The private, off-the-record discussion began with some observations from co-host Simon-Kucher & Partners, represented by Silvio Struebi, Managing Partner for Hong Kong and Singapore, and Jan Weiser, a partner at Simon-Kucher who specialises in the insurance sector.
In their introduction, Struebi and Weiser gave a brief overview of Simon-Kucher, which is a mid-sized consultancy and global leader in marketing, pricing and sales consulting. Roughly half of the consultancy’s revenues comes from monetisation projects across all industries. The other half is generated by sales, strategy and product management initiatives.
Struebi explained that the consultancy has around 1,300 employees in 38 offices across the globe and supports a large range of financial institutions and companies from many industries. “In a nutshell,” said Struebi, “when we work with banks, we focus on what the value proposition should include, how banks should serve clients and what they must offer them.”
The art of selling wisely
Struebi added that Simon-Kucher’s work with banks and other clients also focuses on sales processes. “In this industry, digital channels are becoming increasingly important, and it is crucial to understand what impact they will have on your business, how to engage effectively with clients and how to bundle digital tools with traditional products. How can we increase volume and successfully sell products through the digital channel? Banks and insurance companies have invested significantly in this over the last couple of years and have encountered a number of challenges, such as cannibalisation, so we help them in these areas.”
Creating pricing power
The third core element of the company’s consulting work, representing around 50 percent or more of Simon-Kucher’s revenues, is pricing. “We are recognised as the world leader in pricing,” he stated. “We price more products than you can imagine.” In this industry, we help financial institutions monetise their services and overcome their discount challenges. The underlying approach here is to understand behaviour. We always focus on client behaviour, using data to really understand why a client is acting a certain way and come up with better strategies.”
Returning to the topic of the day, Struebi noted that Thailand is a vital market for the consultancy. “Over here in Asia, our strongest hubs are Singapore and Hong Kong,” he reported. “We work for many large insurance companies and private banks to help them with their revenue-related topics. We help firms grow their top line by optimising their value proposition. This might involve, for example, thinking about what kind of products and services they have to offer certain customer segments.”
Honing the insurance model
He then introduced Weiser, a partner at the consultancy. “I am Silvio’s counterpart,” Weiser clarified. “While Silvio looks after the banks and financial institutions, I look after insurance companies in the region, including here in Thailand. So, I see a lot of familiar faces here today.”
He reported that Simon-Kucher is currently working with three insurers in Thailand, so he travels there regularly. “We cover similar areas to those Silvio highlighted,” he explained, “but the insurance sector is undergoing a lot of transition. Everybody is talking about going digital. It is really defining the whole ecosystem, making products that are not very ‘sexy’ more alluring. Let’s face it; insurance can seem rather boring. It is a low-involvement product, so nobody is going to insurers’ websites to buy the products. Well, we are trying to change this by developing products that can be understood, are easier to sell and actually meet customer needs.”
He added that he deals with everyone from HNWIs to the mass affluent to even the mass market. “If we have the right product, we can tap into that,” he observed. “But even if you have the best products in the world, it doesn't mean they will sell. We have to activate the sales channels and use digital technologies to make sure customers get informed and directed to a bank, finance company or perhaps an agent. An omnichannel strategy is extremely important. We help companies define their strategy, bring in digital technology to guide customers through the process, handle product configuration and just make sure everything is easier to understand so that the firms we work with can sell their products better.”
Regulators increase the pace of change
A senior banker from a global private bank began the main discussion by observing how rapidly Thailand’s wealth management market has developed over the past several years since regulators offered significant liberalisation in the range of products Thai people are allowed to invest in. “In the old days,” she said, “it was very deposit-centric and most clients were only able to invest in local Thai Baht instruments or some mutual funds. Since the regulatory changes came into effect, plenty of new players are competing or have arrived, working either directly with or joining local banks to offer offshore products. So, we are seeing different models today.”
She added that perhaps the reason for this is that Thai customers are still relatively new to offshore investments. They rely largely on banks rather than going directly through securities companies, even though they are well established in this field.
