Independent asset managers are rapidly making inroads
into the wealth management industry across Asia. The trend is
linked with the development of new depth and sophistication in
regional wealth advisory and, as a by-product, allows private banks
to reconsider their business directions. John Evans
reports.
Go deeper with GlobalData
A whole
new slew of independent asset managers are making their mark with
clients in Asia in a trend that could prove to be a game-changing
phenomenon for the wealth industry in the region.
Some call these independent firms
financial intermediary managers, or FIMs. They also go under the
description of external asset managers.
Often they are staffed up by former
private bankers in a switch of sides to become gatekeepers on
behalf of client portfolios.
The idea is based on a concept that
is well entrenched in Switzerland.
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By GlobalDataIndependent asset managers (IAMs)
manage assets of CHF500bn ($534bn) in Switzerland, corresponding to
a market share of about 14%, according to Finanzplatz Zurich, a
body charged with promoting Swiss financial services. About 2,600
firms specialise in asset management.
Triangular
relationship
In the Swiss model for independent
asset managers, once a manager is involved in the client’s asset
management decisions, the relationship between client, manager bank
and IAM is usually described as a triangle.
The manager is not allowed to keep
accounts or deposits, so the client always needs a banking
relationship.
While the manager is responsible
for the asset allocation decisions, the bank takes care of the
execution, settlement and custody.
The underlying theme is that all
these emerging models work on a tripartite relationship, utilising
the large market capitalisation of the banks to support the
custodian and execution functions to service their clients’
investment activities. In turn, the boutiques offer their
independent advice to these clients for a fee.
Crucially, the independent advisers
say that without the set sales targets to meet in the private
banking approach, their model can work to eliminate potential
conflicts of interest that are often the thorny issue underlying
the current bank-client relationship.
Win-win model
Within
the boutiques, it is stressed that the independent advisers can
work smoothly and to the benefit of banks, without the two sides
necessarily becoming overly competitive in seeking clients’
portfolios.
And there’s a big win for private
banks in the process, the independent advisers claim.
By co-operating with the
independents, banks should be able to gain client assets without
the high costs and management resources associated with recruiting
more relationship managers – the biggest single overhead for many
banks in Asia.
The trend towards independent
advice has built up momentum in recent months, underlined by the
formal launch of the Association of Independent Asset Managers in
Singapore in September 2011.
The body has already drawn up a
code of ethics and best practice and will, among other things, work
to establish, preserve and increase the reputation and
professionalism of their industry sector in Asia.
Some 17 firms have joined so far,
including both Singaporean and foreign firms.
Asia to match
Switzerland?
The independent advisers feel
strongly about the need for their model in Asia and have backed the
association to formalise their status as well as help to educate
their stakeholders – from clients, regulators and those who support
their activities – over their unique business model.
Ultimately, it is felt Asia could
see an industry emerge to match the large, independent money
management sector in Switzerland.
The independent advisers are at
pains to stress they do not compete directly with the private
banks. In fact, they complement the banks’ services with good
quality clients and advice, thereby helping banks to create a
reasonable source of profit without product-pushing.
This product push practice is known
to have alienated many high net worth people in the region.
Anthonia Hui, chief executive
officer of Singapore-based AL Wealth Partners, says that
traditionally clients looked to private banks to provide “a
sanctuary to their hard-earned wealth”.
But in recent years, Hui notes that
banks have often turned “into a powerful engine to distribute
products to these clients”.
Loss of focus
As a result,
clients felt as if their needs were not being looked after and the
traditional approach of providing personalised relationships seems
to have been overshadowed, Hui asserts.
AL Wealth is regarded as being in
the vanguard of the independents. It was founded in 2007 by Hui and
colleague Leonardo Drago, the firm’s chief investment officer.
Hui, who has worked as a private
banker at Credit Suisse, Coutts and BNP Paribas, has garnered the
reputation of being one of the top wealth professionals in
Asia.
Independent advisers say they have
powerful ammunition at their disposal to help them capture
business.
or example, they operate through a
simple and transparent tariff and they will only benefit themselves
if the client’s portfolio is doing well as a result of their
advice.
In addition, the client can choose
between paying a lower management fee to the independent adviser,
or accepting rebates from retrocession arrangements.
Freedom of
choice
Since the independents are only
paid by the clients, they have the freedom to choose whatever
investment solutions are best for their clients.
The independent advisers also
stress that clients using their services are still free to employ
the big banks in a number of roles.
For example, banks have dedicated
desks that serve external asset managers and offer a transaction
platform. So the clients know that their assets are held in safe
custody with the bank to give them peace of mind.
Clients can continue to leverage
the market capitalisation and infrastructure of the big bank,
giving them the security in execution and reporting.
The clients can then engage an
external trusted adviser who, vitally, fully understands their
personal and financial situation and aspirations and can structure
their investments to meet these needs.
In-roads through
referrals
But have clients in Asia fully
accepted that they will be charged a fee when using the
independents?
Indeed, it is privately admitted
that it has sometimes been a struggle for clients to accept that
the independent asset manager is only paid by the client.
Still, the response in Asia has
been encouraging, independent advisers say. For example, clients
realise that, in the same way as they pay lawyers, accountants and
doctors it is reasonable that they should pay their investment
adviser for the advice, not only the transaction.
In a sign of success, the
independents have notably made inroads in Asian clientele by that
tried-and-test route – referrals.
A lot of new clients tend to come
from referrals, says AL’s Hui, explaining that once existing
clients have satisfactorily tried and tested the services, they are
comfortable recommending the independents to friends.
Room for
competition
From the private bank’s
perspective, Peter Flavel, chief executive of JP Morgan Private
Wealth Management in Asia, takes a relaxed approach to the growth
of independent advisers.
But he cautions that some important
issues remain to be addressed, such as documented practices to
ensure ongoing controls over the quality of advice.
“I believe in client choice and
wish the new Association of Independent Asset Managers well,” says
Flavel. “As the private bank industry grows in Asia there’s a niche
available for top quality, senior bankers who have a process-driven
approach to their investment views with requisite risk controls who
want to operate their own boutique firm.”
Meanwhile, the independent advisers
make another telling point. With inexorably-expanding regulation,
the big banks have sometimes become too cumbersome and bureaucratic
to be really good client relationship providers
Banks “too
big”
“I know that some inside the big
Swiss banks feel they’ve become too big with too many bankers and
too many internal client conflicts, such as more than one banker
seeks to bank the same client,” says an independent adviser in
Singapore.
The adviser adds that the banks’
new controls have “gone overboard”.
“So some senior guys see it as
simpler to go out by themselves, as independents, and be rid of all
the controls, processes and hassles,” says the adviser.
For many private bankers, it all
comes down to the desirability of independent advice and who
ultimately is best placed to provide this.
Independent advisers insist, with their model and inroads
already made into the client base in Asia, they are a force that
can only keep getting bigger. This only looks to continue,
particularly as private wealth accumulation in the high-growth
region continues to outstrip Europe and the US.
