Increased headcount, the establishment of new offices and structures and the formation of dedicated groups to capitalise on growing segments across the region are the key themes to emerge from Private Banker International’s annual survey of Asia’s top private banks. Paul Golden reports
Private banks’ interest in Asia has only been fuelled by the latest batch of global wealth surveys. Yet suggestions are that the high level of competition, the record levels of remuneration being demanded by a relatively inexperienced work force, and rising costs could mean cracks are starting to appear in business models. Are these challenges threatening to stall banks or are the temptations of future riches too great to ignore?
Go deeper with GlobalData
The sheer scale of wealth creation is hard to ignore. Wealth in Asia continues to rocket with the RBC/Capgemini 2012 World Wealth Report observing that Asia-Pacific is now home to the highest number of millionaires in the world – surpassing North America. Research consultancy WealthInsight estimates in 2011 there were about 2.6m HNWIs in Asia-Pacific, with a combined wealth of $10.6trn.
"Despite China’s low AuM of $62bn, our research has found that this figure has grown by 54% over the past year (2010-2011) and by 150% over the past two years (2009-2011)," said WealthInsight analyst Andrew Amoils.
"This high rate of annual growth is expected to continue over the next five years," he adds.
Scorpio Partnership’s Futurewealth study found that three-quarters of Asian entrepreneurs experienced an increase in their wealth during 2011 and 84% expected their fortunes to further increase in 2012.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataIn contrast, only 49% of non-Asian entrepreneurs grew richer last year, with 70% expecting their wealth to increase this year.
Asian clients also have a strong expectation that their bank will educate them on investments and wealth management strategies. Not to mention the growing demands for interactive technology.
So what are these clients looking for?
Kathryn Shih, CEO UBS wealth management Asia Pacific, refers to increased interest in block trades, quickly executed share placements, and FX, which clients are using to enhance yield, hedge currency risk arising from underlying security exposure and find risk controlled alpha.
"A trend arising from market volatility is that issuers of new IPOs are looking to increase the amount placed with cornerstone and anchor investors.
"Wealth management clients have proven to be an important investor segment in many recent deals."
$1-5m remains the core segment
Oliver Wyman has suggested that private banks in Asia are overlooking key segments while they chase ultra high net worth individuals and are missing out on a potential $25bn each year as a consequence.
Its research claims that the ‘core wealth’ segment (those with $1m-$5m in investable assets) is under-served and that there is $11.4trn in unmanaged wealth in the region with around $3trn of that in the core wealth segment.
The segment is under-served partly due to gaps in the current capabilities of premier banks in terms of their staff, products and service capabilities, the research concluded. However, most of the banks contacted by Private Banker International referred to expansion plans.
Shih says UBS plans to increase client adviser numbers in Asia Pacific from just over 950 to 1200 in the medium term. "Our strategy in the region is to expand our international business in Singapore and Hong Kong and invest further in domestic businesses in Japan, Hong Kong, Singapore, Australia and Taiwan.
"The establishment of UBS Securities in China represents the first time that a foreign entity has been allowed to invest directly into a fully licensed domestic securities firm."
Asia-Pacific heavyweight HSBC has had a challenging 12 months since the well-publicised slim down of its global wealth business began.
Over the last 12 months HSBC has completed the sale of its private banking business in Japan and was in talks to sell its wealth operations in Pakistan and Korea.
This has hit its APAC AuM which has dropped 14% to $129bn. Despite this, HSBC has enhanced the automatic referral process that introduces clients whose wealth passes a certain threshold to private banking, explains Bernard Rennell, CEO North Asia, global private banking.
"We have close to 400 people in Asia focusing solely on wealth planning. These are not bankers but rather lawyers, accountants and trust professionals who specialise in assisting client families to plan strategically for intergenerational wealth transfer and preservation of their family wealth."
Last year, Credit Suisse announced plans to allocate resources to faster growing and large markets, such as South East Asia, China and Russia. Private banking in Asia Pacific has been among the fastest-growing of Credit Suisse’s international wealth management businesses, with double digit growth in net new assets per annum over the last few years.
