Asia’s fastest-growing wealth segment is in the middle
income, leading many private banks, especially those that are
foreign-based, to reduce their wealth thresholds. Will Cain looks
at this and two other key trends which can contribute to the
sustainability of private banking businesses in
Asia-Pacific.
Go deeper with GlobalData
Private banks in
the Asia-Pacific region are chasing three core strategies to
increase assets under management and revenues – both in the short
and longer term.
One of the clearest conclusions
from Private Banker International’s survey of the leading
Asia-Pacific private banks is the success retail banks have had in
nurturing a pipeline of wealthy clients through their affluent
banking channels.
Private banks without a steady
stream of clients from retail banking franchises are focusing on
increasing market share through hiring initiatives and improving
their share of wallet among existing customers.
The three key strategies for
sustainable private banking growth identified in the research
are:
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By GlobalData- Private banks, especially
foreign private banks, are shifting their wealth thresholds down
and designing new product offerings to chase the region’s future
wealthy clients. - Senior management is
becoming heavily involved in hiring initiatives and intensive
training programmes to attract and train new relationship managers
as well as retain existing talent. - More integrated services
between wealth management and corporate and investment banking are
being created to improve client share-of-wallet, particularly in
the $5m-plus, entrepreneur-business owner segment.
Chasing the ‘future wealthy’
Rapid
wealth creation in the lower affluent and affluent segments is
creating a healthy pipeline of clients for private banks which are
able to access and successfully leverage their parent company’s
retail banking business.
This gives a huge advantage to
Asia-based banks which have extensive retail networks.
The rise of DBS, OCBC, Hang Seng
and the Chinese banks as major players in the wealth management
market is, in many cases, the result of improved segmentation
strategies, particularly in the so-called “in-betweener” segment
for affluent clients, who are close to the threshold for private
banking services.
Targeting this group, DBS launched
a new private client segment this year to link its affluent DBS
Treasures service and DBS Private Bank.
UOB, which has so far yet to make
significant inroads into wealth management compared to its
Singapore rivals, has created Privilege Banking, which aims to fill
a similar gap in its offering.
These types of exercises have
become more successful as banks upgrade their technology systems,
allowing them to identify existing bank customers, which already
qualify for either affluent or private banking services.
Product development is a
key
The new product offerings improve
profitability as clients begin to buy higher margin wealth
management products and services.
They also create a ready flow of
prospective private banking clients as the individuals become
wealthier.
Citi, HSBC and Standard Chartered
have the most developed retail offerings in Asia among the foreign
bank group.
Their retail offerings tend to be
designed for wealthier, rather than mass market, individuals – all
have affluent offerings for clients with between $100,000 and
$1m.
The trend among these banks is the
introduction of segmentation strategies which aim even further down
the wealth spectrum.
Both HSBC and Standard Chartered
have launched these types of services, aimed below their typical
client thresholds of $100,000 in investible assets.
HSBC’s Advance proposition and
Standard Chartered’s Preferred Banking target individuals with
around $20,000 to invest.
Knowing what you
are
Expanding quasi-wealth management
services to the affluent and emerging affluent is not a viable
option for all private banks operating in the Asia-Pacific
region.
Pure-play private banks like Bank
Sarasin, Julius Baer and EFG, and wealth managers linked to
corporate and investment banking businesses are not positioned to
offer value in that segment.
The downward trend in wealth
thresholds is still evident among some, however, as they try to
expand and tap into faster growing wealth segments.
JP Morgan
Private Bank has until recently only accepted clients with
investable assets of $30m or more.
It is now working on creating a new
private wealth management segment which will aim to service
individuals with $10m as part of a plan to increase the scale of
the private bank.
The bank is increasing its number
of relationship managers – JP Morgan calls them client advisers –
by 100 from 140.
Peter Flavel has been hired from
Standard Chartered to oversee the build-out of private wealth
management.
Flavel was responsible for setting
up Standard Chartered Private Bank in 2007 and rapidly built it
into the region’s sixth-largest wealth manager.
Now, as head of private wealth
management, Flavel is building the business “pari-passu with the
private bank”, according to Andrew Cohen, CEO of JP Morgan Private
Bank in Asia.
“I think there’s a certain part of
the market that’s growing more than anywhere else and that’s the
high net worth space,” said Cohen.
“These burgeoning economies, new
democracies and Asian tigers – there is a huge universe of people
that we haven’t had the bandwidth to be able to focus on because of
our focus on the UHNW. We’ve done this in the US, we’re doing it in
Europe and Latin America and we’re doing it in Asia. We’re
spreading the JP Morgan experience to a broader range of
customers.”
Expanding wealth across the region
and the battle for market share among private banks is creating a
democratisation of private banking services across Asia.
This has emerged as a clear
strategy, particularly for foreign banks, to increase assets under
management and revenues.
Hiring
A more familiar
and continuous theme in the Asia-Pacific private banking market is
hiring.
It has become common for banks in
the market to issue aggressive statements on hiring numbers in
order to grow their businesses and signal their intent to build
market share.
