Asia private banking debate: How to build a model for a growing Asia

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By:
Chris Wright
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Asian private wealth is distinct from elsewhere in the world and must be served with a different model. Entrepreneurial wealth, changing digital delivery channels and gradual engagement with socially responsible investment all present challenges and opportunities for private banks in the region.

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EXECUTIVE SUMMARY

• Clients’ needs have changed from simply protecting wealth to also making it grow, while there is also an intergenerational change from wealth creation to wealth legacy

• Products have evolved to keep pace with those changes, but the workforce must upskill too. There is good private and public investment in training in Singapore

• Clients have also become more international in their businesses and are very focussed on service and have brand loyalty. They want a full bank approach and need comprehensive solutions

• Across Asia, banks’ margins in other businesses are declining, so many are turning to private banking and wealth management, where returns are much higher

• The private banking market is estimated to be worth $13 trillion by 2025, divided equally between on and offshore

• The new generation of clients is very interested in social and environmental programmes for investment. Banks must be fully involved in all aspects of that

• Family offices can be an opportunity for partnership or a trap of compressed margins that keeps banks away from clients. It is only by showing the full range of their skills that banks can avoid that

IN ADDITION        

Chris Wright, Euromoney Let’s start with the people who matter: the clients. We often talk about the distinctive nature of entrepreneurial clients in Asia, people who have built their own business and are therefore in need of diversification and advice. How is serving these clients different to traditional private banking models elsewhere in the world and how does your model continue to adapt?

PK, HSBC Yes, the needs of the clients we serve in Asia have changed quite dramatically over the years, through the amazing success of entrepreneurs across various sectors. Their needs have changed from predominantly protecting the wealth they have created, to a far more exciting way of both protecting wealth and making it grow. The products and solutions that are needed to do that have, equally, evolved.

That makes it a necessity for firms to upskill and to make sure their staff are at the forefront of these changes. The piece that keeps us awake at night is: what can we do to make sure that not just our products and technology are up to speed but our workforce?

Euromoney David, does that keep you awake at night as well?

DL, BNPP The evolution of our clients has been driven by the economy. So, what drives that? It’s basically business, and the prospective client today is no longer a local entrepreneur but an Asian entrepreneur and, in some cases, a global entrepreneur.

Four decades ago the entire infrastructure of entrepreneurial activity was import substitution business. Today, we have Asian brands going global, from hospitality to technology – some great companies. The appreciation of value and assets over the decades has created a big legacy planning discussion, which affects us as an industry. As our clients have gone from wealth creation to wealth accumulation and management to wealth legacy, we have had to follow, training and bringing in best practices. Asia has a global footprint and wealth management follows that.

Euromoney Mike, I believe RBC has recently published some interesting research in this area. What have you learned about the distinctive nature of the client in Asia and serving client needs?

MR, RBC We polled over 2,000 people around the world, mostly in North America and Europe but 20% in Asia, and 69% of the Asian high net-worth individuals said they think differently to their parents. So, as we’re talking to clients, the next generation is not going to be the same as the previous one.

We also found that one of their biggest concerns is the global macro environment. As these families are becoming more international – at RBC we call them Asia’s global families – they become more aware of what’s going on in the rest of the world. When we speak to them, we need to help them understand how is that going to impact their business, where they’re sending their kids to school or the property that they own in another country.

Euromoney Let me take some country perspectives. The idea of the entrepreneurial client who has made all their money from a business is particularly prevalent in China. Mr Liu, how is your business developing to serve their needs?

LJ, CCB It is an important topic: how do we help our clients to preserve their wealth, as well as embark upon legacy plans? After 40 years, the first generation of entrepreneurs has accumulated massive assets through sheer hard work. Many banks have provided services primarily geared towards the creation of that wealth. But today, now that the second and sometimes third generation of entrepreneurs have come into play, they are more concerned about preserving wealth and passing it on to the next generation. How do we ensure our investment management services help them do that?

It’s not just a matter of product and services. At China Construction Bank, we partnered with Boston Consulting Group to conduct a survey by interviewing 4,000 high net-worth clients. We learned that many of them are very concerned about legacy and want to know what kind of services commercial banks can provide to them. They are concerned not so much about the product but the ability to service them, and brand is very important to them.

