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Keeping track of the Asian private banking evolution

Competition for high net worth (HNW) clients is pushing banks to innovate around new product offerings. A huge influx of wealth & private banking businesses has sprung up in the region, focusing on the wealth that is being generated domestically. This is typically new money, first generation wealth and therein lays the challenge for established private banks and retail banks that want to keep hold of these customers.

Wealth has been borne on the back of the buoyant eastern economies. Stock market growth has been strong over the last five years, creating entrepreneurial spirit and booming business in the East. Today, Asia has 3.37 million HNW individuals, the highest number of any region as of 2011, surpassing the US’s 3.35 million, while Singapore has the greatest number per capita, with 15.5% of households holding at least US$1 million. This sudden rise in economic success has delivered wealth into the hands of families for the first time; historically their banking relationships would have been with retail brands in the country whose services were standard consumer offerings; mortgage, credit card, deposit account and ATM service.

This places these individuals firmly in the camp of wealth generation, rather than wealth preservation. They want to amass and accumulate as much as they can. However, as their banking relationship historically has been retail based, there has been no advice from their financial intermediaries.

Naturally however, their existing banks, keen to capitalise on these individuals and their growing wealth, have evolved their services into a VIP priority banking relationship. Although the financial institutions are able to segment their clients based on the amount of wealth they have, they are still at heart financial institutions, with a retail product. Their VIP offering is typically a retail ‘plus’ offering, with the credit card rebranded to a platinum card, special offers such as a priority pass to an airport lounge, or preferential parking space in the bank's car park.

That held the HNW clients’ attention briefly, but they are now becoming more aware of financial products. As their lifestyle is changing, their life events are changing. As they list their own businesses and get exposure to the equity market they may consider trading in other peoples' businesses. The self-made businessman or woman will often want direct exposure to the equity markets, meaning self-directed trading, with the potential to use more sophisticated strategies.

Getting that access will be determined by geography as much as by financial institution; national regulations govern the products and services that banks can sell to clients in each country. That will mean banks in some jurisdictions have a greater choice (and challenge) in supporting their clients than in others. In China, a bank cannot offer a client direct equity investment but instead has to introduce an equity broker to transact that business. By contrast, in Singapore and similarly in Hong Kong, the client can trade freely, with the types of products available dependent on their perceived knowledge of financial services e.g. a derivative product to a customer who is not a knowledgeable investor, a status based on the history that they have in trading financial instruments, and their line of work.

Bonds, equities and currency still form a large portion of asset allocation across the region, however derivatives, options, futures, commodities, and real estate, the biggest asset for investors in the region historically are all traded as well.

For a domestic retail bank establishing wealth and private banking operations, the back office processes for those operations are typically being serviced by the bank's retail core banking platform.  Supporting the new business line in that framework is tough, because a retail back office platform does not provide the required functionality to support bond trading and investment portfolios for example.  

For example, although an investment portfolio is a statement of account in one sense, the information on that statement of account is displayed in a very different way to that of a vanilla deposit account or a current account.

Similarly, there is also a challenge at the front end. In the retail banking world, the front office is the branch teller and their services are very different to a relationship manager’s. Relationship managers need to enter orders, book meetings, launch marketing campaigns, provide investment advice, benchmark the client's investment portfolio against a model portfolio of the bank and look at risk adjusted returns, monitor the client’s credit management obligations; it is a very different role.

To expand on the products that can be offered, banks need to enhance the front and middle office capabilities in order to establish a genuine wealth & private banking proposition.

As wealth in Asia continues to grow at this unprecedented rate, banks in this region now have a greater focus on not only retaining their existing HNW clients, but also gaining more market share.  If you work within the wealth management and private banking industry in the Asia Pacific region, I welcome your thoughts and views on how firms are doing at meeting these challenges.

Our next few blogs will explore how banks are creating a sustainable and profitable business through value added services and increased staff efficiencies.


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