The Final Word - Issue 122 - November 2018 Lite

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CONTENTS ISSUE 122

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Letter from the Editor

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Echo Chamber Industry Key moments in 2018

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Technology Canopy expands to Switzerland under "monopolistic" situation

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Industry Kathryn Shih's singular legacy at UBS Global Wealth Management

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Regulations Key regulatory trends in 2018

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Investments Value Partners raises over US$800m YTD from PB clients for China HY fund

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Advertorial Noah Holdings' Wang Jingbo: "History is an upwards spiral and opportunities always outnumber challenges"

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Key long-term trends take centre stage in our evolving economy

T H E F I NAL WOR D CEO Andrew Shale Editor Sebastian Enberg Editorial Richard Otsuki Benjamin Yang Charlene Cong Alice So Tin Tin Sze Rebecca Isjwara Tiffany Hopkins Gigi Lam Managing Director Paris Shepherd Research Stratos Pourzitakis Lisa Cheng Shunta Kamba Business Development Sonia Lam Sam Chan Olaide Ogungbesan Charis Tse

Digital Alice Wong Sanya Amin Marketing Yasna Mostofi Vivian Chong Evy Cheung Jacqueline Kwok Events Koye Sun Aleck Kwok Gerard Timbol Finance & Operations Karman Wu Martina Ngai Sandy Lau Yuki Chan Xenia So Director Europe Madhuri Chatterjee (Actaea Consultants) Production DG3

Published by Key Positioning Limited 13 Greatmany Centre 111 Queen’s Road East Wanchai, Hong Kong Tel: Fax: Email:

+852 2529 1777 +852 3013 9984 info@asianprivatebanker.com

ISSN NO. 2076-5320

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The roster

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Industry trends

26 Business performance 31

Investment solutions

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Regulations & compliance

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Technology

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Buzzwords

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Research Succession Planning 2018: Perceptions and Opportunities for HNWIs Executive Summary

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Investments Key investment trends in 2018

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Events China Global Wealth Leaders Summit 2018

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Industry A year of Straight Talk

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Awards Structured Products Awards for Excellence 2018

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Advertorial Heart of the machine: AI with a human touch transforms sustainability investing

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Industry Straight Talk: Alvin Lee, head of group wealth management and Singapore CFS, Maybank

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Events Discretionary Dialogue 2018

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Investments Strong potential for developing alternate discretionary mandates

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Industry HSBC PB's Kunz says stage is set for major ASEAN push

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Research ESG in Asia: Preparing for a paradigm shift

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Regulations New offline suitability rules in Hong Kong may limit investor choice

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Stakeholders' "widely divergent" needs were a challenge for halted KYC project

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Technology Deutsche Bank's new APAC tech lab to supercharge WM business

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HK Fintech Week & Singapore Fintech Festival: 2018 wrap-up

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People Moves Movers & Shakers

LETTER FROM THE EDITOR

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018 will not go down in the annals of Asian private banking as a vintage year but it should be remembered for a number of reasons — many of which will be covered in the pages of this Final Word issue, which features the views of 25 private banking leaders in Asia.

At the top of my list is the rise (and rise) of sustainable investing. This year, the tenor of conversation around SI in Asia seemed to change, and UBS deserves much of the credit. Its persistent drum beating and highprofile launch of a fully sustainable cross-asset portfolio, both in mandate and fund form (the mandate alone garnered north of US$200 million in APAC client assets with high RM participation rates), surely created a slipstream for others to follow suit. SI is on the cusp of going mainstream and almost every conversation I had with product heads and CEOs, not to mention fund houses, touched on the subject.

I am also pleasantly surprised at just how quickly banks are moving on flat-fee advisory. Years like this bring home the importance of recurring revenue lines and the role that mandates have to play in cushioning businesses from sharp downturns in client transactions. Yes, 2017 was a record year for discretionary portfolio management in Asia — our own data shows that private banks in the region grew their collective DPM assets by 53% YoY as of 2017-end — but in the short space of 12 months, banks have stepped up a gear when it comes to advisory mandates. Those that boast a relatively fleshedout offering and larger client base have benefited from healthier-than-expected client uptake — think CS and UBS. And I expect (and hear) that many of those who are just now exploring contractual advisory will launch something meaningful within the next 12 months.