We will set higher standards for ourselves when it comes to serving families, and we want to interact even more with our clients, not just on investment products but tax planning, legal consultation and retirement planning. We are working to provide a comprehensive solution for them.

Euromoney Natalia, can you give us an insight into the nature of clients and transfer of wealth between generations in Russia?

NK, Sb China and Russia are very similar. The main services we provide are around risk management: understanding risks and structuring their wealth in the right way. We try to find the right solution for different client segments. Some like the old-school personal touch, some want to communicate through digital channels, so we try to serve both.

When we consider a client, we consider both his family and his business. We try to be a single window to manage all his personal needs and his business needs.

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Euromoney Joydeep, you have a unique perspective, covering the whole financial services industry across the region. How important is a good private banking operation within an Asia-Pacific business, be it local or international? And is that importance growing?

JS, McK The financial services world in Asia over the last five or six years has been under tremendous pressure from rapidly declining margins and the weakening health of credit portfolios. As a consequence, we have seen a significant deterioration in ROEs [returns on equity]. In 2008 they used to be about 20%; now, they’re about 10%.

In that context, institutions are looking for businesses which are more ROE accretive and offer high growth. And if you look at all the financial services businesses in Asia, by far the only one which meets both of those criteria is private banking and wealth management. Therefore, we are seeing a significant pivoting of many institutions in Asia, shifting their capital allocation and resources away from traditional banking and into wealth management.

It’s still early days, but we will see even more of a pivot. This is the fastest growing growth engine we can see.

Euromoney Is it working? It’s easy to identify private wealth as a great business, but a lot of people are trying to do it.

JS, McK It is working for a fair number of institutions. If you look at the offshore versus onshore markets, historically private banking was largely offshore, with the bulk of the money managed through Singapore and Hong Kong. Over the next four or five years, the growth in onshore will far surpass the growth in offshore. It’s not that the offshore markets are not growing: Singapore and Hong Kong continue to grow several times faster than almost any other offshore centre in the world. But the onshore markets are growing twice as fast.

By our estimates, by 2025 the onshore private banking market will be the size of the offshore – $6.5 trillion each, for a total of $13 trillion. Because of that pivot, many local commercial banks are beginning to make the shift and foreign banks, which have always been present, have been gearing up.

By our estimate 60% of incremental AuM [assets under management] is coming through entrepreneurial wealth, which is quite different to Europe and the US where it’s less than 30%. A lot of these entrepreneurs are looking not just for wealth management but a full bank approach, because their needs are not just for preservation but growth, expansion, perhaps IPOs.

They will look for institutions that can offer a full range of services and many local and foreign banks – not just the pure private banks – are well positioned to offer that.

Euromoney Two points arise from that for the internationals to respond to. One is the sense of your relative importance within your own institution, with the resources that come to you. And the second is the point about the growth of onshore wealth.

DL, BNPP Clearly that’s correct about onshore wealth, it is growing fast. Fund managers, too, are going onshore and regulators are looking favourably at the idea of a community being built up locally. So that will be part of the strategy discussions for any international bank who is offshore in Singapore and Hong Kong, because there is value to be found onshore – not just in grabbing the business share but growing in expertise.

The offshore model still works: it’s a higher value model. But it means banks here have to do a lot more training. Banks are getting a lot of support here in Singapore from government-funded training programmes. The regulators here have built up many institutions and verticals and take professional training very seriously. Several institutions here have wealth training modules. Local talent here, or talent based in the offshore centres, will benefit from having access to all that training.

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PK, HSBC There are a number of factors impacting our private-banking business, from integration to globalization to technology to the competitive landscape; and you do try to find answers for each and every one of them.

On onshore/offshore, opinion is divided. Ultimately, yes, you will see higher growth in onshore, but the pertinent question is how you capture it.

Traditionally people thought: well, I will need to have a local presence, I will need infrastructure, buildings. But I’m not convinced that is the right model given the technology we have at our disposal today. The jury is still out on the type of entity you need onshore. You might still have a large sales force of people on the ground interacting with clients but not necessarily doing the booking.

MR, RBC The argument of onshore versus offshore is somewhat irrelevant for us because we look at international families – it doesn’t matter where you actually reside. Our niche is: if you’re Asian but also connected to Canada or the US or UK, that’s where we’re great. If you have other connections, we may not be the best bank to deal with you.

