Leading private banks have all
announced major new hiring initiatives in Asia, now the sizzling
hotspot for wealth management clients. Asia is creating private
wealth at a stellar rate yet any setback, like a plunge in trading
volumes, could leave players dangerously exposed to over-manned and
over-paid client desks.

 

Big global private banks are
out-doing each other when it comes to which of them have the most
macho expansion plans for Asia. They are betting heavily on the
region to give them new growth at a time when Europe and North
America remain relatively torpid.

Standard Chartered is leading the
charge and is now starting to recruit 800 to 850 new relationship
mangers in Asia, although many of these are for its mass affluent
priority banking services.

Bank Julius Baer is equally
ambitious. The bank, which depicts Asia as its “second home” as
Switzerland struggles with the pressure on offshore banking and
banking secrecy, has been investing heavily in the Far East.

Thomas Meier, Baer’s chief
executive for Asia, the Middle East and Eastern Europe, has just
announced plans to expand its Asian workforce by up to 700 over the
next four years.

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JP Morgan Private Bank is not far
behind. The bank broke convention when it relocated its head of
international private banking, Douglas Wurth, to Hong Kong earlier
this year instead of the usual centres of Zurich or London.

 

JP Morgan targets 40%
headcount rise

The blue-chip US bank plans to
increase its Asia headcount by 40% this year and next, which will
match the rate of growth in 2009.

At the same time, it is looking to
triple its private banking assets over the next five years and
become a dominant player in the wealth management arena.

Credit Suisse is more cautious, and
has not set any public targets for hiring on gathering client
assets in Asia. Like a number of banks, it is finding that
relationship management talent is a problem.

“It has become recently more
difficult because [compensation] rates have gone up,” says Credit
Suisse private banking chief Walter Berchtold.

 

UBS aims for 10-20%
gain

Rival UBS is looking to grow its
Asian wealth management operations by between 10 and 20% during the
next three to five years.

The emphasis will be on clients who
have at least $50m of assets. About a third of its 1,000 client
advisers in the Asia-Pacific region already cater to these
super-wealthy clients, drawing on UBS’s investment banking
resources.

Another big hirer is RBS Coutts,
which last year saw a walkout of more than 70 staff, most of them
joining the new BSI private banking operation being established by
Hanspeter Brunner, formerly RBS Coutts’ head in Asia.

The British-based group put Coutts
man Nick Pollard in Singapore to trouble-shoot the fallout from the
defections. Since then RBS Coutts has recruited 150 staff in Asia
in the past year to make up the losses and prepare for growth.

 

An eye on
India

At Bank of America/Merrill Lynch,
India is emerging as its Asian priority. It plans to grow new
client assets and revenues by about 30% in India over the next
year, according to its head in the country, Atul Singh.

Despite this, private banking still
has to deal with the legacy of client distrust and destruction of
the value of many portfolios after the global financial crisis.

Big multi-family offices assert
that private banks have created a negative image of providing
high-priced services that have failed to justify their cost
(see family offices analysis).

 

Small talent pool presents
dangers

In addition, even top private
bankers are warning over the drive to attract clients in Asia with
new waves of hiring, resulting in growing job-hopping in the
relatively small pool of talent in the region.

The Asian private banking industry
may need an additional 900 wealth managers in the next five years
to cope with growth in the region, according to a research note
from UBS.

Other banks put the figure much
higher, reflecting the manpower to effectively penetrate China,
India and other high-growth countries.

Clariden Leu regional chief
executive Jimmy Lee said recently that private banks unveiling
plans to step up hiring in Asia are undermining the industry by
driving up compensation expectations.

The outspoken Lee declared: “If you
go by the numbers, it makes me puke. They are shooting themselves
in the foot.”

JP Morgan’s Wurth agrees, and adds:
“Clients are telling us, ‘we are tired of the [adviser] merry-go-round.”

So can Asia, with the torrid growth
forecasts for high net worth, support all this expansion by private
banking?

Like their Western counterparts,
many Asian wealthy remain risk adverse, shifting up to 20% of their
investments in cash and deposits. And margin destruction is taking
place as banks compete for the plum clients, bankers say.

 

Market jitters could
threaten recruitment push

The main danger is that even a
relatively small setback to investment markets or economic growth
in Asia could expose those banks which have overly geared-up for
growth.

The Asian market is primarily
transaction-driven, reflecting the propensity of many local HNW to
trade actively, says one head of a major global private bank,
asking not to be quoted.

“Get a shock to the system,
turnover plunges, and banks will start to lay off staff and even
pull out of some countries, in order to keep overhead under
control,” he says.

Speaking off the record, one Asian
private banking head says that among the biggest challenges is
reducing the big voluntary turnover of staff, particularly new
recruits.

 

Graduate churn

The main churn of advisers is not
happening because they are going to competitors but rather that
banks are often indiscriminatingly hiring university graduates or
post-graduates who don’t realise what is expected of them, he adds.
The banking head said this churn happens particularly when new
recruits are set required performance targets.

“The turnover in the first 12
months is very high, often up to 30% plus, at some banks,” the
banking head says.

“Recruiting targets are one thing but what is the actual net
growth of personnel and what is the increase, if any, in the
average years of experience of the junior relationship
manager?”