A mix between onshore and offshore instruments
“Of all our customers,” she noted, “at least 50 percent of their portfolios are currently in offshore products. In the past, this figure was much lower. The next evolution we will see is more [international] private banks competing onshore, working through different models, some via cooperation with local banks, some with a more substantial onshore presence due to the more relaxed rules, and with others flying in to offer offshore products to customers. From our viewpoint, we can offer all types of customers a wide range of products through private banks and cater to the evolving needs of the more sophisticated HNW clients.”
The discussion turned to insurance, with an expert highlighting relatively low penetration rates compared to more developed markets in Asia and globally, especially in the very underserved middle class and mass affluent markets. “It is very easy for any HNWI or ultra-HNWI to find the right products, but what I am also looking for in the HNW space is a way to make insurance an asset rather than a type of protection.”
The insurance sector needs to improve, but the market still lags behind
He expanded his point by citing the hypothetical example of a wealthy business owner with a wide array of assets. “If we then entered a period of extreme stress, such as a global financial crisis, asset prices might come crashing down and only deposits and money in insurance would remain constant.” A well-structured insurance product can provide considerable stability.
Another guest highlighted the opportunity to sell simple life insurance policies solely as a protection mechanism and emphasised how digital avenues can also generate growth for health insurance. “In this market,” he noted, “health insurance tends to include a number of services as well. If something happens to the insured person, they expect an agent to hold their hand through the whole process and ultimately make sure there are no issues with their claim being approved.”
An insurance expert focused the discussion on growing revenues and improving market penetration. “As a leading insurance company, we believe growing our revenue and profits doesn’t require more expensive products; instead, we have to offer customers a wider range of solutions. We are a composite provider, so we can offer health insurance, general insurance or life insurance, guaranteed return products, credit protection products or products bundled together. We create options. It is about determining which solutions are relevant, creating the right products and then making use of the right distribution channels for customers to access these products.”
He expanded on distribution by noting that digital/online channels will increase choice for customers, even for those who prefer using an agent. “Many customers will go to the websites and search for credentials to reassure themselves,” he observed.
Then the question is how to seamlessly connect sales agents to the digital ecosystem. He added that he sees many companies losing a lot of business by not connecting digital and human elements. He said that traditional insurance companies need to evolve to ensure the digital interface is able to create multiple solutions and offer the right channels for service, interaction, distribution and better retention of customers. “It is a very simple strategy for developing business,” he concluded.
Keeping it simple
Another banker noted that there are currently too many frills being offered to wealth management customers. She observed that practices have changed since the days when private bankers attempted to attract customers with perks like health club memberships, discounts and wine tasting sessions.
“Our main goal and the idea the profession and industry is built on,” she explained, “is to create an offering to help customers grow wealth, sustain wealth and hopefully pass it on seamlessly to the next generations. However, with all the competition from both newer entrants that may lack experience and those with more know-how looking to [aggressively] gain market share, a lot gets added to the equation, clouding the customer’s judgement.”
She added that while her bank has a major credit card business and can therefore offer plenty of benefits, it ultimately wants to maintain its focus on the wealth business. “It is essential to get rid of all the extras and create an offering that actually helps customers retain and grow their wealth. Achieving this requires banks to diversify their offerings and services.”
Another guest highlighted how over the past decade insurers and banks have begun working more closely to boost the range of offerings for clients. “Before, what banks considered their core offerings – cash, loans, stocks, bonds, even art – were remote,” he remarked. “We now see major global real estate companies interested in working with banks. Local banks have the clients and the client assets, and working together has many benefits for both parties, such as lending, services, valuation and even a portion of commission from selling. The evolution of real estate is an opportunity for topline growth.”
Scratching the surface
The conversation shifted to asset management, with the representative of one leading local firm noting that in ten years their customer base had grown from 300,000 to 400,000 customers. He added that there could be as many as 30 million people in the Thai market who are able to invest in mutual funds.