It is very hard to build brand here and to grow awareness, so we all have to play to our strengths and find the right niche. Royal Bank of Canada can be great, but if we try to be everything to everyone – which some have tried in the past – that’s where we could get into a margin trap.

Euromoney This brings us to the distinction between international and homegrown banks. Mr Liu, what are the advantages of home-grown Asia-based private banks and in particular Chinese private banks? And how do you think you look different to the internationals in the way that you operate?

LJ, CCB It is important to position our bank so as to serve private-banking customers better. A fundamental change is that we must focus on the content of our own services, rather than just the promotion of our own profitability.

We need to better understand the needs of our customers, while taking advantage of our commercial banking group. The advantage of our position is that China Construction Bank has more than 200 commercial banking institutions in 29 countries and regions.

We have to integrate these resources around the world so as to meet the multi-faceted needs of our customers. These demands cannot be satisfied or balanced by a single department of a private bank or a separate business. We have to fully utilize all the advantages of the group.

For 100 years of history, the business line used to focus on deposits and loan settlement. Now it is around customer services to help them do business. How do we understand the customer’s needs? How do we make sure our wealth managers are ready?

We have been strengthening the training of our private bank account managers and financial advisers over the last two years. We hold a wealth lecture every year at the National University of Singapore, where we invite our customers and client managers for training. We know that we need to maintain the professional training of our private wealth consultants every year to enhance our understanding, especially of international business and the complex needs it requires.

Doing so creates better interactions with the customer as we go along. We really want to be able to produce bi-directional benefits, for our customers and for us, and we can upgrade our entire bank through this modern form of banking and customer service.

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Euromoney David raised the point about training and professional development. If you want to be a leader in private banking, you can fight over established relationship managers or improve your ability to bring through a decent cohort of home-grown new ones. What’s the best way to find and train the right people?

NK, Sb This is a very important activity. We have launched our own programme in the private bank with the involvement of international professors to teach our bankers in accordance with global standards. It’s the first stage of the project, and after we succeed we will provide access to the programme to the market. It will be a very good initiative for the industry overall.

JS, McK There are two things happening. In a market like Singapore there’s been a tremendous amount of investment made, not just by private enterprises but government institutions in building up training and capacity. You do see a good pipeline of talent being trained, which is reflective of the growth of Singapore as a private-banking centre.

But you also need to look forward at what the needs of private banking clients and the industry will be – and look at the pace of automation.

I would posit that about 40% to 50% of the work that is being done will be automated. The skills that are required for good relationship managers and investment advisers will change quite a bit. So the real question is not just how it is today – which is pretty good – but the pivot you need to make in order to reorient the talent towards the needs of the future. That requires a significant amount of acceleration.

LJ, CCB The reason China Construction Bank chose to hold the Asian private banking seminar with Euromoney in Singapore is that we feel there is already a strong foundation for the culture of wealth management here. Our Singapore branch is important and has the full flow of the bank’s support; also it transmits advanced concepts and ideas to our country, through its interaction with local institutions. Our investment banking, corporate, financial markets and training business all fully participate in serving clients in Singapore.

Euromoney David, are people being correctly readied for this changing market? Is Singapore doing the right thing in bringing through talented young people to support the industry?

DL, BNPP I think the industry framework has been fundamentally sound and well-established over the last 10 years. We now have risk-rating for clients, products and services, creating a risk-controlled environment, which is what wealth management is about essentially. We are all risk managers at the end of the day, bringing performance to clients on a risk-adjusted basis.

The training aspect is partly about training to listen. If you listen two thirds of the time, and solve and speak one third of the time, that’s very powerful.

Being international is not just about semantics. For example, the German energy sector has lost 50% of its value over the last five years. We need to train people to think internationally: is that now great value or is it a value trap? A good portfolio manager will be identifying and determining the answer to that question.

We always talk about SRI [socially responsible investing] and ESG [environmental, social and governance] investments. But in our business the theme is not just ESG investments; the theme is that it’s a derivative, the end result of how we practice. Training is a really important part of the whole process of finding value with risk management.

