Bringing the industry to maturity

In China, where the number of millionaires is increasing at one of the fastest rates in the world, the wealth management business is taking its first steps. In the past couple of years, a large number of both domestic and foreign players have entered the game, aiming at securing a slice of that wealth in what is forecast to become the largest onshore private banking market in Asia. Bank of China, one of the Big Four, and China Merchants Bank, which is recognised as one of the most successful local consumer banks in the country, were the first, among their peers, to offer private banking platforms. Foreign banks are also making big inroads in China. The strength of the local banks lies in their local network, local knowledge and extensive client basis and indeed most of the domestic banks are fervently working on upgrading their existing consumer banking clients. “But what domestic banks lack is experience,” explained Andrew Tung, managing director, global market manager at China Citi Private Bank. “Foreign international banks offer the global experience and the window to global opportunities.” But the shortage of advisers in China is a serious problem for everyone. “Even if you wanted to hire from other banks, there is no pool of talented advisers in China, because it is a new market and everybody is developing their own business,” said Mr Tung. The language and the multitude of Chinese dialects can also represent a hurdle. “We need people that have local language skills and people who understand the local markets and culture, so that they know how to interact with the local clients,” said Mr Tung, explaining the firm’s decision to move Chinese people from Citi Private Bank offices in HK and Singapore to China. “Especially at the start of this business, we need seasoned advisers able to transfer some of their knowledge to the local platform.” Hires also come from the firm’s corporate banking and consumer banking in China. Experience in corporate banking is important, as high net worth individuals, mainly entrepreneurs, will require a lot of advice also on the company side, explained Mr Tung. A swiss solution An interesting solution to the lack of advisers perhaps can come from a far away country, which is the 400-year old home to private banking, Switzerland itself. Already a fertile source of relationship managers for Swiss organisations, Swiss hotel schools could also turn out to be a new recruitment channel for Chinese wealth management firms, reveals Charles de Boissezon, CEO at Banque Piguet & CIE. “In Switzerland, a huge number of Chinese people are graduating at hotel schools, which are the best in the world,” he said. “All the major Swiss banks recruit from Swiss hotel schools, as the hotel and hospitality industry holds many similarities to private banking.” Respect for others, team work and efficiency are the three key ingredients that make the two industries very alike and without which neither could function, he explained. In China, the regulatory framework also imposes restrictions to the way institutions can develop their wealth management operations by segregating institutions by product offering. Banks, insurance companies, trust companies and asset managers can only offer to private investors their specific products and cannot cross the wall, although some steps in this direction are slowly being made. “It will take some time before it will be possible to offer a more holistic or comprehensive set of products through one platform in China,” said Mr Tung. Richard Leung, who has been driving UBS’s big push in the wealth management business in the country since September 2007, also strongly believes that organising companies by products is not the best way of providing wealth management services and is not in the interest of the clients. The crisis will further draw the attention of the Chinese regulatory authorities, which have always shown a great degree of flexibility and openness, to the issues of segregation. “Many financial instruments such as financial futures and options have yet to be made available,” said Mr Leung, emphasising the value of product innovation and, at the same, the importance of risk management. Karen Chan, head of private banking at Standard Chartered in China, believes that product innovation will happen in China, but only when clients have been educated and are ready to invest in new strategies. “If you have too many products, investors will not be able to understand them. They are not that sophisticated yet; many of them just understand deposits.” The Swiss firm provides wealth management services through its joint venture UBS Securities. It also has a branch bank and asset management jv in the country.

Tung: no pool of seasoned advisers