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When advice makes all the difference
WHEN Dominique Jooris made the switch in 2016 from investment banking to private banking, the jump - as he sees it - reflected the financial industry's almost inexorable shift from a transactions business to advisory.
Mr Jooris was a managing director for Goldman Sachs, responsible for credit capital markets in Asia, when he took on the role of chief executive of Pictet Wealth Management South Asia in 2016. At that time, competition was intense in Asia's investment banking scene. Even private banking grappled with competition on many fronts, resulting in consolidation and mergers. It was no longer enough to have a presence and offer clients access to whatever they could feasibly invest in.
"We had come to a juncture where investment banking, which was growing extremely fast in the region, was probably hitting a little pause. As business volumes grew, an ever-growing number of players were taking part and effectively diluting the potential of the business for more traditional and established players."
As for private banking, the ability to offer clients access to markets and instruments that they couldn't access at retail banks was a big plus 10 to 15 years ago. "Somewhere between the tech revolution and the greater availability of financial products, the value-add of merely offering access dwindled fast. Internet brokers allowed you to access investments much more cheaply than any traditional bank could."
He believes advice is the key differentiating factor in private banking, in addition to the ability to ferret out deals and opportunities that would typically be a challenge to access.
"Where value is added in private banking - and this is what we focus on - is in the sourcing of opportunities that would otherwise not be available through an Internet broker; the provision of financial advice and construction of portfolios that factor in one's preference and risk tolerance as an individual. We migrated as an industry from something transaction driven to advice driven. The work we do is just not replicable at the click of a mouse," he says.
Yet another reason for his switch is the phenomenal upward trajectory of wealth creation in Asia. "You see the environment gently plateauing (in investment banking) on one hand, and on another, adjacent to it, a sector that's in full phase of growth, where the mastery and focus on investments and acute skills are expanding. You want to bring the skill that you have in one industry into the service of the other to bring us into the next decade of expansion. Other people see that opportunity too but it's rare for people like me to be given the chance to do so."
Claude Haberer, chief executive of Pictet Wealth Management Asia, says: "Investment banks have shrunk their balance sheets and reduced risk… In Asia, there is growth in real economies and wealth management is a primary banking front. We're faced with entrepreneurs with money and the need for services is there. As long as entrepreneurs make money and create value, there is a need to place and invest their money. That's why private banking is growing and investment banking has reduced."
One service in which the role of advisory is germane is discretionary portfolio management. This is a service that virtually all private banks aspire to make converts of Asian clients. This is because DPM injects bespoke professional fund management into Asian portfolios, as opposed to Asian clients' penchant to trade assets on their own. For banks, the service also earns a recurring portfolio fee, which aligns advisers' interests with clients. For Pictet, some 40 per cent of client assets sit in DPM globally. In Asia, the rate is lower but still about twice the rate of its competitors at about 20 per cent, says Mr Haberer.
"Our portfolios are designed not only to capture most of the upside, but also to sometimes reinvest a small portion of the upside into buying downside protection... These are judgements made at the beginning of the year and renewed on a weekly basis by our team."
The firm may use call options on gold, for instance, to hedge geopolitical risk, or options on equity or bond indices to hedge economic risk. Says Mr Jooris: "In the current environment however, where volatility makes options expensive, some risks - such as the fallout of a trade war - are better left unhedged because of their impact over time against the cost of protection, but also because of the fact that some of these consequences are already priced in the market." The minimum investment for a DPM service is US$5 million.
Performance will of course depend on the client's risk profile and strategy, as well as currency exposure. The Asian High Dividend equity portfolio, which invests in solid cash-generating Asian companies, returned 26 per cent in 2017, putting it in the first quartile of its qualitative peer group. The strategy has yielded 2.4 per cent this year despite a negative performance among Asian markets.
Meanwhile, Pictet's partnership structure supports a long-term view on the business, something that clients should take comfort from. Six owner-managers are responsible for the entire activity of the group. The eighth generation of the Pictet family remains active in the partnership. Says Mr Jooris: "On average our partners stay partners for 22 years... Our ultra-high-net-worth clients will see the same partner for one or two generations. This is a trademark of the firm. It means we don't take undue risk and we build the institution for stability."
In 2017, Pictet Wealth Management had assets under management of 200 billion Swiss francs (S$267 billion) and employed 286 private bankers globally.
This year, the firm sees a number of key investment themes. These include the expectation of positive returns from developed market equities. In fixed income, it advocates short duration on sovereign bonds, and tells investors to pick quality credits. It has turned cautious on high-yield debt and prefers emerging market debt. W