Euromoney It’s true that ESG/SRI has a number of elements to it, with the knock-on effects just as important as the overarching intention. Mike, your research addressed this.

MR, RBC Yes, one of the questions we asked was: are you interested in ESG as an investment method in the future? Almost 70% of Asian high net-worth individuals said yes, versus around 40% in the western world.

SRI has been around since the 1990s. The problem has been that people have used it as a filter: don’t buy these types of companies, even if you forgo higher returns by investing in that way. Now, it’s completely different. It’s about finding those great sustainable companies that do good in the world versus the opposite. Why would you not want to invest in those over the long term?

In the West, this has been around for a long time and they’ve invested trillions of dollars into it. It hasn’t quite happened yet in Asia, but when the next generation gets the money they are going to be very interested in ESG.

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PK, HSBC It’s not surprising. If you look at the different stages of evolution Europe and the US went through, Asia is a relatively young piece of it. But it is catching up very fast, as most things do in Asia. Effort is needed to really understand and respond to it.

It dovetails into the question of training and education. This is another area where you as a firm need to make sure that you have the means to upscale yourself.

One also needs to be careful that it doesn’t become a tick-box exercise. Many corporates will write that sustainability is at the top of their agenda. But to truly make it sustainable, on both sides of the balance sheet, it needs far more long-term commitment, going beyond having it in your brochures, [to] making it part and parcel of your values and principles. We have to engage with businesses and help entrepreneurs make that conversion.

You have to look at it from different angles too. Corporate banks have had to go beyond their traditional due diligence: how sustainable is this business to whom I’ve just given a corporate loan? The consequences of that are considerable: if a company goes out of business because it is not sustainable that is not a pleasant impact.

Singapore as a financial centre is hugely attractive and the regulatory guidance that we gain is supportive. But when it comes to private banking, it is still a shallow talent pool. Clients are getting older and you need to make sure you have a model in place that allows you to make the transition of wealth smoothly – not just with your clients but your staff.

It is very important not just to be looking at your front staff, your relationship managers, as you look for market share. It is equally important to make sure all the support colleagues are ready. For your front office and salespeople to remain effective, client-centric and empathetic, you need to make sure you have upscaled the colleagues supporting them.

Euromoney Is there meaningful enthusiasm for socially responsible investments in China at this stage?

LJ, CCB Customers are concerned about the implementation of social responsibility: with the accumulation of each customer’s wealth, their awareness of social responsibility is getting higher and higher. In the past two years in particular, we have seen that our customers are increasingly willing to join us in providing for society by doing more for charitable purposes.

Many of our Shanghai customers have participated and partnered with the bank many times, including in our own charitable trust fund. For example, we have provided opportunities for hearing-impaired children to have implants; we sponsor the technology, but the funds came from our enthusiastic customers. We have also partnered with our customers to bring poverty-stricken children to show them modern Beijing. They had never been outside their own province; high net-worth customers wanted to give them the opportunity to explore beyond.

We must make sure our customers trust us to build this platform together so we can give back to society and provide for the needy.

In the course of our development strategy we have also integrated our university into this service platform. It provides education, training and understanding of current affairs for farmers, as well as our employees.

This platform between the bank and high net-worth customers to give back to society is definitely necessary.

Euromoney Are Russian clients showing interest in ESG/SRI?

NK, Sb ESG is definitely a trend in the Russian markets. In the long run, we believe that companies that take care of the environment and show social responsibility will perform better. The Russian population is changing and taking this responsibility very seriously. Consumer behaviour is changing and ESG investment is valued by our clients. Not only is it a potentially interesting product it is also interesting from a risk perspective. It is definitely what they need.

Euromoney We haven’t touched upon family offices. Here in Singapore there has been a concerted effort to make this a hub for well-governed family office structures. What are you seeing and how do you serve family offices?

PK, HSBC Part of the evolution we referred to earlier is this emergence of family offices and the professionalism that comes with them. We use the term far too loosely. Just because you have two people looking after the family wealth, it doesn’t necessarily constitute a family office; and there are good and bad examples out there. But the number of family offices mushrooming is quite amazing.

Singapore does provide a great environment for them to set up shop here. But it should start with the question: do I really need a family office, or is it just nice to have? What’s the purpose? What do I, as a matriarch or patriarch, actually want to achieve? Is it leaving a legacy through philanthropic means? Keeping the family together?

