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The new and promising landscape of wealth management in Asia
FOR the Asian wealth management industry, the first half of 2019 was dominated by geo-political events and a constant news cycle of trade related policies, with client activity only picking up markedly in the second quarter.
Closer to home, the recent protests in Hong Kong surrounding the extradition bill have paved the way to industry whispers surrounding the potential movement of high net worth (HNW) money from Hong Kong to Singapore.
Singapore is similarly vulnerable with its two largest trading partners locking horns. Other headwinds that continue to be of concern are the high operating costs of wealth managers across Singapore and Hong Kong and the ongoing war for talent in this sector.
Regardless, Asia continues to shine as the fastest growing region for wealth creation, with a young population and strong valuation uplift keeping it relatively buoyed amidst the geo-political storm. We continue to remain confident that Singapore and Hong Kong will continue to lead the way as global wealth management hubs.
Over the past decade, Singapore and Hong Kong have both implemented a wave of new regulations. Providing clients with full transparency with regards to fees charged, ensuring products are suitable for clients, the protection of so-called "vulnerable clients" and ever stricter client onboarding rules are just some examples.
From a global perspective, Asia clearly has taken the lead in this area. Whilst at first sight implementing all these rules and regulations seems a tedious exercise, the result (and consensus) is that especially Singapore and Hong Kong are leading global centers when it comes to the financial regulators, providing peace of mind for the investing public.
As a result of this, both international and domestic wealth management firms with operations in these offshore banking hubs had to invest considerably in additional resources, such as technology to monitor transactions, additional staff in their legal, compliance and risk management teams and a lot more management time spent on these topics.
That in turn was a major cause for consolidation in the industry, with roughly 15 banks deciding to call it a day and selling or closing their Singapore and Hong Kong offshore hubs. This in itself is a short-term pain, but also a long term gain as it means only the strongest and most committed firms remain.
This industry has also caught the eye of the respective governments of these two global hubs, which have both expressed strong support to make their jurisdictions global leaders in offshore wealth management.
A White Paper by KMPG reports that there are currently over ten thousand professionals working in this industry in each city , and if you look at the number of firms providing auxiliary products and services to this sector it's clear to see the enormous economic impact this has.
This in turn is also attracting venture capital firms, private equity companies, family offices, philanthropy service providers and financial consultancy providers to Asia, to name just a few. Singapore and Hong Kong have also well positioned themselves as hotbeds for tech startups for the financial industry, which is also referred to as the "Fintech" sector. Again, local authorities have been very supportive in this area and this further solidifies the industry.
Other factors that, coincidentally, have helped the growth in these two Asian offshore hubs is that the major competitors face a number of headwinds. Switzerland, currently still the largest hub for global offshore wealth, has actually seen its assets under management (AUM) decline, as has Luxembourg.
London, the world's second largest financial centre behind New York, is facing strong headwinds because of the impending Brexit, causing outflows of AUM and Singapore and Hong Kong are well positioned to capture most of these outflows.
As a result, the combined aggregate growth rate in the past five years saw double digit growth and this is forecast to continue, which means Hong Kong and Singapore are poised to attain the world's number one and two respectively as global offshore wealth management hubs.
This in turn means that clients, wherever they reside, will automatically be drawn to either one of these cities for their deep talent pool and access to expertise.
Here they will be able to source the best in class products and services, experience a high degree of innovation and enjoy the strong regulatory framework and supportive local institutions and administrations.
Other areas of expertise are around the need of advice with regards to wealth transfer, a hot topic in Asia with many entrepreneurs handing the baton over to the second generation.
So what does this mean if you are currently an active participant in this industry in Asia? What skill sets are needed to stay ahead? Who are likely to achieve success in this environment? One element where we see further need of development in grooming talent is a focus on soft skills.
Schools and universities in Asia have a strong focus on "IQ", less so on "EQ". If the pie of global assets is growing further, so is the share of global, non-Asian clients. Cultural sensitivity and strong social skills will be instrumental in achieving success.
Moreover, size matters but probably not the obvious way: the consolidation in the industry also means the average size of wealth managers has increased, in some cases creating mega firms.
Wealth management though is probably the only bastion left within the broader financial industry where strong interpersonal relationships play a defining role in success.
After all, this is about dealing with individuals, their families, their legacy, their successes yet also their struggles and often intimate issues. As such, smaller or boutique players, where there's still a strong human element in conducting business, are poised to thrive.
In short, the future of wealth management in Singapore and Hong Kong, especially as centers of expertise in offshore banking, continue to look bright. These hubs have positioned themselves well to cope with change and have strong local institutions that support its' ambitions. It is poised to capture the growth in wealth in the region and as global centers of excellence attract overseas assets and talent. If you are looking for a career in finance and are considering your options: look no further!
- The writer is Head of Markets, Investment & Structuring Asia, Indosuez Wealth Management