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THE BUSINESS TIMES’ WEALTH ROUNDTABLE
Genevieve Cua, BT Wealth Editor, speaks to wealth management experts about growth opportunities in Asia
- August Hatecke, UBS Wealth Management, Head of Wealth Management South East Asia. A veteran banker, August was appointed to his current position in April 2016. He previously served as UBS Head of Ultra High Net Worth and Global Family Office Switzerland based in Zurich. He enjoys running and trekking.
- Jyrki Rauhio, Citi Private Bank South Asia Head. Jyrki is responsible for the overall franchise of the private bank’s ASEAN, Global India, Australia and New Zealand businesses. He has been with Citi for over 23 years. He likes foreign cultures and outdoor activites.
- Benjamin Cavalli, Credit Suisse Head of Private Banking South Asia, and CEO Singapore. Benjamin leads the private banking business in South Asia, comprising eight markets including Australia, India, Indonesia and Singapore. He prioritises spending time with his two daughters and is also active in philanthropic activities.
What is your business outlook for the next couple of years? What do you see as the main drivers or dampeners?
August: We expect Asia to remain a centre of wealth creation for the next few years. At UBS, we are committed to delivering superior investment performance for our clients. We have been encouraged by our clients’ confidence in us, reflected by our stellar 2Q2018 performance with invested assets of 387 billion Swiss franc (S$550 billion), and net new money flows of 8.2 billion Swiss franc in 1H 2018, consolidating our position as the number one wealth manager in the region.
We plan to consolidate our growth in the region by sharpening our focusing on China, Japan, and Taiwan, as well as the regional wealth management hubs, Singapore and Hong Kong.
According to our 2017 Billionaire report, Asian billionaires now outnumber their US counterparts. On average, a new billionaire was created in Asia every other day, led by China. Most of Asia’s wealthy individuals are self-made, and we expect this trend to grow.
This presents tremendous growth opportunities for the wealth management business. And we are extremely well placed to benefit from the growth in Asia.
Jyrki: 2017 was the best year for our private banking business in Asia in over 10 years. In the first six months of this year, our Asia business has grown 21 per cent versus last year. I am particularly positive about our business in South-east Asia, given the rapid economic growth in the region which is seeing greater inflows due to the strong wealth creation. This gives rise to demand for wealth management services. For example, in Singapore, offshore assets are rising at a compound annual average rate of around 8 per cent.
However, we have to be mindful of the market environment, such as the looming US-China tariff battle. We have already seen a beaten down China stock market, which is down around 20 per cent since its high earlier this year.
Furthermore, emerging market currencies are being hit and Asian currencies are not immune, as we are seeing in our region. This will have an effect on offshore banking accounts: On one hand, it encourages “safe haven” currencies and assets, on the other, it raises the hurdle to convert local currency holdings to hard currencies such as the US dollar.
Therefore, we expect a more challenging market environment in the next few months ahead but are confident that we will be able to achieve sustainable growth for our business by continuing to focus on our clients. Our objective is not to sell a specific product to clients but to offer a solution to them, being product agnostic.
Benjamin: There are tremendous growth opportunities in the private banking business in Asia as wealth continues to expand. Last year, Asia comprised 20-21 per cent of the global wealth pool for private banking and this figure is expected to go up to 25 per cent by 2025. Regional wealth management hubs like Singapore and Hong Kong are predicted to attract wealth from abroad at a faster rate over the next four years. Singapore is in a prime position as a leading wealth management hub.
At the same time, we also expect onshore wealth across Asian countries to grow at a faster pace than offshore wealth. However, accessing onshore wealth across Asia can be complex due to varied business and regulatory environments in this vastly heterogeneous region. To effectively serve the region’s diverse wealth pools, complex private banking operating models are required. Credit Suisse has taken a long-term view of these evolving wealth trends in the region, and has expanded its domestic wealth management footprint into major and high potential wealth markets in the last decade, including Australia, Japan, India, Thailand.
While there is massive opportunity in the private banking business, the operating environment comes with challenging complexities and escalating cost of doing business. To stay relevant for clients, banks need to continuously enhance their value proposition in terms of the quality of our talent and advisory as well as the sophisticated global products and solutions platform we offer. We also need to harness technology to deliver the next level of client services and solutions.
