Despite the much-touted appeal of wealth management boutiques, they still need to prove to clients they are safe homes for assets, according to Justin Ong, head of PricewaterhouseCooper’s Singapore wealth management practice. He is also putting together the firm’s Asia-Pacific wealth report, to be released in September.
Titien Ahmad (TA), Private Banker International: There is still a huge potential for wealth management in Asia considering that the market is still under-served. How have the rules of private banking in Asia changed since the crisis?
Justin Ong (JO): From the Asia perspective, private banks need to go back to basics. The last one and a half years has been a big wake-up call for private banks. The days of easy money are gone and banks will need to go back to being a trusted adviser.
This has been the most difficult year for private banking, and wealth managers will need to look at different ways to deliver trusted advice. Bankers have woken up to the fact that the product suite that they had is no longer an easy sell.
So how do you, as a private banker, generate revenue? Bankers will have to look at costs even more stringently than they did and be more innovative in what they deliver to the customers to move away from a predominantly transaction-driven service.
This is also a good time to revisit the service offering and look at offerings that are less market driven such as trust and estate planning.
This will generate revenues that are more fee-based and will need a big shift in mindset for many relationship managers.
Training will also be even more important. The crisis has shown that a lot of relationship managers were ill-prepared to deal with clients who were losing as much as 40 percent to 50 percent of their money in a space of three months.
So training is needed not just in product knowledge but also in the softer skills such as client management, building trust and helping clients understand the economic situation.
TA: How badly do you see revenues of private banks being affected with the flight to plain vanilla deposits and equity products?
JO: We see that most of the banks in the region are still expecting to see positive growth in assets under management and revenue. Asia Pacific by far has the fastest growth rates and the outlook is still positive for Asia to remain a growth story.
The region will be the first to recover and there is already a huge pool of savings and deposits which will flow into other products at some point.
However, the positive responses that we’ve been getting are from the big-tier banks. The mid-tier players and boutiques that have size, scalability and capital issues will be struggling.
TA: How can banks rebuild customer trust and relationship with the current lawsuits flying around?
JO: By building a client-centric model and putting the client at the core and not the relationship managers or product revenue.
Client segmentation will need to be a lot stronger as banks no longer segment in terms of assets but look at aspects such as lifestyle needs and generational needs to address service requirements at that level.
We are also seeing more firms having a lower client to relationship manager ratio as spending quality time with the clients for a bigger share of wallet and getting referrals are more sustainable way of building the business.
It will not be an overnight change but clients are demanding it. The clients will put pressure on banks to change. This is a wake-up call and wealth managers that do not make the change now will not be able to survive in the longer term.
TA: Will boutique/asset managers be the new client champion?
JO: The client management model is quite different in Asia than compared to the US or Europe. In the West, the bulk of assets tends to be parked in one single bank; so when clients lose their money or when branding is affected, trust and confidence are more easily eroded.
In Asia, most of the high net worth have three to four different banking relationships – they may use the boutiques for products and the larger banks for service. The boutiques will still need to convince their clients of their stability and growth in Asia.
TA: We are still seeing top-level movement among the private bankers, how much will compensation and remuneration of private bankers be affected when they sign on?
JO: Wealth managers are still recruiting quality staff and senior management. This will not change too much although they will be more selective in the middle- to entry-level staff.
Compensation will be a challenge as it is under scrutiny by regulators in European and US private banking operations and especially now with this idea of “the government in the tent”*, the government is a stakeholder in a number of these banks.
Their decisions will filter down to Asia as subsidiaries here will be affected by what goes on in the headquarters.
A lot of banks are looking at rejigging the compensation model not just because of regulatory pressure but also to build a more sustainable business model.
With margins coming down, banks will need to find a more viable remuneration model. Good times are rewarded but when things go belly up, there should be room for claw-back on bonuses.
When you look at how bankers are being remunerated now it is not about client service or sustainability of returns to clients; it is still based on assets under management. A client-centric approach needs to have a matching compensation model.
* From the PricewaterhouseCoopers point of view paper, The Day After Tomorrow