Private banking with Asia's new richBY SHAYNE NELSON
As Asia emerges as the world’s largest wealth region, the one question foremost on the minds of all private bankers should be this: what does a typical Asian client look like?
One thing is for certain: believing that what has worked for wealthy clients in Europe or the US in the past will work in Asia, too, would be a big mistake.
In Standard Chartered Private Bank – with more than two-thirds of our assets under management originating from Asia – we are seeing a new generation of Asian clients who stand out very clearly from those in other regions of the world.
Our relationships with these clients are different. Their expectations and outlook are different, hence they need different things from us.
Much of this comes down to demographics. Asia’s high net-worth individuals (HNWIs) – people with USD1 million or more in investable assets – are younger than their western counterparts. 41 per cent of Asia-Pacific’s HNWIs are 45 or under versus a global average of 17 per cent, according to Capgemini and Merrill Lynch. This means they are still creating and growing their wealth, as opposed to western HNWIs who tend to focus more on wealth preservation.
Another important difference is that a greater proportion of Asian HNWIs (63 per cent in the case of our clients) are business owners, mostly first or second generation. They have earned their money the hard way, and are more reluctant to let others manage it, meaning that the private banking model applied for decades in the West may not work for them. Instead, many Asian clients prefer a much more hands-on approach, talking to their bank more often and looking for a faster turnover within their portfolios.
Asian HNWIs also tend to be more ambitious – obvious perhaps given the higher returns they will have seen in the past couple of years. We see the same trend among Asia’s entrepreneurs, the region’s future rich. The 2012 Futurewealth survey, by Standard Chartered Private Bank, Scorpio Partnership and SEI, shows that entrepreneurs in Asia set themselves considerably higher wealth goals and expect to get there faster than their counterparts in the West.
Futurewealth also shows clear differences when it comes to what Asian clients like to spend their money on – and more generally what they prioritise in life. Asian wealth creators tend to be more driven and focused on achieving their professional goals. They are also more interested in buying luxuries such as cars, watches, jewellery and works of art.
All this naturally affects what Asia’s swelling band of millionaires needs from private banks. So what should banks do to serve them?
For starters, clients who are entrepreneurs typically have much of their wealth tied up in the business. On the one hand, they need finance for the business to grow and prosper, while on the other they need to separate out and protect their personal wealth. A private banker who only offers them investment opportunities with a similar risk and reward profile to their own business, won’t add much value.
Because their wealth goals are more aggressive, Asian HNWIs also tend to be more willing to take risks. Their portfolios are often heavily skewed towards domestic Asian markets – markets which they understand better and whose growth story they believe in. Many Asian clients also prefer the comfort of investing in tangible assets, such as real estate, a strategy validated in recent years as prices on property in most Asian cities have risen to record levels. However, the flip side is that Asian HNWI portfolios may not be adequately balanced for wealth protection in the long term, with a lack of diversification across asset classes and markets, including the West.
As I see it, there is a real opportunity now for private banks to engage and evolve together with their clients in Asia, developing a new, differentiated business model that works for clients here, helping them to grow and protect their wealth.
There is a role for private banks that understand the local Asian environment, but have the global reach to help Asian clients balance their portfolios with investments outside their domestic markets – into other Asian and emerging markets and high-yielding pockets of the West. Private banks that can cater for greater risk appetites with exclusive opportunities, such as IPOs, private equity and single-manager hedge funds. Private banks that can draw on corporate and SME banking expertise to serve Asian entrepreneur clients holistically – meeting the needs of both the business and the owner. Private banks which acknowledge that the rules of engagement are different in Asia, and develop more relevant ways of serving younger and more entrepreneurial HNWIs. At the most basic level, this means investing in new technology to reach Asian clients in ways that fit with how they live their lives. The traditional monthly account statement may not be enough for younger clients. They may prefer the ability to trade or review their portfolio from their smartphone or iPad – or interact with their bank on social media.
It also means engaging early with the next generation of HNWIs, to lay the foundations for strong, long-lasting relationships. One of the biggest concerns for entrepreneur clients in Asia is the transfer of business acumen and knowledge to their children, many of whom will one day end up taking on their parents’ companies. It is no coincidence that several banks – Standard Chartered included – have begun to offer business strategy courses to these future millionaires.
Banking is all about relationships and commitment. It is about meeting the needs of clients, helping businesses to flourish, helping individuals to grow and protect their wealth. It is about listening to customers and supporting them to achieve their goals. It is about being relevant to people. This has never been more important than right now in Asia, as the region grows in wealth, closing in on the US for the number one spot, with an estimated 3.3 million HNWIs, according to Capgemini and Merrill Lynch.
While this trend is set to continue, powered by Asia’s high saving rates, increased domestic consumption and younger demographics, market conditions remain tight.
Many private banks operating in Asia are experiencing higher cost, lower revenues and a decrease in return on assets, compounded by strong competition and regulatory changes in many countries.
This difficult environment calls for private banks to take steps to improve their profitability – carefully choosing which clients and markets to cover, while looking inwards to improve efficiency and control costs. But above all it represents a great opportunity to get up close and personal with Asian HNWIs, growing with them and rethinking the private banking model to meet their needs on every step of their journey.
Shayne Nelson, Global Head of High Value Client Coverage and CEO of Standard Chartered Private Bank