Rising wealth levels have produced a bullish outlook among Asia’s top private banks, with the region’s market leaders particularly keen to exploit cross selling opportunities and introduce more wealthy individuals to private banking. Paul Golden speaks to a who’s who of APAC’s top executives.
From a young age, schools teach children the three R’s: reading, writing and arithmetic. Asia-Pacific’s banks have a similar set of priorities, although in their case it’s the three P’s: people, products and platforms. A fourth can be added too: propositions. The order in which banks place these three is important to note and continues to evolve. Despite concerns over some of its major economies, Asia Pacific still offers private banks considerable scope for expansion. According to the BCG report Maintaining Momentum in a Complex World: Global Wealth 2013, Japan achieved an increase of 2.4% in private wealth in 2012 (the highest rate of increase since before the global financial crisis), while the rest of the region experienced growth of 13.8%.
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Private wealth in Japan is expected to reach $18.2trn by the end of 2017,up from $17.2trn at the end of last year. But the most significant growth will occur across the rest of Asia Pacific, where a projected compound annual growth rate of 11.4% will see total private wealth grow to $48.1 trillion within four years and the region surpass North America as the world’s wealthiest.
Asia Pacific’s high net worth population now numbers almost 3.4 million, but according to an Accenture report on wealth management published last October, only $3trn of the $14trn of private wealth in the region is captured by the private banking industry. Accenture also warns that Asian entrepreneurs require a different range of services from those required by traditional private banking clients.
In its latest global private banking benchmark study, Scorpio Partnership suggests that international private banks have made progress in customising their proposition for wealthy Asian clients, although Just in Ong, Asia-Pacific leader global private banking and wealth management PwC accepts that challenges remain.
"The private banking industry in Asia is certainly going through a time of change, brought about not just by the inherent weaknesses and problems around the business model in the past, but also as a result of the changing regulations and focus on client/product suitability and tax transparency requirements which have surfaced in recent times."
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By GlobalData
Moving on from ‘private banking lite’
However, he observes that the major banks in Asia have been very active in bringing ‘private banking lite’ service offerings to their affluent base of customers, with the hope that eventually these customers will make the move up to private banking.
"Asian private banks are cross-selling corporate and investment banking services to wealth management clients to a very large extent. Asian private banking clients are mainly entrepreneurs and have created their wealth through their business activities. As a result, many (especially those with family businesses) maintain a very close relationship between corporate and private wealth," says Ong.
"In many cases, they expect the private bank to be able to help them manage, not just their private wealth but also their corporate business needs. Therefore, the ability to offer corporate and investment banking services is seen as a big advantage, particularly where these clients are looking to expand their businesses."
Peter Flavel, CEO JP Morgan private wealth management Asia explains that having a banker and an investment manager covering every high net worth client is a requirement of his bank’s private banking model in the region.
JP Morgan is focused on clients with net worth of between $10m and $30m as well as ultra high net worth clients with assets in excess of that amount. "The market for clients with wealth below $10m is well covered by local players and some of the international banks," says Flavel.
Even though the Chinese economy has slowed down and India faces challenges, markets like Thailand, Taiwan, Malaysia and Indonesia are expanding. As a result, Flavel thinks there are clients out there to whom more services can be sold.
"Many clients in Asia are multi-banked, but we seek a deeper primary bank relationship with our clients. There are also potential clients who are being covered by retail or mass affluent banking that qualify for private banking," he adds.
Many high net worth individuals in Asia have been overweight in both cash and fixed income and JP Morgan has been talking to its clients since the final quarter of last year about moving towards more normal asset allocation (which would typically be 40% equities) over a period of time.
The importance of alternative assets in a client portfolio and the role of the discretionary mandate are other issues that the bank is discussing with clients.
"We see our extensive alternative asset platform and discretionary capabilities as key differentiators for our clients," concludes Flavel.
Alan Luk, head of private banking and trust services at Hang Seng Bank, refers to increased equity investment activity but a fall in real estate investment following measures introduced to cool the Chinese property market.
"Internal referral is a major new client acquisition channel and we have standing programmes for making referrals to other channels of the bank," he says.
Addressing the talent gap
Ong describes the lack of quality talent as a long standing issue for the private banking industry in Asia and fears it will continue to be a concern until a sustainable pool of qualified talent comes through, either through the ranks of other banks or internally. Luk agrees that finding competent private bankers locally is not easy job and says Hang Seng Bank focuses on grooming internal staff to take up private banking positions.
However, such concerns have not prevented private banks in Asia from making some high profile appointments over the last 12 months. For example, RBC has appointed a new head of south east Asia and expanded its team in Hong Kong, says Barend Janssens, head of emerging markets RBC Wealth Management.
His colleague and managing director and head of emerging markets Asia, Andrew Turczyniak, identifies cross-selling of services as a major opportunity.
"Investment and corporate banks provide a product and services offering that is often not fully aligned with the needs and forward planning of wealthy individuals. Especially in Asia, the majority of high net worth individuals are entrepreneurs with closely-linked corporate finance and personal wealth management needs related to trapped liquidity or asset to cash transfer."
In an attempt to address this shortfall, RBC has created a private banking solutions group that works directly with its relationship managers to reach out to new and existing clients and provide highly specialised corporate finance and direct investment propositions.
"Some of the transactions relating to clients’ own companies, businesses or assets that this group can develop in-house or through third parties include IPOs, M&A, client to client opportunities and equity/ debt raisings, such as private placements or club deals," adds Turczyniak.