When you know that you can bring together the different skills within the private bank. It goes beyond having skill sets around products and portfolios. Any bank that is serious about this would need to have expertise purposely built. In our case, that is embedded in our trust company that has been around for 70 years.

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Euromoney David, do you need a dedicated arm to service family offices, or is it simply a question of applying the usual techniques of private banking in a different way?

DL, BNPP What you need is a platform. A lot of IT is in that, to serve family offices. There are two reasons this is taking off: the growth in wealth and the growth in expertise to serve it. Taking care of that need is partly about using technology to efficiently distribute information – basically risk management information on how portfolios are impacted by the markets. So, IT is a very big part of that.

Should there be a team at the front covering family offices or is the team in the investor side covering them? It’s Catch 22, but more than anything you need investment specialists who are good at understanding what other risk management needs a family office has and evolving that into the relationship. So, my answer would be: I am more inclined to put resources on the investor side to cover family offices.

MR, RBC Family offices are not going away. There are many different levels, from multi-family offices to true single-family offices. The theme comes back to ROE and margin compression. In a way, do family offices disintermediate banks from their clients, where we just become a service provider, a commodity, which we’ve tried to get away from so much in the past?

The way we’ve approached it is that if you can add value to family offices, rather than being a bank and providing balance sheet and custody, they see you as a partner who provides research and solutions, then you can position yourself very well. If you can be that partner, you can have an amazing, huge business. But if you can’t, you’re going to fall into that margin compression trap and you’re just going to be even further away from your client.

Euromoney Taking on board what’s been said that too many places call themselves family offices, let’s nevertheless accept there is a growing institutional strength and sophistication in Asia-Pacific wealth. Joydeep, is that good or bad for banks?

JS, McK Right now that’s good for banks. It raises the bar. Why would you have a bank when you have your own family office? It’s not just about being a provider; and if you end up being nothing more than a provider of sophisticated products, you risk marginalization and commoditization.

But there are a number of other value-added services which are extremely important. Many of these smaller family offices are a single person and three to five accountants and lawyers who have long been trusted by the family. These places lack skills around things like succession planning, legacy planning, even in the business planning sometimes.

So, how do you think about the sons and daughters? What businesses are they going to go into? How do you think about diversification of assets? That’s not about providing a product and taking a margin but fundamentally being on the same side of the client and thinking about how you are going to participate in the upside.

The fee model is one big thing I do think financial institutions can change. Many struggle with that, but it’s an important thing to look at.

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PK, HSBC I agree with the point on pressure on fees. If you are just a pure platform, an execution only portfolio-related business, you will be marginalized. So bringing value to these family offices starts off with questions of family and business succession. Do you want to own and operate or just become an owner? Then what role am I going to play? Is it as a guardian of the values and principles of the matriarch and patriarch? Creating that value, guiding them through succession planning and professionalizing and bringing in expertise, goes way beyond the portfolio.

Euromoney What do you see in the evolution of family offices in China?

LJ, CCB This has been developing rapidly. At China Construction Bank we have been actively building in this area. We have five head office-level family office teams in Beijing, Shanghai, Shenzhen, Guangdong and Shandong. Family offices require a very wide range of content and not simple product service. It includes our entire family wealth planning, investment management, corporate development and accounting management expertise.

We have a wealth of data from our research. Around 75% of deployments of family office wealth have been over the last two years, which means there is no past experience to follow, given that growth has been so rapid. But we can see that 60% of organizations are just providing simple product services and unsatisfied customer complaints. We need to be a financial institution that better supports family offices, letting them really plan around wealth, including family management, legacy and family wealth.

We have a comprehensive programme covering the investment management of our clients’ assets. As a financial institution we are not simply selling some of our own or third-party products, but in a true sense are an adviser, making sure that the customer is very clear on their asset allocation and that the underlying assets we have configured will protect their wealth.

More than 55% of bank customers are small enterprises and private business owners. They are responsible for their own business development. So our services to them include providing more protection and services for labour and for future enterprise development.

For micro-businesses, banking institutions have a lot to do in their account management departments. As many simply opened an account in many banks, we must be collaborative, especially in Chinese and Asian markets. There is distrust of professional ability, with bad management examples that we see, so we must advise customers on a range of services from taxation to security.

