Private Banker International’s latest Asia Pacific Top 20 Survey finds the leading private banks in a bullish mood. Paul Golden speaks to some top executives in the region to gauge how they are dealing with rising competition and evolving client needs while aiming to gain a larger share of the wealth pie
The wealth rise in Asia Pacific demonstrates a success story like no other. The projected impact of the continued wealth generation in the region on Asia’s private banking industry, as a result, is considerable.
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Various global wealth surveys have charted the continued rise of Asia’s high net worth population.
For instance, the 2014 World Wealth Report, by Capgemini and Royal Bank of Canada (RBC), observes that the region recorded the highest increase in high net worth individuals (HNWIs) in 2013, up 17.3% to more than 4.3 million – just 10,000 short of the total for North America – with collective wealth in excess of $14trillion.
These findings support the view of a September 2013 report by Capgemini and RBC, which suggested that wealth among Asian millionaires could top North America’s this year as Japanese economic growth boosts investor returns in the country.
Asians with at least $1m in investable assets are expected to see their riches climb to $15.9trn by 2015 from $12trn in 2012, according to the report.
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By GlobalDataBCG’s latest global wealth report found that in 2013 (as in 2012), Asia represented the fastest growing region for private wealth worldwide. Total private wealth across the region – excluding Japan – was estimated at $37trn. While this was some way behind North America, the report observed that Asia, which in 2008 had 50% less private wealth than North America, has since closed that gap by half.
Global private wealth is projected to post a compound annual growth rate of 5.4% over the next five years to reach an estimated $198.2trn by the end of 2018, with Asia and its new wealth accounting for about half of total growth. The amount of Asian wealth held in equities gained 48% last year, compared with 30.4% for bonds and 21.3% for cash and deposits.
Switzerland’s position as the world’s largest offshore centre is being challenged by the rise of Singapore and Hong Kong, which currently account for about 16% of global offshore assets according to BCG.
Assets booked in Singapore and Hong Kong are projected to grow at compound annual growth rates of 10.2% and 11.3% respectively through 2018 and are expected to account collectively for 20% of global offshore assets by then.
Dealing with rising demands
The BCG report describes the economics for wealth managers in Asia as challenging. How have the top 20 private banks in APAC responded to this challenge?
Bassam Salem, Asia Pacific CEO of Citi Private Bank, describes private banking clients in Asia as being resistant to constant tweaking of service offerings and relationships and valuing exclusivity and consistency.
"We could take on more assets but we are not willing to do so at the risk of compromising our cost-income ratio because we feel that one of the most important success criteria is stability, not just AuM."
Clients are increasingly demanding segregated portfolios and a portfolio manager working for the private bank. They have their money with who is based locally and can be contacted easily, he adds.
"They also want to be recognised and differentiated from mass affluent clients. Ultra High Net Worth (UHNW) clients expect to have access to senior management, but in return they will give you more of their business and most of our new money comes from existing clients."
Before his departure from the role in September, ABN AMRO Private Banking Asia & Middle East CEO, Hugues Delcourt, told PBI that Asian clients were gradually recognising the benefits of professionally managed portfolios to diversify their risks.
Citi clients are also looking for investment banking services, adds Salem. Globally and also in Asia there are specialists from corporate and investment banking who sit within Citi’s 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.
Salem expects to see some consolidation in the industry in Asia over the next few years due to challenges with operating a profitable business in the region.
Assess, assimilate and allocate
Asian clients generally have a strong bias towards regional assets and portfolios exhibit high concentration risk on a singular asset class. But they are increasingly seeking investment opportunities in Europe and US – in the last six months, client interest in overseas markets has increased markedly.
That is the view of Kathryn Shih, CEO of UBS Wealth Management Asia Pacific, who says the typical Asian private bank client is a first or second generation entrepreneur who remains involved in their family businesses and require both personal investment advice and investment banking and asset management services.
Hang Seng Bank has also had the same experience. Alan Luk, head of private banking and trust services says significant changes to the bank’s business in Asia over the last 12 months include increasing interest in geographical diversification of asset allocation (towards Europe and the US rather than Asia/emerging markets) and the diversification of asset class in favour of equities.
PwC’s 2013 global private banking and wealth management survey suggested that wealth management in emerging Asian countries was more focused on wealth creation than mature European markets where the emphasis is on wealth transfer. However, Shih refers to succession planning and the smooth transfer of wealth from one generation as a high priority for Asian clients.
"Client advisors spend much of their time discussing legacy matters, planning a business transition to the next generation, achieving transparency regarding asset ownership and/or the creation of a family legacy through philanthropy. Many Asian clients are business owners with an interest in corporate finance.
However, they require more than simply access to a large balance sheet and, increasingly, demand an advisor who can also execute corporate transactions."
Shih is also confident that the period of excessive turnover in the wealth management industry has stabilised.
