With the rise in the number of potential private banking clients across Asia Pacific showing no signs of slowing down, the leading financial institutions in the region are busy expanding their offerings to gain more wallet-share and attention from wealthy individuals, Private Banker International’s latest Asia Pacific Top 20 AuM Survey finds
Wealth creation in Asia Pacific (APAC) continues to grow at a rapid rate. BCG’s Global Wealth Report 2015 estimates that private wealth in the region increased by almost 30% in 2014, pushing it past Europe as the world’s second-most affluent region. Newly created wealth accounted for almost one quarter of this increase.
The Capgemini/RBC Wealth Management 2015 World Wealth Report paints a similar picture for high net worth individual (HNWI)wealth, with 11% growth in Asia in 2014. The region also expanded its HNWI population at the fastest rate globally (9%).
However the region has its unique dynamics that wealth managers and private banks need to navigate in order to find lasting succes.
For many institutions, the family business market is, particularly, difficult to crack and a majority of banks in Asia do not have investment banking solutions tailored specifically for family offices.
Additionally, a distinctive attitude existent across APAC that is difficult to shake is the distrust of private bankers, with wealthy client viewing them as target-driven product pushers, despite a shift in emphasis since the global financial crisis.
So how are the leading private banks in Asia going about changing this perception and creating long term, sticky relationships?
PBI’s research found that different banks in the region – global and local – are carving out their own niche and strategies to appeal to certain segments of the wealthy.
This year’s top 20 assets under management (AuM) benchmark revealed UBS to be the largest private bank by AuM in the region, for the third year in a row.
The study, which ranked private banks by AuM for HNW clients with investable assets of more than $1m, saw UBS claim the top spot with an 11% increase in AuM to $272bn in 2014.
UBS in APAC acknowledges that Asian clients are likely to look at their investments from the point of view of building up their wealth and are seeking comparable returns from what they have seen while running their businesses.
They also tend to be well connected and knowledgeable about their home markets, which results in considerable home bias in how they invest, whether it is by geography or sector.
The bank warns that this could result in concentration risk and believes that clear positions on markets and asset classes are an important prerequisite for providing professional advice and in helping clients develop a strategic asset allocation that preserves their wealth.
Many Asian ultra-high net worth (UHNW) clients are business owners who are interested in corporate activities for their businessessuch as large asset sales, M&A, IPOs and other large capital raising activities and are looking for banks with the capabilities to execute.
UBS has identified China as one of the most important sources of new opportunities across its businesses, establishing UBS Securities and UBS (China) to enable offering domestic wealth management through the most affluent cities including Beijing, Shanghai, Guangzhou and Shenzhen.
The first five banks on the annual PBI APAC top 20 AuM benchmark remained unchanged from last year’s ranking, with Citi Private Bank taking 2nd place with $272bn in AuM in 2014 (7% increase yearon-year), followed by Credit Suisse with $145bn in AuM in 2014 (12% increase year-on-year).
Citi Private Bank has experienced a noticeable shift of assets into managed investments, which challenges the notion that clients in Asia are only focused on capital markets.
That is the view of Bassam Salem, Asia Pacific CEO of Citi Private Bank, who says the fact that the private bank sits within theinstitutional client group rather than the global consumer group supports a more seamless approach in ensuring that clients have access to corporate and investment banking services and that potential clients from these other businesses are also given access to the private bank.
"Business from Mainland China clients and India has grown in excess of 20% per annum since we made a strategic decision in the past few years to increase the focus in these two markets and we do not see this trend letting up. We will continue to invest in areas where we see the most potential for growth and we are also investing in Hong Kong, Taiwan and ASEAN as we look to replicate our successful strategy with regards to China and India."
Credit Suisse continues to benefit from pushing its service model to UHNW clients (it is reckoned that individuals and families with more than $50m to invest account for around two thirds of its AuM in Asia). The bank is also considered a dominant player in the provision of digital banking services, which appeal to a wide cross-section of clients – not just younger entrepreneurs.
One of the big movers in 2014, however, was DBS Private Bank, whose acquisition of Societe Generale’s Asian private banking business last year added considerably to its AuM.
