Wanted in Asia: Quality private bankers with leadership skills, competent knowledge of client issues and able to ability to meet client’s risk management and regulatory requirements, finds PwC research

PwC’s Asia Pacific findings from the 2011 Global Private Banking and Wealth Management Survey

SINGAPORE, 5 September 2011 - What matters most to Asia’s high net worth individuals now is having quality relationship managers. Not surprisingly, particularly given weak investment market conditions, the emphasis on investment performance has given way to the need for higher quality advice built within comprehensive and integrated wealth management planning solutions which meet individual clients’ circumstances.

According to the 43 organisations across eight countries in Asia who participated in PwC’s 2011 biennial report involving a record number of 275 institutions across 67 countries, Asia’s well-heeled clients remain cautious about the service and advice they received from their private bankers. Only 18 per cent of the private bankers from Asia’s top financial centres - Singapore and Hong Kong believe that they have attained “trusted advisory” status with 60 per cent of more of their clients.

Dominic Nixon, Asia Pacific Financial Services Leader, PwC LLP Singapore, said:

“Trust remains an elusive goal for many of the financial institutions in the post global financial crisis years, and many of the private banks still bore the brunt of the reactions to the industry. Although we are seeing greater shift in focus on Asia, especially with the tough economic climate in Europe and the US, wealth managers in Asia can no longer expect the old rules to apply. The game has changed and the next two years present a window of opportunity for private banks to regain lost trust and make good the promises made. Leading private banks in Asia have already embarked on this journey, working closely with their regulators, for example, the Private Banking Code of Conduct in Singapore.”

People

Service issues of the past need to be dealt with at all levels. Client servicing is being re-evaluated and feedback from participants in the PwC survey is that relationship managers need to expand their knowledge beyond "run-of-the-mill" capabilities. Understanding client's behavioural preferences (as opposed to professed preferences), more professional grasp of tax issues, and better risk management and regulatory accountabilities will be key reputation differentiators.

However, the talent pool in Asia is still considerably youthful. According to the PwC Survey participants, 55 per cent of Relationship Managers in Asia have less than five years of experience. Only 21 per cent have more than ten years experience.

Poaching is still the dominant approach to recruitment but in reality, this strategy needs deep scrutiny given recent findings from the survey.

The single biggest reason why relationship managers leave a private bank is because of being asked to leave for under performance (52 per cent of banks and 68 per cent of respondents from Singapore and Hong Kong quote this as the main reason).
Clients are also becoming less sticky with their relationship managers. The proportion of Assets under Management (AuM) a relationship manager brings into a private bank is reducing. Currently in Singapore and Hong Kong, only 25 per cent are able to bring more than 60 per cent of the AuM to their new employer. This is much lower than the amount a relationship manager was perceived to be able to bring in several years ago.

Justin Ong, the Asia Pacific Leader for Private Banking and Wealth Management, said:

“While poaching will continue given the shortage of talent in Asia, private banks need to place more focus due diligence and employer reference checks on the candidate before making an offer. Given existing resources and infrastructure, this is not easy, but when private banks acknowledge that quality is not always assured, and that asset inflows through poaching is reducing below optimal expectations, then we will see more scrutiny on recruitment processes and mapping that to actual benefits. On the plus side, recruiting from among graduates with wealth management qualifications in Asia has came in as a third favourite, an option that is becoming more favourable as an option compared to other regions. It points towards a greater desire in many of the private banks in Asia to develop its own talent than to import from outside the region where cultural fit and costs are becoming an issue."

Performance and Change

Securing sustainable growth will be paramount in Asia in the next two years as revenue growth projections far outstrip the global average of 15 per cent, and more than double that in EMEA and the Americas.

With the current stress in the global economy and the uncertainty even in Asia, performance will still be under pressure but the scope for cost cutting will be limited. Many of the private banks have been embarking on the journey to transform business and operating models to deliver the desired results.

