Private banks in Asia shifting the game towards advisory

Singapore

THE private-banking segment is expected to edge away from a brokerage model towards advisory, amid moves by the Monetary Authority of Singapore (MAS) this week to grow the financial sector into a global force.

Private banks tell The Business Times they have seen signs of change in clients' demands in this area, and that they are trying to meet long-term and broader needs, in part through the help of technology.

Bahren Shaari, chief executive of Bank of Singapore, noting that high-net-worth individuals want private banks to take a long-term view for their investments, said: "Moving towards a private banking model that is focused on advisory is the way to go for private banks in Asia.

"To be able to do so, bankers need to have deep understanding of their clients beyond their financial needs. This is akin to a doctor who is able to treat his patient better when he has a better understanding of the patient's symptoms and medical history."

His comments follow MAS' statement on Monday that the growth of the financial sector is expected to continue outpacing the growth of the overall economy, and that Singapore plans to become a leading international wealth management hub, building up a talent pool to provide "comprehensive and high-quality" wealth advisory services.

The Bank of Singapore has already felt the winds of change in the nature of its customers' demand: Since the start of the year, the bank has seen a 30-per-cent rise in the amount of clients' assets managed through discretionary portfolio management.

Discretionary portfolios

In discretionary portfolio management, a manager oversees a portfolio based on the client's broad wealth management strategy, and is able to shift positions nimbly on the client's behalf.

The proportion of discretionary portfolios a private banking business has can indicate how close it is to a true-bred wealth management model, as opposed to being a high-end brokerage.

Private banks in Asia have discretionary portfolios that make up just 5 to 10 per cent of all portfolios; in some independent Swiss private banks, the discretionary component is at least half.

Adam Proctor, head of managed investments and advisory for the Asia-Pacific for Citi Private Bank, also noted that clients are increasingly looking to discretionary management for some of their asset management needs.

This is often for core long-term allocation for fixed income and equities, though the bank can offer more focused strategies, such as in disruptive technologies, where active management can make a difference.

"These strategies are designed for clients to hold for the long-term, and the increased demand is a sign that things are changing, and away from the brokerage-type model, which private banks still continue to operate," said Mr Proctor.

Over at Standard Chartered, less than half the business from its private banking segment comes from transactional revenue, said Didier von Daeniken, global head of private bank and wealth management.

"When it comes to market views, one of the downsides of a highly digital age is that our clients face a massive information overload. We aim to help them cut through the noise with market insights that are relevant to making better, more informed investment decisions."

The bank does not limit the sale of products to those packaged by the bank only, a sales approach commonly known as "open architecture".

Even in this nascent space, some niches have emerged. UOB's approach to discretionary portfolio management is focused on managing the downside risk of a portfolio, which entails controlling the maximum percentage a portfolio can fall by using various hedging strategies, said Ong Yeng Fang, head of UOB Private Bank.

Credit Suisse in June launched a portfolio advisory service in Singapore that charges a flat fee for advice, with clients making their own investment decisions. The service is aimed at fee transparency. The bank has been "very encouraged" by the assets that have poured in since its launch four months ago. The bank said this service, considered a first in the regional private banking industry, provides a retrocession-free offering and a contextualised advisory process. The bank's discretionary and advisory solutions' AUM also grew annually by around 50 per cent from 2014 to 2016. (amendment note)

Digital advisory platform

Its Swiss competitor UBS has a digital advisory platform that uses big-data analytics to scrutinise portfolios against critical risk factors, so clients can be alerted to deviations from their investment strategy.

The Business Times reported in June that the asset under management for this service, known as UBS Advice in Asia, had more than doubled from a year ago.

UBS' head of wealth management in the Asia-Pacific Edmund Koh said the prominent shift in wealth from the baby boomers to the younger generation has changed wealth management in ways that demand higher efficiency, especially in Asia.

"As millennials grow in economic power, we are increasingly courting a tech-immersed generation that has grown up in a world of economic instability and who are, as a result, highly adaptable and restless in their choices of brands and service providers," he said.

"We need to digitalise our business and service model to transform the way we interact with our clients. We need to empower our clients and give them better access to knowledge and expertise from across the bank."

DBS said it has gone into artificial intelligence and learnt from its partnerships with fintech companies.

Tan Su Shan, the bank's group head of consumer banking and wealth management, said: "Our teams are now trained in agile processes, familiar with running customer-centric journeys and focusing on data as the new currency on which to provide relevant and timely wealth advice and solutions to our customers. We will continue to focus on digital innovations and technology developments disrupting our sector."

Amendment: The story has been amended to change an error in the launch date for Credit Suisse's service mentioned in the story. It should be June, not this month. BT has also included more details on the service to provide further context.