The 25th Private Banker International Wealth Summit 2015, held in Singapore on 16 October, brought together global industry leaders to discuss, evaluate, question and analyse some powerful themes that are currently shaping the wealth management landscape. Xiou Ann Lim reports key insights from the day
Keynote Session 1 and CEO Panel Discussion – The Race for Private Banking Scale: Changing Business Models for Growth, Competitiveness and Sustainability
Andrew Au – CEO, AGDelta
Ernest Leung – CEO – Singapore, BNP Paribas Wealth Management
Tan Su Shan – Group Head – Consumer Banking and Wealth Management, DBS Bank
Rob Ioannou – Co-Head – Southeast Asia, HSBC Global Private Bank
Peter Kok – ASEAN Head of Private Banking Clients, Standard Chartered Private Bank
Michel Longhini – Executive MD and CEO Private Banking, Union Bancaire Privée
Moderator: Meghna Mukerjee – Global Editor, Private Banker International
As private banks across the industry struggle with increasing costs and competition, scale has become imperative for survival. Michel Longhini, who delivered the first keynote session, notes that keeping costs low has become key in optimising profitability.
AGDelta’s Andrew Au agrees. "Ultimately, building scale is about doing more with less. If you can combine the necessary costs and evils of investing in compliance and build that into the advisory and digital process, that’s certainly a winning formula," he says.
But Longhini points out that Swiss banks have been shaken differently from their Asian counterparts – in that they have been affected by the US Department of Justice’s tax programme as well as the appreciation of the Swiss franc, which increases the cost of operations. As a result of these challenges, he notes that there appears to be a clear trend towards consolidation.
"Consolidation will continue. It has to continue. Acquisitions may not solve everything, but they are a solution to expansion plans in certain geographies," Longhini says.
But apart from a cost perspective, Longhini also believes that scale can increase revenue. "The small-bank model is difficult to maintain. Size provides the capacity to increase revenue," he says. He illustrates his point by adding that although small banks are more agile and can react more quickly, larger banks have been delivering higher revenue per relationship manager.
Does Longhini then foresee an even more efficient model where relationship managers will be made redundant? "I think we are looking at digitisation as a solution for replacing relationship managers, but that’s not my target. My target is to increase the number of our relationship managers who give out accurate advice with the help of digital solutions," he reveals.
DBS’ Tan Su Shan does not expect the human touch provided by relationship managers to be replaced by artificial intelligence anytime soon either. "If Alipay’s Yu’e Bao can bypass regulations and create an AUM of $100bn without a single relationship manager and engage customers through their phones, then these non-banks are leapfrogging what we’ve done and are doing it faster and more cheaply. The question is – are they safe and can they keep their AUM? As banks, we are safe and we’ve got the best data on our customers," she says.
However, Su Shan is not complacent: "But if artificial intelligence is indeed able to combine cognitive computing for structured and unstructured data as well as create an emotional linkage with the client, I want to know about it."
Similarly, BNP Paribas Wealth Management’s Ernest Leung also believes that efficient data mining and analysis could lead to improved conversations between clients and relationship managers, once private bankers gain a better understanding of clients’ needs.
Continuing the discussion on the future of private banking, Standard Chartered Private Bank’s Peter Kok deliberates on whether private banks will still be able to charge brokerage fees. "I think we will have to execute for zero," he says. He adds that revenue can only be generated through an advisory model as "all the rest is execution".
Longhini concurs: "The change of revenue model is key for the industry. I think we have to develop our real wealth, which is the long-term relationships as well as knowledge of our clients." He points out that even when it comes to the acquisition of an old bank, it would lead to the inheritance of not only its legacy issues but also a lot of knowledge. "That is a very strong advantage," he concludes.
Longhini cautions that growth is not synonymous with profitability, which is the biggest risk in this industry. HSBC Global Private Bank’s Rob Ioannou agrees: "Yes, we want to grow. But not with just any asset or at any price."
Longhini also says that best performance doesn’t only come from mergers and acquisitions or hiring – but also from service, quality and value. "Staying still is not an option. It is not possible today to rely on past or existing positions. The war for size and scale is a global issue."