Asia’s private banks continue to probe onshore markets, particularly in Southeast Asia. Though not everyone believes the effort justifies the reward. Fair play, because full onshore setups take time to realise, are expensive, and are up against local players that boast a home ground advantage. Partnerships, on the other hand, have a habit of unravelling. Nevertheless, Credit Suisse, which already has a setup in Thailand, has established a rep office in the Philippines, bringing it a step closer to launching a fully-fledged wealth management play in the country. Julius Baer’s JV with Thailand’s SCB, announced earlier this year, has been a dubbed a “game changer” for the bank which will provide an entire platform for domestic Thai investors. Bank of Singapore followed in Barclays’ steps (the bank whose wealth and investment management business it acquired no less) by inking an agreement with SMBC Trust Bank. And Lombard Odier, perhaps the most prolific forger of onshore partnerships, added to its hub and spokes network in Asia by linking up with Indonesia’s Bank Mandiri. The notable exception here in terms of onshore markets is China. UBS continues to take small steps and new details on its Qianhai Financial JV are forthcoming.

But it did take advantage of Chinese authorities’ softening of foreign ownership laws by being the first foreign bank to apply for majority ownership in its onshore securities venture.

Speaking of China, 2018 will go down as the year when the country’s wealth management industry was ‘reset’. The clampdown on shadow banking practices and regulatory arbitrage, and the outlawing of guaranteed returns on so-called wealth management products can’t only be positive for the market and end-clients, but for many participants. The day of reckoning is nigh. There is an urgency for domestic players to deliver genuine value to clients, and vast resources are being poured into developing and professionalising product and advisory capabilities, client education, and professional training. Market leaders speak of coming consolidation, and those that deliver best practices for the Chinese market environment have the most to gain.

Thank you for your continued support in 2018.

Enjoy the issue.

Sebastian Enberg Editor Asian Private Banker

“We have a saying here: ‘AUM is vanity, revenue is sanity, and bonus is the RM’s reality’.

AUM is a reflection point, but it’s not the strategy that we build. What’s more important is the details of what we are currently doing to add value to what we bring to our customers — each and every one of them. When you do it well, it all adds up and then you have a nice AUM." Robin Heng, global market head for the Philippines, Australia, Indonesia, Thailand, and Indochina, Bank of Singapore “The stumbling block turned out to be that the setup cost of this [KYC] utility exceeded the savings that the banks would be able to get. So, short answer, we have not succeeded.

This project is not dead. It is in [a] coma.

We will learn from the experience, rewire the architecture, and do our best to get it up and going again.”

Ravi Menon, managing director, MAS "We intend to quadruple our AUM to approximately US$40 billion. I am not certain how many years this will take, but there is every intent to grow the business more aggressively. What that means is a comprehensive relook at our entire business model and strategy. This is driven in part by necessity."

Alvin Lee, head of group wealth management and Singapore community financial services, Maybank

Top Tweets: BoS hits $100B 2 years ahead of target, clinches Obama

Change of guard at DB, Sewing focuses on WM, shaves IB

Pierre Vrielinck reorganises BNP Paribas WM Asia

February Top Tweets: BoS hits $100B 2 years ahead of target, clinches Obama Bank of Singapore started the year off with two headline-making tweets — in February, CEO Bahren Shaari announced on Twitter that the bank’s AUM reached US$100 billion two years ahead of schedule, attributed in part to healthy inflows for its discretionary business and healthy markets in 2017. A few days later, the bank tweeted again, saying it had secured former President Barack Obama for an exclusive client event.

April Pierre Vrielinck reorganises BNP Paribas WM Asia A year into his position as BNP Paribas Wealth Management's regional head, Pierre Vrielinck reorganised the business, splitting up the French bank into four key clusters. At the time, Vrielinck told Asian Private Banker the changes were implemented to align with the bank's rapid asset growth. “This is a business that has gone from some US$30 billion to over US$100 billion in AUM,” he said. “We decided that given this velocity of growth, the size of the organisation, and changes in the environment relating to regulation and technology, it was time to review the organisation.”

PBoC shakes up Chinese WM landscape, sets 2020 deadline The People’s Bank of China hit the reset button on Chinese wealth management with a major announcement in April. In order to de-risk the country’s financial industry in one fell swoop, the PBoC gave banks a 2020 deadline to reallocate wealth management products to asset management subsidiaries. The move is expected by many to lead to ‘real’ private banking in the PRC — private banking that is replete with previously foreign concepts like asset allocation and advisory/discretionary services.

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PBoC shakes up Chinese wealth management landscape, sets 2020 deadline

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“I want to personally thank Kathy for the immensely positive impact she has had on UBS during 32 years of service.

