Price must be right in a buyer’s market

Ask any private banker what their opinion is of the Asia Pacific wealth management market and the answer will tell you a great deal about their actual knowledge of the market and regional client demand. The quick response is the market will be described as “hot”, “spicy” or any other food-like metaphor to suggest a boom. Others will suggest the market is still green and the quicker you get there the better you will do. In reality, these remarks are at best superficial, and at worst are out of touch with the real pressures being faced by bankers on the ground in the region today. The reality is yes the market has been growing fast – tipping on 10-15 per cent per annum growth among HNWs for the past 3-5 years for the major markets. Indeed, Asia Pacific has grown fast, relative to its other global rivals, but also in absolute terms. But how much of this new money is actually coming into the wealth management sector? Are the banks and asset managers positioned the right way to truly capture the new assets purportedly mushrooming out of the region? The client reality is that Asian customers are well aware the difference between the banks – particularly the international ones – vying for business is limited. They know they have a choice and this is a buyer’s market if you know what to buy and where to look. The compression forced by this similarity is being felt mostly on margins. Indeed, while some banks in the region may be claiming strong AUM growth, this is often at an unsustainable price in the long term according to recent financial data. In response to the revenue compression, occurring at the same time as escalating costs, these banks are relying on their relationship managers to ‘upsell’ the relationship in due course. But this is going to be tough without any compelling proposition to ‘upsell’ to. Moreover, the reality in the region is that there is still a higher propensity among many clients to initially not value banks for much beyond execution – and thereby the revenue to be had from clients can be very boom-bust. Client scepticism It is evident that many clients in the region, having witnessed several major banks do massive write downs and “old world” recession settle in for the long haul, are sceptical of the true capabilities of the business. They ask themselves: “Perhaps I can do better myself for a little longer?” Banks are being a little slow to realise this and that is partly because they can trick themselves into not believing it yet as there is limited market data. Clients are not green to the industry’s offerings, with many primary wealth holders having been clients of the financial services sector for decades. Names like Pictet, UBS and Goldman Sachs trip off their tongue easily. The cognoscenti are comfortable naming underlying boutique asset managers and talking about investment gurus on first name terms. This is a region where access counts almost as much as credit. Banks that don’t offer this are losers. Clients in this region are able to clearly articulate what the underlying propositions of the competing firms are and may even be able to discuss the discounting options each may offer. In fact this region’s clients are among the most advanced, and possibly toughest, in terms of market knowledge that we encounter during regular business feedback reviews on private banks. This should be a wake-up call for the banks. Banks are finding the clients they must seek to win are actively interested in creating more wealth and using the banks to achieve that. These clients want the banks to work with them in an onshore, and offshore, context. They want to have the banks upgrade their relationship promises and this will be supported by enhanced corporate banking capabilities. In fact, the investment management is important but not a game changer to most. What is important is that the banks are showing themselves to be sustainably competitive on price, product and proposition. This will raise the inevitable spectre of whether the bank has an effective platform to support this. Many banks must realise they have to modernise in this region or die. The tough part is that they should have listened to this several years back when there was momentum and cash flow. Now, they are running on fumes. And many more clients than they realise are already aware of this. Sebastian Dovey is a managing partner at wealth management strategy thinktank Scorpio Partnership