Singapore determinded to learn from Swiss mistakes

Singapore, say those with a stake in promoting the tiny South-East Asian state to the world, must concentrate on the three Ss if it is to succeed. These are safety, service and staying a step ahead of Switzerland, its key global rival in wealth management. Research from consultancy PWC predicts the country, whose financial institutions oversee client assets worth S$1.4tn ($1.1tn), will take over from Switzerland as the world’s premier wealth management centre during 2013.

“I remember the last crisis very well,” says Su Shan Tan, head of wealth management at Singapore’s partially state-owned DBS Bank, referring to the virtual financial meltdown which Asia suffered in 1998. “There were hundreds of people queuing up outside US banks, desperately trying to get their cash out. Then I saw the queues outside one big Singaporean bank, owned by the Sovereign Wealth Fund. Those people were actually paying money in. I wanted to be at the head of that queue.”

Ms Tan eventually rose to live her dream at the helm of the wealth management division at DBS. And having witnessed the Barings crisis first hand in 1995, when she was working at that bank, stability and risk management have become her key concerns. Indeed, Barings was a watershed moment for many in Singapore who vowed that “never again” would the country be subjected to the prying eyes of the world in terms of financial risk and wrong-doing.

“In the Monetary Authority of Singapore (MAS), we have a strong, determined, Asian regulator,” says Ms Tan, and as well as maintaining the safe reputation of the country, she is pleased that the MAS has clamped down on the excessive selling of structured products which has recently blighted the country’s burgeoning private banking business.

“The MAS is determined to stop the crazy mis-selling which led up to the crisis,” she says. “And Ravi Menon [head of the MAS] is very clear that the Singapore authorities are not tolerant of undisclosed, tax-evasion money.”

This statement marks a key policy decision, aimed to put clear water between the approach of Singapore and that of fierce rival Switzerland, recently scolded by tax-reclamation moves from the US authorities.

“We are not here to accept hot money. This is a bold and decisive move which will put Singapore in the game for the long term in the sustainable, private banking industry,” says Ms Tan.

In order to improve standards at DBS, the first person hired by Ms Tan – who works closely with the government-guided Wealth Management Institute to educate private bankers – was a trainer to school staff in complex products. Her relationship managers are now regularly subjected to spot-checks, particularly in the inner workings of capital-market style structured products and certificates.

But raising the bar on service is her next priority. Not only does this mean providing currency on demand, limo pick-ups at foreign airports and “Dom Perignon on tap” for the top tier of DBS private clients, but it also means providing them with specialised advice on asset classes. “I have told my bankers to specialise, to get to know areas such as commodities, Indonesian stocks and real estate,” she says.

But improving linguistic skills, and being able to discuss complex strategies in fluent Mandarin is also a pre-requisite for channelling increasing numbers of clients from the Chinese mainland, finds Ms Tan. “In Beijing, I can’t speak to clients in English. If I do, I might as well leave the meeting,” she admits.

The very idea of having a relationship manager, tailoring a personal investment programme, is a huge status symbol for clients in Singapore, and those from other Asian countries who use the country’s banks. “Private banking is still a luxury goal,” says Arjuna Mahendran, head of investment strategy for Asia at HSBC Private Bank. “People want a private banking account because it announces something about them to the rest of the world.”

That said, Mr Mahendran also believes Singapore must jealously guard its reputation for probity, freezing suspect accounts when necessary, even though this sometimes means freedom of speech can be compromised.

“The MAS expects private banks to be very vigilant of media comments related to clients,” he says, with banks expected to file client-connected media announcements to the authorities beforehand. This sometimes heavy-handed approach, coupled with complex and far-reaching regulations, is however appearing to pay dividends.

Currently, money is flowing into Singapore not just from wealthy Chinese clients, but also from those parts of the world experiencing instability, such as Greece and the Arab nations. “Singapore is attracting a proportionate amount of this money due to the problems Switzerland is having with its neighbours,” says Mr Mahendran. “This is creating a groundswell of interest. But the Singapore authorities are very keen that we do not experience the problems which Switzerland is experiencing.”

These sentiments are echoed by other senior bankers, including David Lim, CEO of Swiss bank Julius Baer in Singapore. “If you look at tax transparency, Asia will be at the forefront of developments. We can learn from Swiss mistakes,” he says, stressing that tax evasion is soon likely to become a criminal offence for Singaporean banks.

But there has to be a deeper change in the banks’ mentality, believes Mr Lim. While every unit on the success scale of Singapore so far has been physically engineered, in times of urban planning and policy, it is time for the banks to step up to the plate in terms of “the client portfolio experience” they can provide.

“We now have a critical mass of banks here in Singapore,” says Mr Lim. “The next phase is ‘what can we provide for our clients?’”

The winners will be those banks delivering superior risk-adjusted returns for private clients. Banks must also understand the nature of the wealth they are dealing with to manage portfolios against specific needs and liabilities.

“You need to understand the purpose of the portfolio,” says Mr Lim. “It is not enough to say you are an Asian bank managing an Asian balanced portfolio, or a global bank running a global balanced portfolio.”

The development of offshore renminbi markets and the structural strength of Asian economies, leading to a greater faith of clients in Asian currencies, is a key part of the changes in approach to portfolio planning, believe Singapore’s private bankers.

“Exploiting offshore renminbi products will prove a significant addition to many clients in diversifying currency risk,” says HSBC’s Mr Mahendran. However, he warns clients not to get carried away with the China story being told by many private bankers and to do research before committing significant allocations.

Indeed this idea of staying calm in the face of a myriad of regional opportunities is also gaining acceptance among local bankers. The Bank of Singapore, for instance is shying away from advocating “high thrills” boosters to conservative portfolios.

“Things can go pear-shaped and clients will remember you did not disclose risk,” says John Ng, the bank’s head of research and product marketing, who reports high cash positions among his clientele. “The discretionary proportion of our business is still a very small part of the book.”

Arjuna Mahendran, HSBC