As well as JP Morgan, BNP Paribas
is looking to double its adviser numbers from 200 to 400 by 2013;
Morgan Stanley said last year it would aim to add 100 private
bankers; UBS claims to have hired 200 private bankers in Asia in
2011; and ABN AMRO says it wants to hire 90 private bankers in the
next five years.
Barclays Wealth and RBS Coutts are
also involved in aggressive hiring plans.
These hiring campaigns are placing
new demands on wealth executives in the region. Prior to being
interviewed by PBI on a Friday morning, Cohen at JP Morgan
had been in a two-hour training meeting with some of his senior
advisers.
He says he spends 40% of his day
either recruiting or training.
“After clients it is my most
important role as a CEO,” he says.
The 100 private bankers JP Morgan
is hiring are its biggest single expansion since starting wealth
management operations in Asia. Its training programme is designed
to induct new employees into the bank’s culture and ensure they
pick up the right skills.
There’s more to hiring than
meets the eye
When private banks hire a few new
staff at a time, mentoring and buddy systems with existing staff
are easy to set up. It becomes almost impossible when banks are
looking to increase headcount by such large multiples.
Training is not just about ensuring
new hires are up to scratch, however. Equally important, according
to Cohen, is to provide ongoing training and opportunities to
existing, senior staff.
“What we have focused on is that
our incumbent people don’t feel that all of the effort is going to
new people and that they get this as well,” he says.
“They can be sent to Europe, New
York or they can do training here.”
Some in the industry question what
such aggressive hiring targets really achieve.
Marcel Kreis, Credit Suisse’s
chairman for private banking in Asia, interviewed by PBI
in April, said: “If you add up all of the comments from every
participant in the industry about how many private bankers they
want to hire, you’ll soon find out there’s a lot more in the
numbers than in the actual people hired.”
Even if the numbers are achieved,
the question of quality and competency comes into play.
Cohen says meeting the bank’s
ambitious target has been a challenge and estimates the process is
70% complete.
“Obviously you don’t have a
one-for-one delta,” he says. “You don’t meet someone and hire them
like you would in a coffee shop. It’s a long and complicated
process – no offence to coffee shops but I think it’s still
slightly different.”
The question of quality is key,
according to Thomas Meier, head of Julius Baer’s Asia-Pacific
business.
Julius Baer’s approach to hiring
strategy was summed up by a former executive, who said the only
bankers they were looking for were “grey haired or no hair
bankers”.
“I have no problem in achieving a
200 RM target – I can hire people, it’s just a question of whether
you’ll find the right people,” he says. “I don’t believe you’re
going to find 200 people who are essentially qualified for your
franchise. That’s my frank opinion.”
Meier says building a successful
and sustainable private banking business in Asia needs a more
balanced approach.
He admits private banks are not
scaleable businesses, so to grow they depend to a large extent on
hiring new people.
Equally importantly, according to
Meier, is a focus on increasing the bank’s share of wallet with
existing customers.
“You’re going to have a combination
of new portfolios and enlarging existing portfolios,” he says.
Improving share of
wallet
Improving this ‘share of wallet’ is
something a number of private banks are emphasising, especially in
the current hiring market.
Recent research from Bloomberg
showed that some of the most senior private bankers working in Hong
Kong and Singapore are earning far more than their counterparts –
even some of their bosses – in Switzerland, the UK and US.
The focus on share of wallet is
particularly important in the current hiring environment and at the
higher end of the wealth spectrum where competition is greatest,
according to Lok Yim, head of Deutsche Bank Private Wealth
Management for North Asia.
Key performance indicators are
focusing less on the number of new-to-bank clients and more on the
level of assets brought in from existing clients at Deutsche
Bank.
Yim says this is a change from the
pre-financial crisis model.
“I think what we’ve really moved
onto is in terms of strategy we’re consistently looking at the
non-flow business,” he says.
“What I mean by this is if you look
back in 2007 to 2008 there was a lot of emphasis on just giving
investment products. Now, what we’re saying is that’s fine, we
should continue providing that to clients, but what we are
increasingly doing is looking at non-flow solutions.”
When discussing non-flow solutions,
Yim means the provision of a more comprehensive financial offering
across a client’s entire wealth holdings.
Many of the clients of top-end that
private banks work with in Asia are business owners or
entrepreneurs who have significant blocks of their wealth locked up
in their business interests.
This makes wealth management
trickier because in some cases banks are not necessarily managing
liquid assets but providing risk management solutions, hedging and
financing.
Yim provides an example using a
fictional Chinese client.
“What are the two things they tend
to worry about the most?” he asks.
“One, they tend to be very long in
property so how do you hedge that property risk for them? Two, they
love the renminbi, they love their business, but they also want to
diversify from a risk perspective – how do they do that? So, your
focus has shifted to that conversation vs just providing a mutual
fund or an equity trading or foreign exchange trading platform.
That’s what we’re shifting our business towards.”
Yim sums this approach up as “complex research, simple
solution”.
If private banks are able to offer that kind of solution to
overcome the highly complex inter-relations between wealth and
business requirements, they have a significant proposition for
Asia’s ultra-wealthy.
See also: Retail giants set
the pace
