Asia continues to forge ahead as the battleground for private banks. Jan Bellens, Asia-Pacific Banking & Capital Markets Leader, EY, and Jeroen Buwalda, Asia-Pacific Wealth & Asset Management Advisory Leader, EY, comment on the main trends and implications of 2015, as well as highlight what lies ahead in 2016
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Asia continues to forge ahead as the battleground for private banks, with statistics indicating that at 4.7 million individuals holding $15.8trn, it superseded North America as the geography with the largest pool of HNWIs in 2014. The region is creating wealth at an astonishing pace, with more funds coming into the orbit of professional managers as HNWIs diversify from liquid assets like cash or real estate into equities, fixed income and alternative investments.
The growth was most phenomenal in China, with a 17.5% rise in nouveau riche residents to 0.89 million in a corresponding wealth expansion of 19.3% to US$4.5 billion in 2014*. While full-year data for 2015 has not been released, preliminary findings indicated that exponential growth in the emerging nations of China, India, Indonesia and Thailand will have propelled Asia’s HNWI population and wealth value to the highest globally by end-2015.
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By GlobalDataTrends and Implications: 2015
Even as private bankers battle for a bigger slice of the burgeoning Asian pie, realizing the exciting potential of the region’s wealth hubs remained challenging. Success stories mask a tough reality, particularly for players with less than $20bn in AuM — the tipping point below which asset bases struggle to generate sufficient revenue to be profitable. Such institutions had to contend with higher operating cost-to-income ratios (CIRs) in the 80s-90s (as compared with tier-one players with CIRs in the low 60s), and 2015 saw those with sub-scale operations withdrawing, downsizing or otherwise attempting to scale with M&As and partnerships.
Increased operating expenses in 2015 were typically a result of the need for technology enablement to support the build-out of digital capabilities and big data analytics and to facilitate control and compliance, the lack of trained talent (a very real issue in emerging Asia, where relationship managers with financial expertise and investment acumen are prized assets), and increasing regulations. Regulators, for instance, continued to focus on know-yourcustomer, anti-money laundering, client onboarding and tax transparency, and this entailed significant changes to internal systems, corporate governance, control frameworks, processes and procedures that escalated GRC expenses for the year.
Traditionally, Asian private banking clients — the self-made entrepreneurs and first generation HNWIs — have favoured transactional capital markets products. However, as intergenerational wealth transfers increase, product mix is moving to longer-term wealth protection and succession planning solutions.
Therefore, faced with higher cost-to-serve yet increasingly sophisticated and price-sensitive customers, top private banks rightly focused on client service models in 2015. This necessitated building more targeted client engagement models, further expanding from traditional transactional services to the higher-margin strategic advisory space to support evolving investment behavior, and spending on advanced analytics to enable deeper segmentation, multichannel integration, and better lead generation to expand share of wallet. The drive to raise efficiencies saw progressive institutions investing in technologies (such as leveraging digital technology like robo-advisors for automated advisory) and enhancing the overall productivity and competency of client-facing advisors.
What Lies Ahead
The future of private client management is resplendent in Asia, but private bankers with a toehold in the industry cannot afford to sit on their laurels. New players and the entry of FinTechs, an evolving landscape and increasingly demanding clientele mean that skills and tactics need to be continuously refined.
EY believes that the successful wealth managers of tomorrow are the ones who can articulate strategies that adequately emphasize their investment expertise and technological innovation, understand and cater to clients’ investment objectives and financial goals, attract and retain skilled talent, and swiftly respond to Asia’s competitive environment to engender profitable growth.
*www.capgemini.com