UBS Wealth Management has also increased its headcount in Asia over the last 12 months with the addition of more than 100 new client advisors, bringing its total number of advisors to more than 1000. It is launching the next round of the UBS Associate Programme in September. This is a training and job rotation programme which aims to provide young staff in Asia Pacific seeking to pursue a career in wealth management. It has also just launched a Wealth Management Masters in Asia Pacific for senior client advisors.
Promoting productivity
"We have been strengthening our investment process over the last three years," explains Asia Pacific CEO Kathryn Shih. "We have enhanced the ‘Investment House View’, in which nine hundred economists, analysts and investment experts from all UBS business divisions around the globe provide analyses of the relevant markets and asset classes to support the chief investment office in developing an investment strategy."
"We want to make sure that each client benefits from our CIO recommendations, so we are in the process of piloting an advisory service called Cornerstone, which checks our clients’ portfolios daily and alerts their client advisor of deviations from their risk profiles and the UBS market views. Last year, we launched the UBS Wealth Insights investment forum in Hong Kong and Singapore where leading professionals and market analysts from around the globe were invited to share pertinent investment views to help our clients make better informed decisions."
Bassam Salem, Citi Private Bank Asia Pacific CEO, says his bank has taken a closer look at the productivity of its bankers and implemented an account scoring system to analyse banker effectiveness against their accounts.
"This tool has allowed us to have a more objective measure of banker effectiveness and the ability to spread the account load more evenly and match up the right talent required by the respective client. We have also rolled out the Global Client Initiative in Asia, which focuses on cross referrals between regions.Globally and also in Asia there are specialists from corporate and investment banking who sit within the private bank and serve as conduits for business flow between the different areas. This practice has provided the support and ability for more extensive collaboration between these key businesses."
Citi Private Bank has seen a shift in numbers from the back office to the front as a result of productivity initiatives and improvements, says Salem, adding that its main commercial objectives in Asia for the next 12 months include expanding the bank’s investment capabilities, particularly in the area of managed investments.
Societe Generale Private Bank (Asia Pacific) 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) explains Olivier Gougeon, regional CEO.
"In 2012, we launched a new integrated service offering – private investment banking – which provides our clients with access to a wide offer of investment and financing solutions. In Asia, our partnership with the corporate and investment bank continues to gain momentum and we are looking at an acceleration of synergies with Societe Generale Group’s other businesses."
Capturing collaboration with CIBs
At the beginning of this year, Societe Generale Private Bank launched a joint initiative with SG Corporate & Investment Banking in the energy sector. It has also created a commodity private wealth team in London, whose objective is to develop further its private banking clients in this sector.
"We have maintained a stable headcount in Asia 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."
In addition to further building up its regional wealth management hubs and domestic businesses in Singapore and Hong Kong, Credit Suisse continues to expand its presence in the key domestic markets of Australia as well as in Japan, where it completed the acquisition of HSBC’s private banking business last June.
"In Asia last year, we more than doubled the ‘collaboration revenues’ generated through providing our ultra high net worth private banking clients with integrated solutions from across the bank," explains Francesco de Ferrari, managing director and head of private banking Asia Pacific, Credit Suisse.
"This year, we have also launched high conviction advisory portfolios. Client up-take has been significant and the AUM of these portfolios has grown five-fold in the past 12 months."
The bank increased its pool of senior relationship managers across Asia to 450 by the end of June, compared to 390 a year ago. It also launched two new private banking graduate training programmes to groom young private bankers in its main international wealth management hubs of Singapore and Hong Kong.
Rajesh Malkani, head of private banking East at Standard Chartered Private Bank refers to double digit AuM growth and strong momentum in discretionary managed assets.
"In June 2012 , we launched a comprehensive suite of Islamic financial solutions for our private bank clients, including fiduciary deposits, property financing, equities and discretionary services, mutual funds (including ETFs), Islamic bonds (sukuks) and third-party structured products." These solutions are delivered in collaboration with Standard Chartered Saadiq.
BNP Paribas Wealth Management has continued to invest in relationship managers, investment advisors and new systems to improve its platform and service to clients, says Mignonne Cheng, Asia Pacific chairman and CEO.
"We are focused on our core target segments, which are high net worth and ultra high net worth individuals and this allows us to better focus on their needs. Many of our clients are first and second generation entrepreneurs and they expect to address both their personal and business banking needs in one meeting, with one banking relationship," she says.
"Over the last few years, we have seen a tremendous growth in clients and transaction referrals between corporate & investment banking and wealth management divisions," she adds.
The 14 P’s?
Tan Su Shan, group head of consumer banking & wealth management at DBS Bank, says the bank has managed to maintain a low cost-income ratio while maintaining its commitment to capital expenditure and long term investment.
"We have spent several tens of millions of dollars on innovation and technological upgrades . Our main commercial objectives for the next 12 months are our Asian partnerships: DBS has significant partnerships in Asia to provide clients with exclusive access to unique investment opportunities in China and Japan through a 33% stake in Changsheng Fund Management (a joint venture fund management company in China) and a 7% stake in Nikko Asset Management."
During June 2013, in partnership with Nikko Asset Management, DBS launched the Nikko AM Japan Dividend Equity Fund to capitalise on the recovering Japanese equity markets, supported by reforms and changes under Japan’s new economic policy.
Asia-Pacific’s banks continue to constantly define and refine themselves along these four P’s. But is this enough? With tongue firmly in cheek, PBI thinks this four could be extended to 14.
Private banks that properly plan their proposition in people, products and performance promote productivity and prevent problems and potential poor performances. Now that would take some preparation.