At Credit Suisse, we are committed to be the trusted bank for entrepreneurs of Asia. According to Credit Suisse Research, over 80 per cent of the region’s major listed family businesses are owned by first and second generation entrepreneurs, and this is our sweet spot. In our view, the business model that is best suited to these Asian entrepreneurs’ needs is the integrated platform with strong wealth management and investment banking capabilities, to be able to effectively serve the current and future generation of clients throughout their entrepreneurial life-cycle, for both their corporate and personal wealth needs.
The latest Capgemini Wealth report talks about the possible entrance of “Big tech” into the wealth space and the importance of offering “hybrid” advice. What are your thoughts on the trends that could significantly shift the way private banking services are delivered to clients over the next two to five years?
August: In a world where the wealthy are getting wealthier, the population is ageing and the largest intergenerational wealth transfer is occurring, client needs are converging globally and clients are becoming globally mobile and globally minded. Client advisers must rise to this challenge – and UBS must provide them the tools to do so.
Clients demand a seamless, digitally enabled multi-channel experience, but always with a client adviser at the center of the experience. We have seen evidence that the more wealthy clients use our digital tools, the more they contact their adviser to provide the advice beyond the numbers that only a human advisor can provide.
Our clients demand access to a suite of global products and services as well as connectivity with peers, allies, business collaborators and social entrepreneurs across the globe. UBS aims to provide advice beyond investments, taking all the client’s needs into perspective. Networks like the Global Philanthropist Community, the Industry Leader Network, or the Next Generation Foundation are all examples of how we bring our clients together with like-minded individuals.
Jyrki: There is no doubt that our clients across all age groups are becoming incredibly digitally savvy. However, robo-advisory is not something that they seem to be keen to rely on to make sizeable and important decisions – at least not for now.
With a hybrid advice model, which combines advice from wealth managers and robo-advisory, my view is that this is unlikely to go mainstream for most of our private banking clients. I am sure that there will be some interest from younger ultra high net worth individuals in the future who will be receptive to this new servicing approach and the way I see it, a robo-advisor can take up some of the simple responsibilities or tasks of the wealth manager, allowing him or her to focus on the more important aspects of the relationship and investment advisory.
With the entrance of the “big tech”, we are already seeing disruptions in the consumer business. But private banking is a high-touch business and it will remain so as clients still prefer having personalised interactions and relationships with their bankers, especially when they are entrusting millions of dollars of their assets to them. While technology companies may win in the race for technology development, they are unlikely to be on par anytime soon with the private banks when it comes to the strength of relationships – which have been painstakingly developed over the years.
How private banking services are delivered to clients will surely evolve in the future, but I believe this will largely be due to how banks leverage data or artificial intelligence among other technologies to enhance their ability to better serve their clients. That said, there is no doubt that technology and data are already playing a more meaningful role in creating private banking products and servicing clients, which will cause many smaller players to look for mergers or partners as they run out of economies of scale.
Benjamin: The next phase of private banking business lies in the use of innovative technology to improve the client experience and give them the ability to have access to private banking services digitally.
Credit Suisse was the regional private banking industry’s first mover in embracing digital innovation when it launched a global digital private banking platform for clients in Asia-Pacific in March 2015, with Singapore as the first global rollout location. We believe that our digital platform places us at the forefront of providing digital wealth management services to our current and next generation of clients, while creating a new multi-channel private banking service delivery model, combining digital technology and the bank’s relationship management team.
Clients have round-the-clock access to comprehensive information about their accounts, market insights and intelligence personalised according to their portfolio, and are also able to use trading tools that allow them to respond to moving markets wherever they are and at any time.
It also facilitates multiple channels of connectivity and collaboration for clients with their relationship manager and Credit Suisse team, brings the relationship manager and bank significant gains in efficiency and higher value-added productivity, and most important of all, enables us to serve our clients better and cultivate deeper client relationships.
Today, our digital private banking platform has continued to gain client traction, with the number of users increasing by 15 times since the platform was launched in 2015.
On the topic of robo-advisory, our clients in Asia are largely high net worth and ultra high net worth individuals with complex financial needs. For example, they look at wealth planning across generations and often require integrated solutions that cover their corporate as well as personal wealth needs. These demands cannot (yet) be serviced solely by an automated platform. “Robo-advisors” today have two key limitations in servicing such private banking clients. Firstly, they apply algorithms to create mostly ETF-based portfolios. Secondly their reach and offering is primarily local, whereas private banking clients typically have global needs.