If better solutions are offered, it will drive demand for our entire financial institution. We are working on the architecture and management process for family offices. We should take advantage of the excellent reputation of our group and build a team with more service-oriented capabilities. We will provide better and more targeted personalized service plans. From there, we will be able to win more trust from our customers.

Euromoney In Russia, is family office sophistication growing?

NK, Sb Family office covers a broad range of different clients with different specifics and expertise, but overall it is a very challenging situation. They are becoming our partners in finding the best financial solutions to the clients. So, if a company wants to keep all its investment expertise inside and make investment decisions by itself, you need to provide the best execution and find investment products that they cannot achieve by themselves. So we are doing our best.

Euromoney Do banks care about their ranking in league tables?

PK, HSBC League tables are important in many industries. People like to associate themselves with success and pride – and there’s nothing wrong with that. We rank reasonably comfortably on that ladder, currently third in the region, measured by assets under management. It’s something clients and colleagues take pride in.

But there are other yardsticks of success. There are many elements to take into account, like the robustness of your proposition to meet your clients’ needs or helping clients build the most robust portfolios, for example. There is more that needs to be looked at under the hood.

Euromoney Joydeep, in your experience, do people really care about that ranking? The number of banks who have told me they want to be top 10 in Asian AuM in private wealth must be up to about 25 by now.

JS, McK People do care, and for a variety of reasons. Certainly, when you’re up the top of the league tables you are more prominent and there is a branding value. And there is an economic point in there too: at scale, benefits kick in.

We did an analysis recently and if you look at revenue models and margins, players with over $50 billion in assets under management; roughly, their revenue margins are at about 80 basis points. For players who are under that amount of AuM, you have shrinkage in revenue margins, while costs go up as well. So your net margins are much, much smaller. There is an economic reason for wanting to be up the league tables.

Euromoney Yes, more than ever before, you need economies of scale if you are going to meet that risk and compliance burden.

A question has come in for Sberbank, asking about the possibility of partnerships in Asia. Is that something you are looking for?

NK, Sb Of course. As well as [being] a private bank, we are trying to build open infrastructure. So we are looking for the best products all over the world; we have partners in Europe and Asia to help us. This is the cornerstone of our development: to find the best partners in different places in the world.

Euromoney What makes a good partner? What are you looking for in a partner? Is it scale, or a meeting of minds on culture?

NK, Sb I think reliability and expertise are the most important things.

Euromoney How about India as a potential market for wealth management? We went through a long phase of seeing dedicated non-resident Indian businesses being launched at many institutions, but several have come and gone. You don’t tend to think of India as being a particularly lucrative market for international private banks. Is that right? And if so, why is that?

MR, RBC I would say India definitely is a private banking opportunity. It is a very competitive market. Again, use of new technology helps you to deliver efficiently in the Indian market. It’s a great opportunity in India because the economy is so dynamic and the families are international. And I would not just see the opportunity as India but global India.

JS, McK Today India is the fastest growing private banking market in the world, albeit off a different base to much of Asia.

There are two very interesting characteristics of that market. If you look at the ultra-high net-worth segment, that’s where the growth is the highest, in the $30 million-plus assets under management space. And then you’re also seeing growth in the $1 million to 10 million bracket. It’s a barbell: there is a space in the middle where it is growing less relative to other markets, but at those two extremes it is growing fast.

If you project forward, India along with China and Indonesia will be the three big onshore markets, in addition to offshore.


Private banking debate participants

Liu Jianzhong_160x186

Liu Jianzhong (LJ) general manager, is head of the wealth management and private banking department at China Construction Bank (CCB). He has been at the bank for over 30 years in both personal and corporate banking. He was appointed general manager of wealth management and private banking in 2017.



Natalia Khaylova_160x186

Natalia Khaylova (NK) is global director for investment consulting and head of business platform development for Sberbank Private Banking. She has been responsible for the development of global infrastructure for investment advisory since 2016, and before that led product development for Allianz group’s asset management subsidiary in Russia.



Phillip Kunz_160x186

Phillip Kunz (PK) is head of private banking, southeast Asia, at HSBC. He is responsible for driving and executing HSBC’s strategy for private banking across the region. He has more than 35 years of experience and has spent the last 20 in Asia.



