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Challenges of a booming private bank industry

Tan Su Shan, DBS Bank.

Lok Yim, Deutsche Bank.

Francesco de Ferrari, Credit Suisse.

Roundtable participants

  • Tan Su Shan, DBS Bank group head of wealth management and consumer banking group
  • Ong Yeng Fang, UOB managing director, head of private bank
  • Lok Yim, Deutsche Bank, head of wealth management Asia-Pacific and chief country officer Hong Kong
  • Alvin Lee, Maybank head of group wealth management and community financial services Singapore
  • August Hatecke, UBS global wealth management, head of wealth management, South-east Asia
  • Arnaud Tellier, BNP Paribas, head of wealth management, South-east Asia
  • Steven Lo, Citi Private Bank, region head, Asia-Pacific
  • Francesco de Ferrari, Credit Suisse, head private banking Asia-Pacific, CEO Southeast Asia and frontier markets
  • Pierre Masclet, Indosuez Wealth Management, Asia chief executive and Singapore branch manager

Moderator: Siow Li Sen, The Business Times

ASIA'S private wealth is booming, so is the exponential growth of the region's elderly. China, where wealth is created the fastest, has forecast that about a quarter of its population will be 60 or older by 2030, up from 13.3 per cent in the 2010 census.

Private bankers tell The Business Times how they are managing hiring issues, and the sharpness of their clients.

With strong wealth creation, are there enough experienced relationship managers to handle the bigger volumes?

Tan Su Shan: As a leading financial centre, Singapore continues to attract and retain top talent in the field. In DBS, we have top bankers in the industry, with a wide range and decades of experience across different market conditions, work alongside younger bankers. This allows us to carry out our strategy of steady, sustainable and often organic growth of our client-facing employees - in numbers and in expertise, in anticipation of our clients' growing needs.

Ong Yeng Fang: Finding the right talent is always a challenge. Other than hiring experienced and senior relationship managers from the industry, we also identify young and bright potential graduates and train them under our management associate programme. We have established a process of identifying and grooming top talents from other client-facing business segments within the bank, and preparing them for roles within UOB Private Bank. These have enabled us to more than double the number of private bankers at UOB over the last four years.

Lok Yim: As a growth pillar of the bank, Deutsche Bank Wealth Management is investing in both talents and technology. As of May, we have made close to 100 hires.

Simply hiring relationship managers will not support growth. We have been building the entire ecosystem by placing talents in different functionalities to support clients from the very first day they are onboard our platform. Apart from recruiting professionals and grooming our own talents, we invest in technology to empower our colleagues. The bank last year announced a 65 million euro (S$104 million) investment to upgrade our systems.

Alvin Lee: Our wealth managers currently cover eight global markets: Malaysia, Singapore, Indonesia, the Philippines, Hong Kong, Cambodia, Brunei and London.

To bolster learning and professional development, Maybank recently set up the Maybank Wealth Management Academy. In partnership with the Wealth Management Institute of Nanyang Technological University Singapore, the academy offers a practice-based curriculum for 1,200 sales employees, wealth specialists and managers across private, premier and privilege wealth client segments.

Markets remain volatile. Are clients more anxious than six months ago, and what are they doing about it?

August Hatecke: We have profited in recent years by keeping our investment focus on economic reality rather than political headlines. With the strong economic and profit growth backdrop, global equities have advanced in July despite the rising likelihood of further US-China trade measures and a higher US car tariff.

To address the escalating risks and to take advantage of stocks' recent move up, we reduce the size of, but keep, our overweight position on global equities this month. We are left with a broadly neutral exposure to global risky assets, comprising small overweight positions on global equities and on emerging market sovereign debt, and an underweight on euro high yield credit.

At the same time, we also hold a 10-year US Treasury position versus cash. The yield is more attractive compared to recent years, and this position can also be seen as a hedge against possible negative market developments.

Arnaud Tellier: Clients have become more cautious at the moment. They seek our views and advice on the impact of trade tensions and the health of global economies. Some move up their credit rating spectrum from high yield to investment grade bonds. We witness more interests in defensive stocks with higher dividend yields as well as domestic plays which benefit from strong domestic growth. There is also preference for hedge funds, in particular equity long-short strategy aiming at achieving alpha with lower volatility.

Steven Lo: I would not say that clients are "anxious" - many still sit on healthy profits from successful investments in 2017. But clients are more cautious, and we are seeing more selective investment activities (switching both within and between asset classes) and higher interest in products that provide a minimum return or a protective buffer on the downside.

Our clients still have great appetite for any unique investment opportunities we put forth to them. In fact, often times, for these types of investments, they have made meaningful and sizeable commitments.

