Asia's domestic wealth managers have to reassess their business models if they want to compete for the significant growth forecast for the market over the next three years.
The estimated $5 trillion wealth management market in Asia-Pacific is expected to increase at an average annual rate of over 13% between 2004 and 2007, but domestic players are not in pole position to take advantage of this, according to a study by independent market analyst Datamonitor.
It ranks 24 of the region's wealth management competitors across business diversification, expansion strategies, product and service range, specialist capabilities, distribution channel development, and marketing strategies, customer acquisition and retention. It reveals striking differences between domestic and foreign wealth managers.
Of the six top scorers, five are global banks. Citigroup Private Bank, HSBC Private Bank, Credit Suisse Private Banking, SG Private Banking and BNP Paribas all ranked as "championship contenders" based on the nine variables. Top scorer Citigroup was slightly higher than runner-up HSBC on distribution and diversification. "Citigroup naturally scores highly in terms of geographic diversity, but it is the clear and structured plans for organic expansion in both developed and emerging markets that puts it at the top of the diversity benchmark," explains Simon Pearse, the study's author. The only non-global player among the top six is Macquarie Private Bank, driven by strong performance in its product and service range, and specialist capabilities.
Although both domestic and global wealth management operations are willing to develop and expand operations, the business models of the domestic players do not match the customer and market requirements sufficiently to enable them to compete against the global managers, the report says. The study criticizes domestic managers for lack of effective organizational structures, which is hindering the ability to exploit group operations and drive service innovation.
Macquarie aside, it is a lack of focus on specialist capabilities that separates the domestic and global players. "[Domestic wealth managers'] advisory structures lack value and constrain knowledge and information flow both to and from customers, and [they] fail to respond to client demand in areas such as emerging asset and investment classes," the report says.
Lack of scale or resources does not sufficiently explain the domestic wealth managers' low score, says Datamonitor, as they could form partnerships with third parties as their global counterparts have done. Rather, their inadequacy results from "a simple inability to rapidly develop operations in line with customer demands".
Insufficient service provision to intermediaries was also evident among the poor performers. Particularly in Australia, Hong Kong and Singapore, the use of independent financial advisers is widespread, and it is a "potentially lucrative field of customer and account acquisition", and wealth managers need to start treating IFAs as clients rather than as distribution channels.
The gap between domestic and foreign wealth managers in the region needs to be narrowed if the former are serious about competing for the expected market growth. "As wealthy customers continue to rapidly evolve and foreign brands become more embedded, the risk to market share of domestic players in the wealth market is very real indeed. Competitors need to learn from the best practice examples, and they need to do so now to stay in the race, let alone get ahead."