“Going digital would help us access the client base more rapidly,” he remarked. “Increasing awareness throughout the country through people and then explaining the investment product might be too difficult, but the people out there have the money and technology to help grow our customer base over the next three to five years. This way, we would be able to double our customer base quickly. Moreover, competitors in the market, fee compression and bank branches closing down mean we can’t rely on salespeople at bank branches anymore. Digital is the way forwards.”
Another guest posed a follow-up question on the figure of 30 million, asking what the true number of potential customers would be if those below 25 and above 60 were removed. “Is it two million? Or is it more? Less?”
“I don’t have the precise numbers,” replied another, “but it isn’t necessarily about big money; savings can start very small. If you look at the numbers of unit holders in other developed countries such as the US, 50 percent own mutual funds or investment units. There is clearly great potential here if we can make sure distribution is handled appropriately and education is supported.”
Appetite for diversification
Another guest highlighted how demand for more exotic investments outside Thailand has evolved over the past decade and a half, especially in recent years. Last year, his firm launched a USD 100 million equity fund for frontier market Vietnam. “I was amazed by how people accepted this, as it was a frontier market with considerable risks and [relatively] illiquid, but people were willing to take these risks.”
He also noted that he had been seeing rapid growth in alternative investments. “We have grown this area from USD 100 million to more than USD 400 million in just over three years. We learned that clients are willing to take this type of risk because they fear having a low interest rate in a fixed-income market when equity goes down. Clients know having another asset class can help diversify the risk of the portfolio. Ultra-HNWIs, for example, are demanding more and more private equity products.”
Regulators are helping, but more needs to be done
Turning to the question of whether regulators in Thailand are making the right moves, a very senior life insurance representative noted that regulators had been facilitating offshore assets for insurers to bolster domestic offerings onshore as far back as 2002. “From Thailand, you can invest anywhere in the world if you can accept the FX risk,” he remarked. “I think we are on the right track; our regulators are quite good in this regard.”
“Yes,” came another voice, “the SEC and Bank of Thailand people have been pretty forward-looking. They also understand that [wealth] disparity here is still very large and therefore it is critical we have more mechanisms and more vehicles for people to save and actually earn enough to retire. People live longer now too, so that makes it even more challenging. Moreover, Thailand is a very fast-aging society, moving towards the Japan model. Regulators realise the high net worth group has long been taking advantage of this because they have had access to offshore investments, even before we opened up here onshore. They realise that ordinary folks also need a wider range of choices. We are still far from where we should be, but at least there is more available.”
“Agreed,” said another guest. “For example, lately the SEC has been pushing for wealth advice for all; they want everyone, no matter how much money they might have, to be able to access an online platform that gives simple advice on how to allocate money in your portfolio. It used to be that we needed bankers to give that advice, but now everyone can receive advice online, which is positive.”
He added that he would like to see the cooperatives, such as farmers, liberalise their investments. “They are stuck only being able to invest in a few large local stocks,” he noted. “All the leading regulators and the industry are pushing to convince the Ministry of Agriculture to liberalise, but they won’t. Many clients there feel extremely stressed out about it.”
Help insurers help people
An insurance expert said that he would like to see considerably more liberalisation for offshore investments than what is on offer today. “The cap for offshore investments is pretty stringent, and insurers are overinvesting in Thai government bonds. Ten-year bonds yield about 2.5 to 2.6 percent, which is low compared to many other countries, such as the US. It becomes a detriment to many people coming into the savings world and expanding this horizon largely because regulators are still fairly conservative.”
Governments can default, remarked another guest, highlighting Greece, so diversification is important. “Regulators sometimes don’t understand the depth of the market and don’t understand that we don’t actually have enough government bonds to invest, which lowers the yield. Regulators might think the government can keep issuing bonds, but there are ceilings. Thai bonds are expensive compared to other countries in this region.”
