The explosive growth of wealth populations in emerging markets presents both eye-watering opportunities and challenges for wealth management professionals. In Asia, the need to address challenges faced is most critical, as it is predicted to be in the early stages of a 150 year wealth cycle.
A key challenge in Asia for wealth management institutions centres on the need to recognise vital differences between expectations of the Asian ultra high net worth (UHNW) segment and those of European or American UHNWs.
Most Asian UHNWs are in the wealth creation phase of their personal wealth cycles. As such, their expectations of return on investment are higher, with a tendency to see low and stable rates of return as anaemic.
This could be attributed to their roles as current wealth creators, which is often accompanied by higher levels of confidence in generating growing wealth. That this often results in greater risk appetites tends to amplify expectations of higher returns.
From the perspective of wealth management professionals, another challenge lies in the larger number of relationships Asian UHNW tend to have with financial institutions and service providers as compared with European UHNW.
As most Asian UHNWs are wealth creators, they tend to have relationships with financial institutions that are beyond the scope of wealth management. Wealth management professionals should be able to clearly map service providers that a prospect or client has relationships with.
Another point of difference lies in the “age” and nature of assets held. Much of European and American family wealth tends to be multi-generational. As a result, there is a need for family assets to be held separately from the family business structure. That partly explains the flourishing of the family office industry in Europe and America. In contrast, single family offices are an emerging force in Asia.
At present, most Asian UHNWs are in wealth creation mode, with few seeing the need for separate legal and management entities. In fact, many Asian family offices tend to reside within privately held business structures at present.
The Road Ahead
The key to success in Asia lies in wealth management professionals being able to construct a structured approach that starts with the creation of a deeper level of understanding of market opportunities on a macro level. This is easily achieved through mapping the wealth profile of a target region or country through a wealth by tier analysis.
After achieving an accurate grasp of market opportunity and share of wallet intelligence, wealth management professionals should be able to implement clustering strategies. They can proceed to identify the clients their institutions have and would like to have in a given market based on criteria specific to their purposes.
The gap analysis that follows would lay the ground for the identification of high-potential clients they may already be working with in other aspects through wealth screening procedures.
By mapping the social network of existing clients, institutions can build future client lists. To ensure the right prospects are targeted, institutions should engage in pre-meeting vetting by accessing or creating detailed profiles of target UHNW individuals.
The importance of access to accurate and target specific information is a vital element of any financial institution’s playbook in Asia and other emerging markets. The wealth management industry has Asia in its sights much like ancient merchants who dreamt of the wealth that lay before them on the mythical Silk Road. The opportunities of modern Asia are there, wealth management professionals just need to find the best way to navigate around potential pitfalls.
Mykolas Rambus, CEO, Wealth-X
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.
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