David Lim_160x186

David Lim (DL) is head of wealth management for Singapore and southeast Asia at BNP Paribas Wealth Management. He was formerly a market head for southeast Asia.



Michael Reed-160x186

Michael Reed (MR) is head of wealth management, southeast Asia, at RBC Wealth Management. He has overseen the client and business development function since joining in July 2017. Previously, he led the international side of the private wealth business from London.



joydeep-sengupta_160x186

Joydeep Sengupta (JS) is a senior partner at McKinsey & Co’s Singapore office and lead of McKinsey’s banking practice in Asia. With over 23 years of experience, he has served financial institutions in Asia, India and Europe across a range of business areas in retail and wholesale banking.




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Panel 1: The rise of the millennial

All private banks talk about needing to adapt to the needs of millennial clients. But are they really so different to other client bases?

Benjamin Cavalli, head of private banking south Asia at Credit Suisse, says that 80% of the region’s new wealth is created by first- and second-generation entrepreneurs, and that half of businesses in the region are ultimately family owned.

“The starting point for the next generation, the children and related family members of our clients, is very different from where their parents started,” he says. “They’ve been exposed to the world out there. Many have been educated overseas and are well-travelled global citizens.”

Cavalli says that about $16 trillion of wealth is due to change hands in the coming decades worldwide – “a tectonic shift of wealth transfer.”

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Michelle Lau, HSBC

Credit Suisse has found that 70% of families claim not to be prepared for that change.

“That is, on one hand, a huge opportunity for all of us but, at the same time, a huge threat,” Cavalli says.

Michelle Lau, in charge of ultra-high net-worth and family offices strategic services for southeast Asia at HSBC, notes that there are many categories of millennials: “There are those who have started their own businesses and those that intend to take over the family businesses. Their expectations, views and requirements can be quite different.”

She says that family-office structures have given millennials greater freedom when it comes to managing generational wealth.

“Family offices give them a lot more ability to do things differently than the older generation,” says Lau. “That requires a more bespoke structure from private bankers rather than the standard structures of the past.”

Vijay Emmanuel, director, global south Asia at Deutsche Bank, says he has been trying to capture the correct data points from millennials in two ways: through unstructured data that is captured by the client profile, such as likes, dislikes and objectives; and more structured data around long-term investment objectives, geographical preferences and risk parameters.

“Earlier, relationship managers were the sole repository of this information,” he says. “We are now telling them to park the information with the bank, so that we can dive deep into their needs, service them efficiently and generate enhanced engagement.”

Albert Chiu, executive chairman for Asia Pacific at EFG Bank, says that millennials “are more inclined to stick to their own values and they want to be in the driving seat of making final investment decisions. So the role of the bank has to change, so that they are more than just an investment adviser or a relationship manager – they are a coach, a companion to steer them in making their investment decisions.”

Stanley Chan, market head of Singapore and Malaysia at JPMorgan, notes that “this is the most educated generation in history,” and one that has often had experience in financial institutions, and has a level of financial market sophistication higher than past generations.

In product terms, he notes millennials have interest in alternative investments such as private equity, hedge funds and private investments.


Millennials don’t look at things through a segmented method. They look at in a holistic way 
 - Michelle Lau, HSBC

Ren Dongyan, general manager for the Singapore branch at China Construction Bank, says that in China, millennials have three distinguishing features relative to previous generations.

First, they have grown up connected to the world through the internet and prefer it for everything from shopping to socializing to business opportunities. Second, having grown up under China’s one-child policy, they are used to having been given the highest possible quality of life and consequently hope to maintain a work-life balance. And third they have a very international perspective.

“They think of themselves as citizens of the world, not only China,” says Dongyan.

Consequently, they expect investment opportunities globally.

Chiu says that banks have to adapt to millennials’ use of social media in order to disseminate products and services: “You will see less and less bank advertising in normal media. They will do a lot more using influencers or just advertising on social media.”

Banks such as Credit Suisse and JPMorgan have launched secure chat functions to communicate with clients. Others are doing the same.

“Being able to interact with the bank anytime, anywhere has to be the benchmark,” says Chan.

