay for the advice they receive is a very difficult concept to sell to clients out here. Having said that, DPM is now moving to a certain critical mass in this region; a decade ago, DPM penetration was just two per cent and now it is 10 per cent and growing, so it is now part of the mainstream in private banking out here.”
De Boer then explained how client demands have evolved. “We see the second and third generations being more proactive in asking for what we can term ‘delegated solutions’ such as discretionary private equity. The whole area of what can be described as low liquidity and alternative assets has grown significantly, meaning that more and more investors are taking the longer-term view on their investments. The time horizon we advise our clients to take up for private equity positions is of 10 years or even beyond. The pace at which this area, especially private equity, is growing is pleasantly surprising for us.”
The quest for top talent
De Boer closed the interview with a brief description of the challenges facing his firm. “We have a positive and exciting challenge ahead to grow our business rapidly. We aim to expand the range of products we offer, we are building our teams with top quality people here in Hong Kong and in Singapore. The challenge is to bring all these growth strategies together at the same time. Perhaps the most daunting are is bringing on board new talent in what is a buoyant wealth management market and where there is a shortage of experienced, skilled bankers in the region.”
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