The key to private banking in Asia's family office market

Catalysed by an upsurge of generational transition of assets and control in Asia, the region is emerging as a lucrative arena for wealth management institutions to compete for wealth structuring opportunities on behalf of ultra high net worth Asian families.

Acknowledging the growing sophistication of the family office (FO) market in Asia, private banks have established dedicated FO divisions and are moving to more client service-based approaches where wealth management has become a fundamental component of their advisory scope.

A large part of advice from private banks is structural, as they discuss issues of legacy and asset protection, assist with governance and investment policies, and provide financial services. Upon establishment of the FOs, private banks aim to produce consolidated reports on the assets and liabilities of their client families.

Private banks also support investment performance and reporting, where their systems measure risk and governance processes. They have economies of scale, can provide robust, cost effective, and independent platforms, and also possess access to alternatives such as hedge fund management.

In the complex financial environment, their global workforce can help perform thorough due diligence.

For client families that have begun managing their wealth, banks can enhance the relationships and arrangements they have in place with other advisers by extending investment banking and asset management expertise and solutions.

They are learning to work collaboratively with all parties for the benefit of their clients. Whether a client chooses to seek for and develop a direct arrangement or deal with the banks via their own external asset managers, private banks can and should facilitate the client’s access to their full product range and services.

Especially to service large and more sophisticated FOs that do not qualify as institutional investors, many global FO units have fostered the co-operation of their wealth management and investment bank divisions with internal revenue sharing agreements.

Asset Allocation

In Asia, most of the family wealth is tied to family businesses and corporate empires. Clients tend to be conservative where capital preservation is their priority. Banks have been pressed to diversify concentration risk and adopt a prudent asset allocation philosophy in managing their wealth for the long term.

Most Asian FOs opt for a balanced or defensive approach, and banks have been offering products and mandates that allocates assets across a multitude of asset classes. In the face of volatile markets, they strive to establish optimal portfolios and maintain real returns for FOs.

Across different asset classes and jurisdictions, developed market equities and emerging market stocks are top choices for FOs working through private banks.

Banks can advise on territories to invest from the legal and tax perspectives, and they can assist FOs in attaining above average investment returns to balance low or negative returns from non-productive assets and investments.

Perhaps the most important role for private banks in the growing FO market is the skills and professionalism they bring. Many families are keen to partner top cash management talent, and the experience and expertise of private banks puts them ahead of other fast growing asset management groups and institutions.

As market volatility engenders new challenges and concerns, private banks can support client families in navigating the potential difficulties ahead, including compliance and regulatory concerns and their ability to hire quality FO staff.

While FOs grow attuned to varying time horizons and the tactical need to move quickly and take advantage of short-term opportunities, they will consult banks on processes for implementing nimble mechanisms for strategic asset allocation and investment risk management.

Ultimately, private banks can look forward to primacy in the Asian FO market.