Hong Kong's wealth managers braced for a bumpy ride

As China scrambles to open its vast economy from prolonged Covid-19 lockdown, Asia’s wealth managers and financial hubs are shaping up to profit from renewed opportunities.

Despite the post-lockdown euphoria currently infecting Hong Kong’s financial community, the city state is still braced for a bumpy ride. Troubled by the legacy of widespread protests in 2019, coupled with Beijing’s increasingly restrictive rules, Hong Kong’s wealth managers have pooled their resources to fashion a strategic 10-year plan to benefit from China’s growth.

The threat of clients and advisers leaving for the booming rival Asian hub of Singapore has provided a further incentive to regroup. “Everyone is so busy poaching each other’s staff that they don’t focus on developing the next generation of talent to replace the existing one, which is not going to be around forever,” says former UBS banker Peter Stein, now fronting Hong Kong’s Private Wealth Management Association.

“The more you drive up their salaries and your costs, the more you’re just planting problems that are going to come back and bite you down the road.”

PWMA’s talent development programme, operated together with the city’s financial regulator, the Hong Kong Monetary Authority, recruits local university students into the private banking sector, offering two summers of internships.

Of the 300 students graduating from the programme, few have pledged themselves to the wealth industry, preferring to “keep their options open and try out different things”, including investment banking or working for start-ups.

Mandarin speakers are particularly sought after, as Hong Kong settles into a more regional role, now that American investors’ concerns around IPOs have scuppered the territory’s global ambitions.

“Hong Kong will remain global in some senses,” says Mr Stein. “But there’s no doubt that a big part of its value proposition is its identity as part of China, and the global financial centre within China.”

Financial hub

Much internal promotion within the Middle Kingdom focuses on projecting Hong Kong’s role as a financial hub for China’s Greater Bay Area. This encompasses 11 cities within the Pearl River Delta – including Shenzen, Guangzhou and Zhuhai – with a combined 87m population and $1.7tn GDP, according to UBS.

To service this highly entrepreneurial south Chinese community, banks including Citi, HSBC and Hang Seng have hired up to 8,000 new advisers, including former cabin crews, property and insurance agents. Their challenge is to train the new force in product sales, to offset the 60 per cent fall in mutual fund take-up in 2022, says Stewart Aldcroft, an independent consultant and veteran of several banks in Asia, including HSBC and Citi.

Recent re-opening of the border with mainland China, offering advisers the chance to once more see clients in person, is contrasted with 2021, when the ability of Hong Kong’s authorities and health services to handle the pandemic was regularly called into question.

“There was a great stampede: some bankers moved to Singapore, some to Dubai and others to the UK,” but that is now starting to reverse, with “Hong Kong more attractive today than pre-Covid”, says Christine Houston, a consultant recruiting high-end financial services staff.

Recent rent rises of 60 to 100 per cent in Singapore have left Hong Kong, a traditionally expensive financial hub, suddenly looking comparatively cheap and attractive for well qualified candidates, she adds.

“We need sophisticated people who have worked in major financial centres,” says Ms Houston. “Several years ago, everyone had to speak Mandarin, but today, speaking Mandarin is no longer enough.”

Getting things right

Leaders of the city’s major private banks agree with this sentiment. “Good bankers need the right culture, the right mindset and the right contacts,” says Arnaud Tellier, Hong Kong-based Apac CEO at BNP Paribas Wealth Management, employing more than 1,000 advisers across the region, responsible for assets worth $100bn.

“Banks and finance institutions think Asia is like the El Dorado of private banking, due to recent asset and wealth growth,” he says. “In reality, covering China is a real challenge.”

Hong Kong’s authorities’ push for family office registrations has been an important initiative to wrestle the advantage from Singapore, which has enjoyed particularly success in this sphere.

“Everyone is focusing on the family office space, particularly for mainland Chinese clients,” comments a board member of a leading wealth manager. “But it’s still incredibly hard to find good private bankers to services these clients.”

In fact some Hong Kong players have been surprised by the enthusiasm of Greater Bay Area inhabitants to base their financial affairs in Hong Kong, rather than Singapore, which is out of reach of Beijing’s authorities.

“If you are from Shanghai or Northern China, well away from the region, you might still want to go further, but if you know Hong Kong, then you are more likely to put your money there,” says Mr Aldcroft.

Small margins are becoming increasingly important for banks attracting both clients and staff. The region’s largest wealth manager, UBS, currently has its main Apac office in the 2IFC Tower at the heart of Hong Kong’s Central district, a location shared with several other banks, including BNP Paribas. A satellite office across the bay in Kowloon is also popular amongst mainland Chinese clients.

But now that Shenzen and its neighbouring mainland hubs have become the fastest growing sources of clients, UBS will move all staff to a new building, directly connected to the West Kowloon high-speed rail station, which will mean clients can travel from the centre of Shenzen in just 15 minutes. Onboarding new clients through a digital platform, trialled with mainland clients in Shenzen, takes just seven minutes.

“We are investing to really put our money where our mouth is,” says Amy Lo, Apac CEO for UBS Wealth Management, convinced that southern China’s innovation will continue to drive her industry’s expansion.

“Wealth creation in Asia has become the driver of all talent,” Ms Lo told an audience of bankers and family offices at PWM’s recent Wealth Management Asia Summit. “When the soil is fertile, everyone wants to farm here.”

Hong Kong, believes Anant Deboor, head of strategy at branding experts Wunderman Thompson, is still punching well below its weight as a financial and cultural centre, and can attract more visitors and bankers.

“Hong Kong was famed for its music, film, culture and arts in the 80s,” says Mr Deboor, with Singapore still struggling to catch up. “Hong Kong has overtaken London as the second biggest art trading hub behind New York. Art is all about self-expression and can be a major driver of change.”

But other voices believe the cards are stacked against Hong Kong’s long-term revival and continued prosperity. “The Hong Kong government people try pretty hard, but they are going against headwinds,” says Zhiwu Chen, professor of finance and director of the Institute for Humanities and Social Sciences at the University of Hong Kong.

“Recent changes have made it tough for mainland billionaires to set up their family offices in Hong Kong,” now under the ultimate jurisdiction of the Beijing authorities. “For that reason alone, Singapore has become the favourite destination for mainland billionaires.”