Keynote Session 2 and Panel Discussion – Digital Private Banking
Mark Muñoz – Managing Director, Contineo
Dr François Monnet – Chief Operating Officer – Private Banking Asia-Pacific, Credit Suisse
Frank Troise – Senior Vice President, Infinity Partners
Martin Frick – Managing Director Asia-Pacific, Temenos
James Aylen – Head, UBS Evolve – The Design Thinking and Innovation Lab
Moderator: Xiou Ann Lim – Asia Editor, Private Banker International
At a juncture where private banks can choose to either be disruptive or disrupted, Credit Suisse’s Dr François Monnet is of the opinion that "business as usual is probably a recipe for obsolescence". Noting that there is a shift among private banks to be more client-centric, he says that the only way to grow with clients is to move along with their preferences.
Mark Muñoz, Contineo, shares that data will have a huge role to play in this shift. He believes that the ability to create actionable results with data will enable banks to function at a higher level as well as make them better and faster. "It’s not about having data for data’s sake, but it’s important to be able to synthesise them and then take action," he says.
However, what will wealth management services look like in the next 10 years? According to Temenos’ Martin Frick, private banking technology will be interwoven with daily routines.
"I don’t think people will need to log in to their banking applications anymore. Maybe information will pop up on the screen in your car or even on your fridge," he muses. "Perhaps there will be no apps from different banks – users will create their own apps with the features they want in their apps," he suggests.
Frick also envisions a model that eliminates what he terms the "vicious triangle", in which three parties – the bank, the advisor and the client – share the same aim of acquiring wealth for themselves. He uses the example of platforms such as eToro, which eliminates the bank and the advisor: "People can create their own portfolio and copy someone else’s portfolio. If someone copies your portfolio, you get paid – and that is a very interesting concept because it removes conflict of interest."
Correspondingly, Frank Troise, Infinity Partners, believes that the future of private banking will be built upon a cost-free model. "Free wealth management, free products and free trading – we’ll completely rip out our cost structure. We’re going to be utilities in 10 years," he says. He also thinks that the industry has a monopoly on one asset now – capital – but that may go away. "Take a look at your P&Ls and ask yourself what you are doing from day to day that represents beta and what, at the end of the day, is truly contributing value to your accounts in terms of alpha and that’s what I think our focus will be," he adds. Troise believes that the single biggest portion of cost is the RM. But can private banks do without them?
Monnet doesn’t think so. "The human touch will stay very important but the role of the relationship manager will change," he explains. Sharing that he has yet to see a robo-advisor that is capable of offering a wide range of wealth management services to clients who need them, he thinks robo-advisors have their place in the industry and that disintermediation will happen to a certain extent – "but not everywhere and not for every client".
Monnet believes that innovation is fundamentally not about developing for clients, but rather developing with them. UBS’ James Aylen concurs: "We often ask ourselves, what’s the next technology? But I think what we really should be asking is, what’s the next experience that the client wants to have? Only then should we think about what technology supports it."
Monnet continues on a similar note: "Quite often when we talk about innovation, we talk about the ‘what’. I’m much more obsessed by the ‘how’." He adds that a product-based model is never too far away from the risk of product parity, but the sustainability of an institution’s competitive advantage comes as well from how value is delivered to clients … "and that is something that is difficult for your competitors to replicate".
Keynote Session 3 and Panel Discussion – Wealth Creation and the Rise of Self-Made Millionaires
Clarence T’ao – Head of Emerging Asian Markets, BNP Paribas Wealth Management
Shrikant Bhat – Head of Wealth Management, Citibank Singapore Limited
Royce Teo – Regional Head – Asia Pacific, DBS Treasures / DBS Treasures Private Client
Abhra Roy – Product Line Lead, Finacle Wealth Management
Moderator: Oliver Williams – Head, WealthInsight
With Asia overtaking North America as the world’s wealthiest region, according to the RBC and Capgemini World Wealth Report 2015, its emerging markets have become a point of interest for players in the wealth management industry. Even the recent economic slowdown has done little to hamper the growth of wealth in Asia and wealth management services providers continue to be optimistic about the region’s prospects.
"We’re still seeing quite a healthy growth. Maybe it’s not the 7% that we’re used to seeing in China – it’s now perhaps 6% or 5% – but the wealth pool continues to grow in Asia as compared to the rest of the world," says , BNP Paribas Wealth Management’s Clarence T’ao.
While Asia seems set to carry on outpacing the rest of the world in this area for the upcoming years, it is also interesting to note that the relatively new wealth acquired by self-made high-net-worth individuals (HNWIs) is now beginning to trickle down to the next generation – who behave rather differently from the previous generation.