While the digital evolution in the private banking space is important to the success of our business in the future, relationship managers will continue to remain a core part of client relationships, having built these relationships on trust and highly personalised solutions.
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What progress have you made in terms of advisory/discretionary services, and the ability to charge clients a fee for advice?
August: We are happy with our current mandate penetration; in the second quarter 2018, our mandate volume and penetration reached new record heights – in fact, globally, our mandate product business has grown by almost 100 billion Swiss francs in the last 12 months. But we know there is still scope to grow more without compromising on risk or suitability standards. The formation of GWM (Global Wealth Management) will allows us to better provide the best of what UBS has to offer to clients no matter where they are booked in the world. And we are working hard to provide our clients mandates that address their specific needs.
For example, earlier this year we launched the first ever 100 per cent sustainable investing mandate, which has over US$100 million in assets from APAC based clients and over US$2 billion globally.
Jyrki: Our discretionary offering in Asia has seen assets grow more than 1,000 per cent since its re- launch in 2010. In addition to offering existing global capabilities in equities, fixed income and fund of fund asset allocation programmes, since 2010 we have significantly increased the portfolio management team in Asia, and have introduced both Asia fixed income and Asia equity discretionary capabilities, both of which have proved enormously successful and have driven the exponential growth of discretionary assets in Asia.
We continue to expand the team meaningfully each year. Clients have responded extremely well to the mandates we can provide. Regular access to the portfolio managers in the same time zone is of particular importance to clients in Asia, and they also like the full transparency offered by the separately managed account model that our discretionary business uses. These mandates, with varying degrees of customisation to suit the specific needs of clients, happily co-exist alongside our clients’ extensive holdings in third-party best-of-breed funds.
On the advisory front, our business continues to be extremely strong. About five years ago, we recognised the need for wrap fee advisory services alongside our traditional transaction fee based model, and we launched our service to cater for those clients who required this type of arrangement with a flat fee based on overall assets under management. This type of offering has been well entrenched for many years in markets such as Australia, Europe and the US, but was relatively untapped in Asia. Five years on, whilst we have seen some traction in this type of arrangement, the majority of the business remains on the traditional transaction fee model. There is no doubt that client appetite for wrap fee arrangements will grow in Asia from a low base over time. But ultimately, our business is built around clients’ needs, and at this juncture, clients continue to prefer transaction fee arrangements.
Benjamin: At Credit Suisse, we have made significant progress in both our advisory and discretionary mandates solutions. It is our aim to make our clients better investors, and offering a fee-for-advice model increases alignment of interests between the bank and the client.
For discretionary mandates, our assets have grown by more than 30 per cent in the last two years, and there have been continuous product innovations to meet changing market conditions and client demands. Some of our newly launched discretionary mandate solutions include a structured note format mandate, a Singapore dollar reference currency mandate, a fixed income strategy mandate that works in a rising rate environment and a mandate that follows the ESG (Environmental, Social and Governance) themes.
Credit Suisse Invest, launched mid-2017, is a human-led, digitally-enabled advisory solution, offering our clients access to retrocession-free share classes of funds, and is one of the key differentiators to help our clients improve performance.
Credit Suisse Invest enables investors to conveniently view the latest updates to their portfolio, as well as the actionable ideas relevant to their chosen strategy via the Credit Suisse Private Banking Asia Pacific app. Clients can also digitally access regular market updates and the monthly Portfolio Quality Reports which provide scenario analyses on how historical market events would affect their performance. This digital empowerment is further strengthened by client-initiated portfolio reviews, allowing relationship managers to take into consideration changes in the client’s personal circumstances and adjust the investment strategy or rebalance the portfolio accordingly.
We have seen substantial client demand for Credit Suisse Invest, with volume growth as at end-July 2018 increasing year-on-year by over 400 per cent, and year-to-date it has more than doubled. This fee-for-advice model is highly successful as clients acknowledge the tangible benefits of a systematic investment process supported by the Credit Suisse house view and leveraging on technology and digitisation to enhance their investment experience.