This will be helped by its HSBC acquisition providing the Swiss bank with additional offices in Osaka and Nagoya, and AuM of close to $3bn. The merger with Clariden Leu saw more than 70 staff join Credit Suisse in Asia Pacific, with more than 70% being client-servicing front staff.
According to Credit Suisse, cross-divisional collaboration revenues generated through providing integrated bank solutions to private banking UHNW clients in Asia Pacific rose by half last year compared to 2010.
Upping the threshold?
Peter Flavel is CEO of JP Morgan private wealth management Asia which serves clients with a net worth of between $10m and $30m. He says its objective for the region over the next 12 months is to build out this segment of the market.
"We are well known in Asia for our UHNW expertise. It is not an ‘either or’ strategy – we are growing both segments in tandem," he says.
"We are continuing to grow adviser numbers at a very solid rate and are open for business for the very best talent, but we are not about growing for growth’s sake," he adds.
"The speed of our growth is ultimately determined by what our clients and prospects are asking us to deliver. We spend a lot of time and effort in due diligence in our hiring process."
Standard Chartered has been migrating both clients and relationship managers from priority banking as the former’s wealth needs to evolve, says CEO, Shayne Nelson.
"In the last year we have moved several relationship managers up from our priority banking in Singapore into the private bank with their clients. They receive intensive coaching when moving up."
Standard Chartered has established what it refers to as a ‘high value client coverage’ or HVCC group. "By bringing together our private, priority and SME banking businesses under the HVCC group, this intensifies our efforts to act as one bank, easing our clients’ transition journey as their wealth grows.
"Clients can also benefit from the bank’s wholesale banking capabilities, accessing investment banking solutions such as IPOs and private equity opportunities."
Standard Chartered has also launched a specialist Islamic offering for its HNW clients looking for Shariah- compliant products. According to Nelson, one of the biggest challenges facing the private banking industry in Asia is high cost-income ratios.
He suggests that the ratios of Asian private banks are very high, largely due to the tight talent pool resulting in high cost of staff as well as rising regulatory costs.
"Another area of focus for the private bank is engaging the next generation. Asia is the second largest wealth region in the world and according to some estimates, as much as 80% of Asia’s wealth is set to pass to the next generation in the next 15 years – a wealth transfer on this scale is unprecedented," says Nelson.
Yet research suggests bankers and advisers are failing to help clients and their children through this significant life event, losing an estimated half of AuM during generational wealth transfer.
"Finally, we will continue to sharpen our segmentation and our value proposition to clients. We subscribe to the assessment in a recent report by McKinsey highlighting the opportunity on ‘core millionaire clients’," Nelson concludes.
Harnessing key client groups
Mignonne Cheng, chair and CEO of BNP Paribas Wealth Management Asia Pacific describes expanding the bank’s operations in Asia and strengthening its key clients group offering as some of the main commercial objectives in Asia for the next 12 months.
"BNP Paribas Wealth Management has aggressive growth plans in Asia Pacific, as proven by our new hires including many senior appointments in the past 12 months."
In 2011, a formal referral programme between the corporate & investment bank and wealth management was introduced and a significant amount of referrals have been made.
Ravi Raju, head of Deutsche Bank private wealth management Asia Pacific says the bank has prioritised entrepreneurs in the growth markets of China, India, Singapore and Indonesia during 2011 and 2012.
"Despite the environment of lower margins, greater risk aversion and more passive clients, we have been able to reduce our cost-to-income ratio and maintain good profitability. Our growth strategy saw us delivering double digit CAGR, especially through collaboration with Deutsche Bank corporate & investment banking.
"In 2011, our private wealth management Asia Pacific growth strategy was reaffirmed with approved investment spend for our business in the region over the next few years.
"Our headcount in Asia has increased over the last 12 months as a result of investment hiring and we look to recruit significantly more bankers over the next few years."
In October 2011, Nikko Asset Management Group (Nikko AM) completed the acquisition of DBS Asset Management (DBSAM) from DBS Bank and with it almost $8bn of assets under management.
DBS in turn acquired a 7.25% stake in the enlarged Nikko AM, forming a strategic alliance between the two companies.
AMRO continues to grow
Around the same time, DBS launched DBS Treasures Private Client for clients with assets of SG$1.5m to SG$5m.