44 per cent of the banks surveyed believe that they are only able to further reduce operating costs by less than five per cent, having already trimmed operating costs over the last few years.

In Asia, cost-to-income ratios have already been lowered by 12 per cent, from 91 per cent in 2010 to an expected 79 per cent by end-in 2011.

In Asia, half of the private banks surveyed are still at the stage of undertaking investment in core processes, technology and applications. Another 19 per cent are still on older legacy systems with manual interventions. Over the next two years, a number of these will progress to post investment steady state process and believe they will have achieved an adaptable and efficient platform. Resources will be channelled to develop centres of excellence around risk and compliance, product provision, and other infrastructure requirements for the development of new onshore and offshore markets. Much attention will be paid to middle and front office improvements.

Front-office will be where the focus to enhance operational controls is, given the recognition that this will be an area of weakness given the client-facing responsibilities and pressure to generate revenues.

Back-office still lags behind front-office in terms of operational improvements and excellence. Straight-through processing (STP) rates in Asia for instance are much lower across the board of products and there is recognition of a need to better engage with STP platforms to increase productivity and efficiency.

Mark Jansen, Systems, Operations and Processes Leader, Financial Services Industry Practice, PwC LLP (Singapore):

“Excessive regulation and increased cost of compliance such as FATCA, anti-money laundering and other compliance requirements are a risk to private banks and a challenge to business growth. There is the sense that this risk will continue to rise, especially in some markets where private banking activities are increasingly being placed in the same bucket as retail and the lack of differentiation will create asset outflows from the industry. Achieving both revenue growth and managing the bottom line has always presented a tough call, and no doubt the uncertainty brought on by a challenging global economic environment will stretch the tension further.”

Longer term growth opportunities

A more fundamental transformation of the private banking business around clients in Asia is needed to tap the market for growth. Currently, the majority of the private banks in Asia rarely or only sometime charge clients for advice. Moving revenue model away from transactional activity remain a difficult goal.

Investment advisory services and execution-led brokerage remain the largest components of revenue today (42 per cent).

Revenue from discretionary mandates is still only 12 per cent of total revenue although it is expected to show the largest increase in contribution to revenue over the next two years.

Client referrals, third parties and group cross-referrals are the largest sources of new clients now and going forward. There is a need to develop the referral network internally as well as externally to stay in the game.

Entrepreneurs remain the largest component of client base, followed by wealthy families and inheritors. Family office clients, who represent only 10 per cent or less of the total revenue and AuM of most of the private banks in Asia, remain elusive as a market.

Justin Ong, the Asia Pacific Leader for PwC Global Private Banking and Wealth Management, said:

“Intergeneration wealth transfer remains a significant asset attrition risk. The onus is on the relationship manager to understand and invest into developing long term family relationships and building bridges with the new generation. Today, only 10 per cent of the private banks in Asia expect to retain at least 75 per cent of the surviving wealth to the next generation. That being said, we are increasingly seeing a shift. The majority of the relationship managers are now reaching out to form relationships with likely heirs of their clients and 74 per cent of their clients have started introducing private banks to their children.

As the Asian wealth continues its growth trend, both Singapore and Hong Kong will be seen as important financial centres for any private bank looking to establish a foothold in the region. The success of Asia as a wealth management hub will remain balanced on many factors, not least among them a strong robust regulatory environment, transparency and customer protection which is already apparent, but also the need to ensure that there is a ready supply of quality private bankers.”

ENDS

About the PwC Global Private Banking and Wealth Management Survey

The PwC Global Private Banking and Wealth Management Survey was conducted between December 2010 and April 2011. Survey questionnaires were open to members of the private banking and wealth management community, and completed by 275 institutions in 67 countries, including 62 per cent from Europe, 24 per cent from the Americas and 14 per cent from the Asia-Pacific region. The survey is not sponsored by any third party is part of PwC’s thought leadership to the financial services industry. The findings presented in this media release are drawn from the views of the respondents from the Asia-Pacific region.