"We no longer see client advisors move from one bank to the other on the basis of attractive incentives. On one hand, banks have become more conscious of costs; on the other, client advisors increasingly understand that a good platform enables them to enhance client services. Voluntary turnover among client advisors in Singapore is below 10%."
Credit Suisse also increased its headcount in Asia over the last year, increasing its relationship manager numbers by 4%. Francesco de Ferrari, head of private banking Asia Pacific explains that the private bank is in the process of significantly increasing the amount of balance sheet it is taking on globally.
"At the end of last year we announced that we would continue to focus on increasing growth in UHNW business globally, including a substantial increase in lending, potentially adding CHF15-20bn of risk-weighted assets into our private banking and wealth management division."
A large proportion of this lending growth is in emerging markets including Asia.
"We have been increasing our lending to UHNW clients significantly over the last two years, both on plain vanilla private banking lending and the more illiquid type of lending in partnership with our investment bank, such as structured credit or share-backed lending.
"In the first half of this year alone, we made net new loans of CHF1.1bn to UHNW clients in Asia Pacific, representing around 40% of the global total."
Getting collaborations right
Collaboration revenues generated through providing investment banking solutions to UHNW private banking clients in Asia Pacific have grown four-fold since 2010, says de Ferrari, who claims that it is challenging to become the best private bank in Asia without a strong investment bank.
Integration of asset and wealth management is also exercising the mind of Mark Smallwood, Hong Kong-based managing director, head of franchise development and strategic initiatives APAC at Deutsche Asset & Wealth Management.
"As well as improved cooperation between the asset and wealth management businesses, we are significantly expanding our engagement across the rest of the Deutsche Bank franchise in APAC, particularly our corporate banking and securities and global transaction banking businesses," he explains.
"We are also making significant investments in our IT platforms, which in due course will allow us to expand our business capabilities to lower client segments within the private banking area."
In March, DBS agreed to buy Societe Generale’s Asian private banking business in a $220m transaction that included private banking operations in Singapore and Hong Kong, boosting assets under management by more than one fifth. Headcount for its HNW segments increased by more than 10% year-on-year in the first half of 2014.
Tan Su Shan, group head of consumer banking & wealth management at DBS Bank says that by leveraging the bank’s equity and bond issuances business in Singapore, it has been able to offer clients unique investment opportunities.
"DBS was also ranked first in the M&A league tables for Asia-ex Japan and south east Asia in the first quarter of 2014, ahead of the major investment banks. This was achieved with deals being originated from both the institutional and private bank across Singapore, Hong Kong, Malaysia and London."
The integration of Merrill Lynch’s international wealth management business in Asia by Julius Baer has been one of the most significant projects undertaken in private banking in Asia over the last 12 months.
"This was completed successfully at the beginning of 2014 with an asset transfer rate of more than 80% and brought about significant changes and enhancement to the set-up of our bank and our IT and operations capabilities," says Thomas Meier, region head Asia Pacific Bank Julius Baer.
"We will also continue to intensify our cooperation with our strategic partners Bank of America Merrill Lynch, Bank of China and Macquarie to offer advice and services in the areas of financing, corporate finance and investment solutions beyond traditional wealth management to ultra high net worth individuals, business owners and family offices."
More regulation and segmentation
Renato de Guzman, CEO Bank of Singapore (BOS) refers to the impact of regulation on the private banking industry in Asia.
"We have geared up to meet tightening regulatory requirements by investing in robust compliance and risk management standards; implementing measures to ensure that we only attract genuine clients (such as continually refining our ‘know your client’ process as well as our monitoring standards to ensure that they comply with regulatory requirements and are in line with industry best practices); and registering with the IRS to be FATCA compliant."
He says BOS’s cost-income ratio remains lower than the 70%-75% average across the Asian private banking industry despite considerable investment in systems, platforms and processes.
"In 2013, we correctly singled out developed market equities as the best performing asset class, rightly identified the major currency trend of the weak Japanese Yen and were resilient in the face of tapering talk.
"With Wing Hang Bank joining OCBC’s stable of subsidiaries, our private banking clients will be supported by a much stronger financial services group, with a broader platform of financial services and access to a larger banking network."
Over the past year, the most noteworthy initiative embarked on by Barclays was to offer clients investments in impact investing, explains Didier von Daeniken, head of wealth management Asia Pacific, Middle East and Africa. The bank has created partnerships with firms such as Impact Investment Exchange Asia (IIX) to include impact investments on its Investment Club platform in India for ultra high net worth clients.
"We are focused on growing our HNW (clients with AuM of $5m and above) and UHNW ($20m and above) client segments and have grown the latter by 15% over the last 12 months. We have almost completed our segmentation exercise, where we are upgrading our sub-segment clients to ensure that they have at least $5m with us.
"Our target is to reduce our sub-segment clients to zero by end of the year and our close working relationship with our corporate and investment bank has led to an increase in referrals."