"This operates on the private banking platform, combining a wide range of investment solutions and DBS’s transactional banking network," explains Su Shan, managing director and group head wealth management.
"Our strong corporate and commercial banking franchise in Asia allows us to provide our Asian-based customers with regional connectivity and an understanding of all our major regional markets. This is invaluable to our clients, whose main business activities are centred on Asia."
DBS Bank has increased its headcount by more than 15% during the first half of this year, says Shan, adding that expectations around salaries have become more realistic.
"We are looking to expand our international team covering clients including global non-resident Indians. We are also looking to grow aggressively and acquire clients who are what we term ‘new wealth creators’ for our Treasures Private Client platform," she says.
Earlier this year, ABN AMRO opened a representative office in Shanghai focusing on supporting the bank’s energy, commodities and transportation business in the region.
"We continue to grow our headcount and bench strength in our client service teams – for example, relationship managers, investment counsellors and other product and investment specialists," explains Hugues Delcourt, CEO Private Banking Asia.
"We do not see any significant upward pressure on salaries though competition in the industry for talent remains strong."
ABN AMRO has strong growth ambitions in Asia, he continues. "Our strategy is to be focused and significant where we are already present rather than spreading ourselves thinly.
"We aim to be a recognised force in private banking in Asia as in Europe. We also aim to double our assets under management over the next five years."
A sharp eye on costs
Given the current financial market environment and general asset price volatility, it would be difficult to find any financial institution anywhere that is not keeping a fairly sharp eye on costs, acknowledges Ken Sue, head of products & services in Asia for Coutts.
Shan says Coutts has an ambitious growth agenda in Asia and aims to achieve this through focusing on its core markets in the region: Singapore, Hong Kong, Indonesia, India and Greater China.
It has also enhanced its investment product suite and services and invested in its people and systems to better serve clients.
"Asia is home to eight of the world’s ten fastest growing HNWI populations but only a small part of the wealth is managed by professional wealth managers. There is clearly an opportunity for us to capture a greater slice of the action in this part of the world," Shan adds.
In Asia, Societe Generale Private Banking’s partnership with the corporate and investment bank has been developing well, says regional CEO Asia Pacific Olivier Gougeon.
"Many HNWIs in Asia are entrepreneurs and business owners and where there are opportunities to access the expertise offered by our corporate and investment bank or the group, we work closely with our colleagues there to identify solutions for them," he said.
Societe Generale has teams catering to four global client segments: Global Indian subcontinent for non-resident Indians in Asia, the Middle East and Europe; Global Japan wealth management for Japanese HNWIs outside Japan; Global wealth management for investors from the ASEAN region and international markets; and Greater China team for Hong Kong, Taiwan and mainland China.
"We have maintained a stable headcount over the past year," adds Gougeon.
"Our approach has been to pursue sustainable long term growth by selectively hiring quality talent while focusing on retaining and developing internal talent.
"Besides our investment expertise in the full range of products and services, we are also well positioned to help our clients plan for the future through our Singapore-registered trust company."
Barclays’ Asian ambition
Didier von Daeniken, head of wealth management Asia Pacific, Barclays states that the bank has a long term objective to be the best private bank in Asia.
"In the past three years, our business in Asia has grown about 30% per annum and we seek to continue this growth for the next 12 months through focusing on our core target markets of Greater China, India, Indonesia and Japan and delivering the best advice to our clients," he said.
Barclays has been steadily increasing its headcount since 2011 and continues to grow its pool of senior bankers, he continues.
"We have a clear strategy of ‘inverting the pyramid’ in Asia – hiring very senior bankers at managing director and director level with at least 15-20 years of industry experience, who have gone through a number of financial cycles and are better placed to handle clients and provide them with appropriate guidance especially during tough economic times.
"We currently have more than half of our bankers across Asia at a senior level and are set to increase this to 60% by the end of the year," von Daeniken added.
Banks may have slight tweaks of strategy, but the pattern is clear – entrepreneurs in the fast-growing Asian markets are their core segment, trying to figure out how best to service their demanding, yet expanding, needs is a key consideration to build sustainable businesses.
