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November 22, 2010updated 05 Jun 2017 11:37am

Banks must adapt business and operational models

In our view, four broad themes emerged from the PBI Wealth Summit in Singapore: regulation, serving high net worth individuals (HNWI), attracting and retaining talent, and adapting management models. Regulation and the need to meet the increasing complex and changing regulation landscape were high on the agenda.

By IAN WOODHOUSE

Ian Woodhouse, PwCIAN WOODHOUSE AND KAI-WING SHIU, PRICEWATERHOUSECOOPERS

In our view, four broad themes emerged from the PBI Wealth Summit in Singapore: regulation, serving high net worth individuals (HNWI), attracting and retaining talent, and adapting management models.

Regulation and the need to meet the increasing complex and changing regulation landscape were high on the agenda.

Many of the speakers highlighted new risks within the industry from mis-selling and fraud to the increasing need to meet new rules and regulations from Europe and the US.

This included tax evasion, the US Foreign Account Tax Compliance Act and a greater focus on sales suitability.

Additionally, the new Basel III capital requirements were raised as the more stringent rules are likely to restrict firms’ ability to fund their growth without raising additional capital.

 

Complex new regulation

A real issue facing the industry is how much all this new complex regulation will cost to implement. Many private banking clients have been shocked by recent market events and frauds, and are mindful that now, more than ever, it is important to manage expectations around risk, lower returns and less leverage.

The Asian wealth market is also continuing to develop onshore, particularly in the large domestic markets of China and India, and companies are keen to learn how they can benefit from this development.

In Asia, many first generation new money HNWIs own their own businesses.

As these businesses develop and become more established and cash generative, their owners will need to look at better ways of separating out their personal wealth from the business aspects.

Bringing new services to HNWIs – such as monetisation of assets, diversification, succession and inheritance planning, trust and fiduciary needs – presents a major opportunity for private banks and wealth managers.

 

Banks target experienced staff

Talent and the need to attract, develop and retain a good workforce is crucial. Many private banks in the region are seeking to double the number of relationship managers by 2013.

Bank’s requirements have shifted towards seeking more experienced hires, reflecting the increasingly demanding nature of clients, as well as banks’ own adversity to risk.

It was also pointed out that it takes longer for relationship managers to become profitable than in the past.

Compensation approaches need to be revised to accommodate changing demands, through shifting incentives from being based on short-term and fixed-product trading commissions to more medium-term and variable remuneration.

 

Business models must adapt and evolve to new climate

The common theme running through the conference was the need for private banks in the region to adapt and evolve their business and operational models to meet changing demands.

This change is already happening with the evolution of different business models as traditional standalone foreign private banks and universal banks are increasingly being complemented by the rise of private banking operations within domestic local retail and commercial banks.

The rise of independent asset managers and family offices is also an important development and the shift in the relative position of players within the Asian markets was also raised as a point of interest.

 

Strengths and weaknesses

Each of these models obviously have their own strengths and weaknesses.

The winners are likely to be those who can play to their advantages and meet changing client needs.

Expertise, client service and relationship management, reputation and privacy have all been identified as being increasingly important and this will in turn add requirements for more experienced relationship managers.

There is also the need to provide competitive operational platforms to minimise bureaucracy, while ensuring improved compliance controls in the front office.

The ability to meet emerging standards of good practice, particularly in the client on-boarding process and anti money laundering areas, is of vital importance.

 

Ian Woodhouse is a director and Kai-Wing Shiu a senior manager at PwC’s private banking and wealth management practice. They are based in London and Singapore respectively.

 

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