All say millennial clients have a deep interest in ESG investments.

Emmanuel says: “Millennials are extremely value-driven and they are moving the needle in ensuring governance, protection for the environment and sustainability in investments.”

Lau adds: “Millennials don’t look at things through a segmented method. They look at in a holistic way.”

Millennials also expect gender equality.

“Women are more likely to make decisions about wealth management today as they are more educated and more independent,” says Ren at CCB. “Women could be more risk averse than men as they are more focused on long-term financial goals than short-term profits.”

Lau at HSBC adds: “The role of daughters in the businesses and families that we manage has become more and more pronounced. We are seeing it now.”

Chris Wright


Panel 2: The future is digital

Retail banking is unrecognizable from the industry it was at the turn of the century. Physical bank branches, once humming with activity, are now largely empty, as customers continue to move online, embracing web-based and mobile banking.

But what of private banking and wealth management – can it be considered a leader or a laggard when it comes to digital innovation? Delegates attending Euromoney’s annual Asia Private Banking Seminar and Debate in Singapore in September, in partnership with China Construction Bank, were split on the question.

“For the industry as a whole, you’re seeing massive steps in innovation in terms of how clients are serviced,” says James Aylen, head of UBS Evolve, The Centre for Design Thinking and Innovation. “Private banks increasingly realize that to serve clients to the best of their ability, they need to be more engaged with digital platforms.”

Conf_Liu Jianzhong-300

Liu Jianzhong, China Construction Bank 

Liu Jianzhong, general manager, wealth management and private banking, at China Construction Bank (CCB), says the advent of new digital services helped the Beijing-based lender serve its customers faster and more seamlessly.

“Our aim must be to use digital services to provide customers with better and more transparent, convenient, secure and intelligent applications,” he says. “Wealth management in Asia is at a watershed moment, and digitalization is the real game-changer.”

But digital is disrupting private banking in unique and different ways. Scroll back several years, and many experts were predicting a future in which robo-advisers replaced the human relationship manager. What has emerged is a more complex world, where the best facets of the digital and physical worlds co-exist.

Charlie O’Flaherty, head of digital strategy and distribution at Crossbridge Capital Asia, a platform that offers bespoke wealth management advice to family offices and business owners in the emerging world, says that while robots are “really good at removing the traditional pain-points in the on-boarding process,” notably the tedious process of form-filling, what they aren’t good at is actual wealth planning.

“The portfolios that we build or the recommendations we make are still human based,” says O’Flaherty. “And to our clients, that is important. When you are making a seven-figure investment, you want to speak to a person, to kick the tyres a bit.”

But there is no doubt that digital innovation is here to stay in private banking.

Alexis Calla, chief investment officer, wealth management, at Standard Chartered, says a “hybrid service offering the best of machine learning and speed and human empathy is going to be absolutely exceptional”.

Aylen adds: “What we need to do on the wealth side in the next 10 years is to continue to build the kind of quality relationship-based banking that our clients expect, while using digital almost invisibly to make the process better and their journey smoother.”


Wealth management in Asia is at a watershed moment, and digitalization is the real game-changer 
 - Liu Jianzhong, CCB

Age matters of course. Millennial customers, having never lived in a non-digital world, have little concept of an old-school banking relationship, which, O’Flaherty says, “changes how you design a user journey for that client. To satisfy a new millennial client, our aim is to create an optimal approach to serve someone who knows nothing but digital.”

High net-worth customers born before the 1980s, notes CCB’s Liu, still expect more of a human touch.

“Some people are not quite as internet savvy and need some form of assurance, so we built applications to gain their confidence and make them feel comfortable operating in the digital world,” he says.

Where wealth management has pushed back digital boundaries, perhaps more so than in any other area of the financial sector, relates to the issue of security. This makes good sense. No high net-worth client wants his or her financial details to leak into the public domain.

“In the security space, financial services firms are pioneers, with financial firms creating best-in-class security implementations to keep that privacy in place,” says Aylen.

It’s a view shared by all delegates, including CCB’s Liu, who notes: “For private banking customers, privacy of information is paramount. This is the first thing we must ensure without a shadow of a doubt.”

Private banking faces an exciting future, one in which digital innovation and the old-world benefits of the human touch work side by side.

Elliot Wilson