"The nature of the services that they are used to in this digitised world is something that they want to carry on experiencing in the realm of private banking as well, so that is something that institutions need to look into," advises Finacle’s Abhra Roy. Royce Teo, DBS Treasures/ / DBS Treasures Private Client, observes two groups of investors in the Asian markets – the first being those primarily responsible for wealth acquisition: "They are newly minted, aggressive, self-made, highly opinionated, have a huge risk appetite and want a good do-it-yourself platform." Meanwhile, the second group consisting of next-gen HNWIs or spouses of HNWIs is conscious that they are not well-versed in wealth management, and thus more receptive to advice.
Teo notes that it is easier to educate individuals belonging to the second group. "You need soft skills when dealing with members of the first group – particularly in emerging markets. After all, they attained their current status through sheer will – it’s not inherited wealth," he points out.
While there is an ongoing change taking place across the industry that is striving to better serve both segments of self-made HNWIs and next-gen HNWIs, as well as clients who fall into both categories, Shrikant Bhat notes that there are two things that are not likely to change dramatically in the near future. The first, he says, is the element of trust between client and institution. The second is goals-based investing to yield the highest returns.
Apart from that, T’ao notes that it is important to distinguish between next-generation HNWIs who want to assume command of their family business and those who don’t. He believes that the next-generation HNWIs would at the very least need to play an active role in their family business, even if they are not interested to actually helm it. This is where, T’ao thinks, institutions that have both private banking as well as investment banking arms can help these next-generation HNWIs in managing their private wealth and also provide advice on the institutional front. "I think banks that can play well on both ends will benefit from relationships with next-generation HNWIs," he concludes.
Keynote Session 4 & Panel Discussion – Preparing a Gourmet Investment Menu for the Sophisticated High-Net-Worth
Marc Van de Walle – Global Head of Products, Bank of Singapore
Arnaud Tellier – Head of Investment Services – Asia Pacific, BNP Paribas Wealth M
Kong Eng Huat – Chief Executive Officer for Singapore Branch and Southeast Asia, EFG Bank
Ben Cherrington – Director for Intermediary Channels, M&G Investments
Moderator: Oliver Williams – Head, WealthInsight
Alluding to the topic of discussion for the session, keynote speaker Ben Cherrington, M&G Investments, poses the question of whether clients want a gourmet investment menu prepared for them or if are they indeed quite happy to go to the ‘supermarket’ themselves and ‘cook their own food’. While some reports have recently indicated that HNWIs are becoming increasingly self-directed, Cherrington warns that there is a large gap between their perceived and actual knowledge on investments. In a survey jointly conducted by M&G Investments and Scorpio Partnership in Indonesia, China, Singapore and Hong Kong; it was found that HNW investors may actually know less than they think they do about investments.
While the study found that there is little difference between actual and perceived investment knowledge among HNWIs in more mature markets such as Singapore and Hong Kong, this gap is more pronounced among HNWIs in emerging markets such as China and Indonesia.
Interestingly, the study found that the wealthier the investor, the more they think they know about investments – when in actual fact, they scored lower on investment knowledge as compared to their less wealthy counterparts.
Cherrington points out that this revelation highlights gaps within the system: "Regulators genuinely believe that the wealthier the client, the lesser they should be protected… and the more complicated the product that you can sell to them. But clearly, that is a very dangerous game to play."
With this investment knowledge-gap in mind, where are HNWIs turning to for information? According to Cherrington, they first approach professional wealth and investment managers, trusted friends and family, and this is followed by the internet and social media. The proliferation of free advice makes it difficult for wealth managers to charge for advisory services. As M&G’s study reveals, only 36% of the respondents surveyed are willing to pay for advice – the rest remain unconvinced.
EFG Bank’s Kong Eng Huat agrees with Cherrington’s and point that, currently, it is difficult to charge for advice. He points out that clients use wealth managers for different purposes. "Some of them use us solely for execution," he says.
Offering a different perspective, BNP Paribas Wealth Management’s Arnaud Tellier believes that clients will pay if they know what they are paying for. Using discretionary portfolio management as an example; he says it provides clients with professional management, diversification, asset allocation and transparency – both on the assets that they are investing in as well as on fees.
"They are prepared to pay for that and they are prepared to pay standard fees. When they understand what they are paying for and why, they are prepared to do it," Tellier adds.