In October 2014, DBS completed the acquisition of the Asian private banking business of Societe Generale in Singapore and Hong Kong, as well as selected parts of its trust business. Tan Su Shan, group head of consumer banking & wealth management at DBS Bank says:
"The transaction accelerated our growth and fortified our position as one of the leading wealth managers in Asia. With access to new clients and strong, experienced teams, this acquisition enabled us to access products and capabilities beyond Asia."Other factors that have contributed to DBS’ rapid growth in recent years, however, include its use of digital banking technology and the ability to retain customers as their individual wealth grows. Su Shan reaffirms that the bank also experienced healthy organic growth in 2014.
"Our biggest growth client segment was UHNWs, where we increased our share of wallet due to an improved product and services suite and saw prominent growth in assets under management, client numbers and income."
Asia was the only region where AuM at HSBC Private Bank grew last year – up 4% compared to an overall decline of just under 5%. When asked whether there were plans to introduce any new initiatives to target clients who do not currently meet the wealth criteria for private banking services, Bernard Rennell, regional head of global private banking Asia-Pacific at HSBC explains that it made sense for the bank to capitalise on wealth accumulation in Asia by developing a private wealth entrepreneur programme.
"Through this programme, we focus on building relationships with entrepreneurs who do not currently meet the criteria to open a private banking account by offering select banking services and capabilities as they build wealth as a business owner. To support collaboration with our commercial and investment banking teams, we have also set up specialised teams that provide our clients with services that meet all their banking needs."
In a conversation prior to the announcement that the bank’s asset and wealth management units would be split into standalone businesses – three years after they were integrated – with HNW clients served by the private wealth management unit within the private & business clients division, head of franchise development and strategic initiatives at Deutsche Asset & Wealth Management, Mark Smallwood, explained that there were significant changes in the pipeline, with plans to increase the focus on the high net worth segment (defined as clients with assets between $5m and $25m) as part of the bank’s Platinum 2020 strategy.
When asked to what extent Deutsche Bank is cross-selling corporate and investment banking services to wealth management clients, he observes that Deutsche Asset & Wealth Management works closely with the corporate banking & securities division and the global transaction banking business.
"For corporate banking & securities-related activity we have a dedicated corporate finance partnership located within the wealth management business which acts as a controlled conduit for the delivery of equity capital markets and debt capital markets client solutions.
"Wealth management relationship managers are also actively engaging global transaction banking business areas, both in the support of complex transactions undertaken by wealth management clients where we utilise trustee, escrow and agency services; and where there is a two way introduction of fund custody and administration services, either utilising the pure fund custody business of global transaction banking, or where it refers clients to Deutsche funds platform, which sits within Deutsche Asset & Wealth Management and provides end to end Luxembourg fund solutions."
Standard Chartered announced a reorganisation in July 2015, a key aspect of which is that its commercial banking business has been significantly enlarged to include local corporates. In addition, wealth management has also been brought under the segment.Private bank clients are typically active entrepreneurs or business owners, notes Michael Benz, global head of private banking at Standard Chartered Bank.
"Our multi-generational banking relationship with these clients was built on a legacy of commercial banking/lending. This has given us a more holistic and accurate view of their financial needs and obligations, placing us in a natural position to meet their personal wealth ambitions – especially in markets like east Africa, China, Hong Kong, India and Singapore."
With local corporates now part of the commercial bank, this also means a broader corporate franchise for the private bank and to this end Benz says it has seen "encouraging success" in markets including Hong Kong and India.
Standard Chartered introduced a formal client referral programme in late 2014 and its global head of private banking says it is making good headway into this pilot scheme aimed at capturing client opportunities across the private banking, commercial banking and corporate and institutional banking segments.
"So far, 20% of our new asset growth globally has come from the pilot referral programme and we are very encouraged and quietly confident of this potential to generate additional value for the entire bank. On a related note, we also introduced a formal UHNW proposition in December 2014.
"UHNW clients may form a small percentage of our client base, but represent some 40% of our assets under management – the formalisation of this proposition fosters greater collaboration between the private bank and our corporate and institutional banking segment, allowing clients better access to what have historically been institutional client product offerings." Benz says.
According to Benz, the bank aims to continue to deepen existing client relationships through its investment and advisory services.
"We have seen strong growth in recurring investment product revenues and are focused on increasing investment assets under management," he adds.
PBI’s research also found that LGT Private Bank, securing the 15th spot on the AuM ranking, recorded encouraging growth in 2014 on the back of investment in technology, while its strong focus on succession planning has resonated with clients in Asia.