Last month’s PBI Hong Kong Forum showed that optimism among Asia-Pacific’s wealth managers has risen from the depths of last year. Titien Ahmad highlights forum discussions including the motivations of Chinese high net worth individuals and the importance of customer-centric businesses.
Optimism among Asia’s private bankers has risen since last year but they acknowledge that assets under management within banks have shrunk. Clients fearing unpredictable market conditions have reduced their risk appetite and increased demands for greater transparency and liquidity, according to delegates at last month’s PBI Hong Kong Forum.
Delegates showed a renewed vigour to identify profitable niches in the market. More than half of those surveyed at the forum expected an increase in net new assets, of 5-10%, while 40% of the delegates were more optimistic and expected growth of 10-15%.
In terms of technology, many delegates expect to continue to invest in their systems, with more than half of those surveyed looking to increase their technology spending in 2010.
Risk management and compliance were major drivers in investment, especially with an expected tightening of policies around Know-Your-Customer, investor protection and cross-border businesses.
New investments, exchange traded funds and sustainable/ethical investments were rated as being very important or important services to clients over the next two years by more than half of delegates.
China’s UHNW changes
Alfred Shang, a principal with Bain & Co, presented research findings at the forum from a collaborative survey with China Merchants Bank which interviewed more than 1,000 Chinese high net worth individuals (HNWI) residing in China.
He noted that the HNWIs, “mostly consist of the ‘first generation rich people’ that are generally risk averse, with low to moderate risk tolerance”.
The research found that 70% of HNWIs are entrepreneurs and this segments makes up the greatest share of the ultra HNWIs.
A sizeable number are still in the earlier stages of wealth accumulation “and find fulfilment in the process. [They are] proud of their investment abilities as well as their contributions to national economics and employment,” Shang said.
These HNWIs also seek financial security given their memory of childhood poverty, but have a high degree of confidence in their financial and economic judgment, according to the survey.
Although the HNWIs in China remain open-minded about the different types of banks, Shang highlighted that “foreign banks are perceived as more professional, with more industry expertise than local banks; but local bank sales staff are better than foreign banks at establishing close and long-term relationships with local clients.”
As expertise, service/customer relationships and reputation are the top three selection criteria when choosing a private bank, it is critical to provide outstanding customer-centric service and well-trained staff, he said.
Shang argued that offshore investments of HNWIs in China will be affected as these investments tended to be for specific purposes – such as for emigration, overseas studies or to bypass domestic regulation and seek safe havens. He expected offshore asset management to “boom in 5 to 10 years with the increase in second generation Chinese HNWIs.”
In his presentation on strategies in the Chinese market, Andrew Cainey, managing partner of Booz & Co pointed out that tight regulations in China mean that most players offer similar products and tend to compete on mainly on price. There needed to be a “more customer-centric business model among wealth managers in the market”, he said.
Concentrate on the customer
The need for an increased focus on the customer was echoed throughout the day’s presentations and panel discussions.
Ian Ewart, head of marketing and communications at Barclays, said that financial services has gone through a shift from being a relatively low-involvement and inertia-driven brand category to one driven by emotions, as media reports from poor fund due diligence, high portfolio churn, hidden charges, public demonstrations and lawsuits have damaged the trust that clients had in private bankers.
“Trust and confidence have risen in clients’ decision-making processes, so the role of the brand has seen a rise in relative importance when choosing an investment adviser, relative to product range, rates, fees and service issues,” he said.
“Financial services is now comparable to consumer electronics as a category when considering consumer choice; this is a big shift,” he said.
Although the findings pointed to a need to go back to the basics of building customer trust and confidence, questions during the panel discussions revolved around business strategies of finding the right talent.
Keeping up with churn among relationship managers, compensation and dealing with increased regulatory requirements were also discussion topics.
Even though it was widely acknowledged that the markets are on the recovery trend, fundamental business issues, including staff retention, that marked the boom of 2007-2008 still need to be addressed.