With this uncertainty over whether clients are willing or not to pay for advice, how can wealth managers justify the fees they charge? Bank of Singapore’s Marc Van de Walle thinks that a more conscious effort to connect product specialists to clients may be a solution.
"The overestimation on the level of investment knowledge may be true for clients, but it is also true for RMs. They can get through to the clients and demonstrate worth by bringing along a product specialist," he suggests. Cherrington agrees: "Meetings that involve product specialists are more productive, impactful and add more value."
However, Van de Walle recognises that the biggest challenge to overcome in promoting discretionary portfolio management is not the client but the RM.
"They are wary of working with a product specialist because they worry that the specialist will dilute the client-RM relationship and they can’t take their clients with them when they move to another bank," he says. However, wealth managers will have to be "compelling, addictive and different to generate our worth" – as Cherrington puts it.
Keynote Session 5 & Panel Discussion – Serving the Ultra-Rich Client – Will the Family Office Really Penetrate Asia?
Anthonia Hui – Co-founder and Chief Executive Officer, AL Wealth Partners
Anton Wong – Head of Key Client Group, BNP Paribas Wealth Management
Bernard Fung – Head of Family Office Services and Philanthropy Advisory – Asia-Pacific, Credit Suisse Private Banking
Mark Smallwood – Head of Franchise Development and Strategic Initiatives – Asia-Pacific, Deutsche Asset & Wealth Management
Kenny Lam – Group President, Noah Holdings Ltd
Eric Landolt – Head of Family Advisory – Asia-Pacific, UBS Wealth Management
Moderator: Meghna Mukerjee – Global Editor, Private Banker International
Considering the growing wealth in China, keynote speaker Noah Holdings’ Kenny Lam notes that only 10% of that wealth is parked in private banks. The rest, he says, is deposited in the retail and affluent banking segments.
However, as a testament to the proliferation of opportunities within the wealth management space in China, he reveals that Noah Holdings is now serving 60 families with a total AUM of $800m just nine months after they opened for business. "The volatility in the Chinese market is helping us. The HNWIs there realise that they’re not Warren Buffet and that they need active advice," he shares.
Are the ultra-high-net-worth individuals (UHNWIs) in Asia then very different from their European or American counterparts? Anthonia Hui, AL Wealth Partners, notes that most of the UHNWIs in Asia are wealth creators while their European counterparts have mostly inherited wealth from their families. "So, UHNWIs in Asia tend to want to remain in control and dictate the direction of their investments, whereas UHNWIs in Europe tend to take a more institutional approach, in that they delegate responsibility to professional wealth managers or family offices," she says.
Deutsche Asset & Wealth Management’s Mark Smallwood sheds some light on the UHNWIs in North America by adding that they tend to invest their wealth back into North America. Their Asian counterparts, on the other hand, may have bank accounts and real estate in other countries or their children may be studying abroad. "They have a much more complex structure," he concludes. In terms of investment trends, Lam also observes that there is a lot of movement from secondary to primary markets in China and that the UHNWIs there are starting to be increasingly interested in opportunities within the venture capital and private equity spaces.
Wealth creation through entrepreneurship also makes UHNWIs in Asia unique in that the management of their own businesses may not leave them with much time to look into investment opportunities. The growing popularity of family offices, which may be more all-encompassing in nature, could be attributed to this. As BNP Paribas Wealth Management’s Anton Wong observes: "I think five years ago, we were not spending a lot of time talking about family offices. Its growth in Asia has taken place within the short span of 10 to 20 years. So, everyone’s still feeling their way around."
Hui, who was previously a private banker, reveals that she has a more multifaceted role to play now as she gets to understand the soft issues that beleaguer her clients. "It’s the heart – and not the hard – issues that you manage. It’s not just about managing the money," she says. Adding that if wealth managers can understand and manage those needs, they will not have to worry about competition with private banks. "I’m no longer an asset manager. I’m a family financial therapist," she adds.
However, this does not mean that private banks are losing out when it comes to service differentiation within the wealth management space. Philanthropy is one area in which private banks have traditionally added value to UHNWIs.
One trend that UBS’ Eric Landolt observes is that philanthropy in Asia is often used to engage young family members in family ventures. "We see a huge shift from classic philanthropy that includes foundations set up by families to social enterprises and social investing. The reason for this is because the younger generation wants to contribute and be involved," he says. Bernard Fung, Credit Suisse, agrees that philanthropy in Asia helps families "be a lot more cohesive apart from helping the needy".