The democratisation of investment opportunities
“I still consider the SEC to be quite strict actually,” said another at the event. “They are often conservative in the wrong way and strict in areas where possibly they don’t need to be. For example, it is still difficult for individuals to purchase some of the very popular overseas funds. They have to be bought through some kind of agency, stock broker or Thai feeder fund with an overlay of fees. And it isn’t easy for a Thai person to send money abroad to buy funds as an individual. The result is an overlay of fees and custodial fees that are very expensive compared to what you would see if you were in Singapore. There is a lot that can still be done for the Thai market to make it as efficient as the Singapore or Hong Kong markets.”
Another expert noted that while there are ETFs available with lower fees, providers have to balance products and offer non-EFT products, even if they include higher fees. “You need both for your clients and for your business,” she said. “So, it is best practice to achieve a balance that provides a full array of offerings and is fair to your customers.”
Another attendee focused in on the need for open architecture but noted that it is increasingly difficult for bankers to differentiate and then recommend particular funds when there is an ever-widening range of choice.
“Yes,” said a participant, “at the levels below HNWIs, they have to go and purchase products from all the various different providers here, but nobody is really looking after them with a holistic approach or an open architecture to offer all types of financial products.”
The holistic approach to wealth management
“Maybe I can give you one example from Switzerland,” stated another expert. “There are a couple of bank providers that now sell all kinds of products holistically. They have been growing rapidly over the last few years precisely due to the reasons you mentioned, namely that only HNWIs have been receiving this type of holistic advice and been offered approach. In Europe, growth is slowing down, so providers there need to reinvent themselves somewhat. What we are currently seeing is the whole trend of wealth planning, advisory and so forth coming from new groups within banks to provide wealth management to the mass affluent segment. However, in Switzerland, it is not that popular to mix banking and insurance, so there is a major wall there.”
A banker noted that their bank only recently began increasing their focus on the mass affluent market, as regulatory restrictions had confined them to the HNW space in the past. “The mass affluent are now able to access our open architecture for all mutual funds,” he noted. “But, of course, there is cost associated with offering this and it is difficult to bring more of their funds into the bank and challenging to determine how these customers are developing and which ones are growing particularly quickly.”
“One way,” said a guest, “is for the bank or insurance firm to offer choice and some minimum thresholds. Several major Swiss banks have been successful because they are retail banks for both small customers and ultra HNWIs in parallel, so they now have access to everything. And the investment thresholds help determine which categories the customers are actually in.”
The wealth management ‘bucket list’
The guests then offered their wish-list of developments for the coming years. “The increasing competition, open architecture and information that investors can access right now are all positive for customers,” said one guest. “But sometimes too much information might lead to misunderstanding. As a mutual fund provider, we have standards for disclosing information while other sources of information might be more tailored. I think performance and information disclosure should be more standardised.”
“I would prefer my clients look at the entire portfolio, not just each fund,” added another voice. “Second, I wish they had a longer-term view, not just buy today and sell tomorrow. Third, I wish fee levels were more reasonable and viable so that we have a real incentive to do our business.”
“Regulators are too focused on consumers,” said another expert. “We need to look into the financial situation of those who offer the products. For example, in insurance, we need higher yields to offer better returns for customers. Right now, we are far too conservative and this negatively impacts customers because they don’t have a good enough product to protect themselves. We need to look through a different lens and promote the overall welfare of the people in the country, not only protect those customers.”
“There are many mutual funds that we aren’t able to sell to the mass retail,” added a guest, “so the SEC should allow us more room. Just because the local retail pockets aren’t that deep doesn’t mean that they shouldn’t be allowed diversity, such as with long-short funds. And it would help if investors hedged the portfolio with derivatives.”
“More education is vital,” said another participant. “There is a big knowledge gap in the market, even among salespeople,” she said. “We need to achieve a better balance and not just keep focusing on protecting consumers. For example, even salespeople who have licences within the banks aren’t actually well equipped to recommend funds. They don’t know enough to sell.”
Weiser and Struebi closed the discussion by thanking the participants and highlighting their company’s commitment to helping private banks, wealth managers and insurers in the Thai market create what Struebi calls the ‘wow’ factors that will ensure they are successful in the future.