Francesco de Ferrari: One of our top priorities is to continue to help them transition from managing their assets on a transactional basis - often based on emotions - to a rational and institutionally-driven asset-allocation process with a structured construction that can further drive portfolio performance, riding out volatile market conditions and smoothing out overall returns.

In the first few months, we have seen strong client interest in both discretionary mandates as well as advisory mandates, with assets under management growing robustly by 20 per cent and 40 per cent, respectively. In particular, they have diversified into multi-asset strategies which also generated the highest mandate inflows. Multi-asset strategy portfolios are less adversely affected by specific asset classes and can achieve more stable returns over their investment horizon. Our fund solutions business also grew very strongly by close to 30 per cent year-on-year in AUM in the first few months of 2018.

I'm hearing anecdotally that more complex products are being offered, and structured products caused losses when the global financial crisis hit. Is it different this time?

Pierre Masclet: In our discussions with our clients, we emphasise on thinking more about overall portfolio allocations and less about single product ideas. And with tightened regulations and improved fee transparency, there is also a greater emphasis on moving away from selling products to providing value-added advice across the industry.

Steven: This is not our experience. Overall product complexity remains lower than prior to the crisis. The increased use of minimum return or buffered products would reduce clients' losses in the event of a downturn. In addition, the majority of large losses seen in the Asia-Pacific during the crisis were due to excessive use of leverage. We monitor and limit clients' use of leverage so that levels remain manageable.

Lok: Just to share our successful delivery of structured products helping clients to achieve their investment goals. This year, we introduced commodity asset allocation play as a portfolio-diversifying solution, bespoke rates for carry trade and hedging solutions, and credit derivatives as a margin-optimisation solutions. All of them were of multiple million euros each. We are not product distributors, we are service providers. By positioning ourselves as clients' trusted investment partners, we help them achieve their investment goals. This will not be unnecessarily impacted by market movements.

With currencies being whipped, is there more FX trading?

August: FX trading remains popular among our clients. Earlier this year, the monetary policy normalisation led to more lucrative volatility levels that were conducive to engage in derivative strategies. Our base case is that we expect the USD to soften broadly and hence also Asian currencies to restrengthen. Over the next six months, we forecast a 2-4 per cent appreciation on average for Asian currencies as the drivers of US dollar strength fade. We expect positioning to adjust and US 10-year yields to stay around 2.9-3.0 per cent over six to 12 months.

Pierre: FX trading has always been very popular, among Asian clients in particular. The global foreign exchange market is by far the world's largest market in terms of trading volume. According to the Bank for International Settlements, trading volume is well over US$5 trillion a day.

Steven: Clients are taking advantage of USD strength to reassess and rebalance FX exposures in their portfolios. Given the extent of the USD rebound, it makes sense for USD-based clients to switch out of non-USD loans that had been used for lower interest rates. We are also currently assisting clients to achieve funding rate discounts in USD loans by making use of cross-currency swaps.

Arnaud: The recent increase in volatility offered greater opportunities in the FX market. It made structured trades appear attractive, allowing more sophisticated clients to take target positions at deeper discounts to where the market has been trading.

The strength of the USD also offers a potentially attractive entry point to buy against some of the major currencies and some emerging market plays where we believe the fundamentals are solid.

Clients are living longer. Those who are 75 years and older, are they able to adapt to your bank's digital offerings and services?

Pierre: At Indosuez Wealth Management, we have seen that clients want both a digital and human experience. Only 20 per cent of clients prefer a primary digital service, according to McKinsey research. So we have taken a considered approach to the application of the latest wealth management digitalisation and financial technology.

We are strongly committed to staying focused on our core client-centric approach. We consider digital as an additional tool to provide information for clients, but it will never replace contact with our advisor or wealth manager.

For clients in their 80s and 90s, how does your bank service them?

Steven: They are still relatively engaged in wanting to keep abreast of the markets and trends. In a way, it keeps them feeling young! To be honest, many are still very much as sharp in their thinking as before. Much of this interaction is face-to-face or via phone calls.

Alvin: There is a fair number of clients in this age group, and we have taken a few deliberate measures to provide them with differentiated and attentive service, starting with setting up a priority queue in our branches for them. Our wealth managers take extra efforts to have more follow-up calls and meetings with them so that we can better understand their banking needs such as legacy planning.

Yeng Fang: The bank has a long history and we have many clients who have been with the bank for the past few decades. Most of our clients who are in their 80s and 90s are first- or second-generation business owners. Their families are also our clients. The familiarity our relationship managers have with our clients and their families helps us to advise them based on a deep understanding of their risk profiles and investment needs.

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