Which players are better placed to capture growing Asian wealth?

Large banks

Shayne Nelson, Global head of high value client coverage and CEO of Standard Chartered Private Bank

Looking to the future of Asia’s rapidly growing wealth management market, I see three key trends, all of which I believe favour large private banks over their boutique counterparts.

First, a new generation of rich has different characteristics to private bank clients in the West. In Asia, more than 60 per cent of clients are entrepreneurs or business owners who are busy creating their wealth. Large private banks – particularly if part of universal banking groups – are better placed to meet the wide-ranging needs of these clients, as they can extend beyond wealth management and draw on their parent bank’s wholesale, investment, SME and even Islamic banking expertise and capabilities. Even through partnerships, this kind of 360-degree view of clients’ interests is hard for boutiques to match.

It also puts large private banks ahead when it comes to winning clients and establishing trusting relationships. At Standard Chartered, for example, many of our new clients are owners of medium-sized enterprises who already have longstanding SME banking relationships with us.

Second, there is a continued pressure on margins. Regulatory change and competition for talent mean costs are higher, while revenues are struggling to recover in the aftermath of the financial crisis. In the last few years, Asian clients have tended to favour safer, simpler investments, resulting in lower income for banks. Well-run large private banks will cope better in this tough environment as they can spread resource, technology and regulatory cost across a larger client base. And, if they are part of a universal banking group, such banks have the added advantage of being able to share infrastructure costs with other parts of the business, leveraging existing resources and systems.

Clearly, economies of scale give larger banks the upper hand when it comes to managing costs. A survey conducted in 2010 by Scorpio Partnership showed an average cost to income ratio for larger banks of 75 per cent versus 85 per cent for smaller banks. At the same time, larger banks – with their ability to tap into their existing SME and wholesale banking client pools – are able to acquire new business at a lower cost.

Third, the fierce competition for relationship manager (RM) talent is unlikely to blow over anytime soon. All private banks depend on experienced RMs who can offer relevant, timely advice, based on in-depth understanding of their clients’ needs. However, large private banks have an advantage in that they can recruit from within their own ranks. With the right training and support, commercial and investment bankers can transfer their skills to private banking relatively easily for Asia’s entrepreneurial client base. Faced with a shortage of experienced RMs, this allows large private banks to ‘grow their own’. They may also have greater luck attracting talented RMs in the first place as – with their larger, international organisations – they are able to offer more in the way of career opportunities and professional development.

The core purpose of any private bank is to grow and safeguard the wealth of its clients. Large or small, the winners in the current environment – and those best able to capitalise on the extraordinary growth opportunities in Asia’s wealth market – will be private banks who focus on meeting their clients’ needs at the same time as staying operationally efficient.

While no private bank should attempt to offer everything to everybody, I am convinced that well-managed, larger private banks with broad-based geographical footprints, platforms and capabilities, are likely to emerge the stronger in Asia in the coming years.

Boutiques

Rajesh Saluja, CEO and managing partner at Ask Wealth Advisors in India

In many Asian countries, the wealth management industry is at a nascent stage compared to the West. At this point in its evolution, wealth management is more of a local affair than a global one.

Building trust with a client, maintaining discretion and bonding at a personal level play a more important role in securing and growing a wealth management relationship than a firm’s unique capabilities or global presence. Boutique firms are better positioned since they are independent entities, mostly owner/manager driven with no captive products, allowing them to be more client-centric.

Boutiques follow open architecture in sourcing solutions to meeting client needs – be it in investment banking, corporate financing or investment solutions. This works to clients’ advantage since they will be served by providers best suited for each of their particular needs and not by an ill-fitting large bank and its subsidiaries. Costing also works in the client’s favour, especially in corporate banking deals, since multiple third party providers are usually syndicated to service the client.

Although larger institutions have a higher capital base and firepower, boutiques can provide customised advisory and family office services. This translates into not just improving the look and feel of client reports, but unlike larger institution’s centralised, standardised systems which maintain a ‘one size fits all’ approach, a boutique has the ability to customise a report as per a client’s need.

Boutiques will be more willing to partner with other boutique (emerging) technology firms in enhancing the client experience. Given their scale, boutiques can afford to be bold in experimenting with reporting and delivery formats, unlike larger firms which would prefer “tried and trusted” technology service providers and will need a larger lead time to embrace new technology.

Most boutique firms, being owner/manager driven, differ from large institutions in their approach to client selection. A proper fit in values and temperament is essential for relationships to grow. In a large organisation, this aspect has a lower weighting, and maximising assets under management has a greater focus. The focus of a large private bank is meeting next quarter’s numbers and not the number of client relationships nurtured. This tends to make their relationships with clients perfunctory.

Maintaining confidentiality is a big issue in large organisations since client data is accessible to a larger group for cross-selling purposes. In boutiques, though the client has numerous touch points from the relationship manager to the CEO of the firm, longevity and sustainability of a relationship is of utmost importance, hence maintaining confidentiality is paramount. Transparency and connecting across various levels of an organisation helps in safeguarding clients’ interests by minimising mis-selling and preventing misappropriations of funds, since accounts are reviewed independently. This transparency is also evident in a boutique’s fee structure.

Even boutique product manufacturers, specifically ones with unique offerings, may prefer boutiques since larger firms can, over time, reverse engineer third party products to keep more revenues in-house.

Clients prefer owner-manager driven boutiques whose focus is advisory. These firms offer independent advice with a transparent fee structure aligning their interest closely with the client’s. The client values trust, discretion, transparency and personal connect found in a boutique firm as opposed to a large institution where they are “just another impersonal number”.