We would not be the clear number one wealth manager in Asia Pacific without Kathy’s contribution and I wish her all the best for her well-deserved retirement.”

Sergio Ermotti, group CEO, UBS

Key moments in 2018 Fe

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EFG in a major leadership revamp

Change of guard at DB, Sewing focuses on WM, shaves IB Although not much time has since passed, John Cryan’s exit as head honcho of Deutsche Bank has ushered in much-needed change to the German lender’s WM franchise thus far [see page opposite on Deutsche Bank WM Asia and tech]. Christian Sewing, the former head of Deutsche’s private and commercial bank, took the mantle of CEO in April, and a month later took an axe to the bank’s equity sales and trading business, cutting 7,000 jobs globally. “[As] far as our private and commercial bank is concerned, I am very optimistic,” Sewing said.

June EFG in a major leadership revamp June and July were notable months for EFG, which saw the departure and arrival of several veterans in its leadership line-up. In June, the pure play lost its CEO for Singapore and SEA, Kong Eng Huat, to retirement. Kong was subsequently replaced by Tho Gea Hong, who left RBC Wealth Management to return to EFG (she was formerly EFG’s head of private banking, SEA and deputy CEO for Singapore before joining RBC). Meanwhile, Lee Chang Tze and Oliver Balmelli, co-deputy CEOs and co-heads of private banking for Singapore, also departed the Swiss bank alongside Kong.

Up north, Richard Straus joined as head of private banking for Hong Kong and Ivan Ferraroni took on the newly created position of APAC head of global markets.

CS-Canopy partnership weaponises data through portfolio consolidation In an effort to “problem solve something critical”, Credit Suisse launched its portfolio consolidation tool in Hong Kong with fintech partner Canopy. Though the service had already been running in Singapore for a year, the HK launch signalled Credit Suisse’s ambitions to weaponise data at a regional

Rothschild Wealth Management exits the Lion City

Francesco de Ferrari leaves Credit Suisse

level. With permission, Credit Suisse now has the ability to view the positions of its multi-banked clients — and it charges for this privilege.

July Rothschild Wealth Management exits the Lion City Although spokespeople voiced that it “remains committed to Asia”, Rothschild & Co. pulled the plug on its Singapore wealth management office in July, giving clients the option to shift their assets to either the Zurich or Hong Kong branches. The exit most likely prompted the departure of then Singapore wealth management head, Mike Hue, who joined Schroders as a senior relationship manager.

Insofar as its commitment to Asia is concerned, Rothschild retains its Singapore trust business and Asia WM will operate out of Hong Kong.

August Francesco de Ferrari leaves Credit Suisse In a move that surprised many, Francesco de Ferrari, Credit Suisse Private Banking’s long-time APAC head left to join Australian insurance company AMP as CEO, handing over the reins to fellow bankers François Monnet and Benjamin Cavalli. Meanwhile, Monnet will continue to run North Asia (including Japan) from Hong Kong and Cavalli will continue to run South Asia (including Australia) from Singapore. Both report directly to APAC CEO, Helman Sitohang.

UBS Kowloon breaks even ahead of schedule Not to be overshadowed by competitors beating their targets, UBS too defied expectations with an announcement that its Tsim Sha Tsui office — dedicated to clients situated in Hong Kong’s Kowloon and New Territories regions — broke even two years earlier than expected. Adeline Chien, the

Wage wars: Senior banks offer serious premiums

bank’s regional market manager for Hong Kong, noted that the office reaped in double its targeted net new money in 2017 and that it had added another floor to make way for additional colleagues (and clients).

Wage wars: Senior banks offer serious premiums Although hiring sprees are a dime a dozen, major announcements this year encapsulated just how competitive the battle for talent has been in both the private banking and IAM space. One private banking headhunter told Asian Private Banker that some banks were offering a 30-45% wage increase to attract rival talent, while Hong Kong-based IAM, Raffles Family Office, revealed to Asian Private Banker in October that it was willing to shell out 50100% wage increases to attract senior bankers.

With titans like HSBC, Morgan Stanley, and Deutsche Bank also announcing ambitions to bulk up their frontline, one question still remains: Is there enough talent to go around?

[See what the region’s CEOs have to say about this on page 21.]

September DB WM Asia gets bulk of global tech budget A €65 million tech investment is nothing to sneeze at, and Deutsche Bank Wealth Management announced in September that its Asia business will receive the lion’s share of that figure to see its ‘Protect, Transform, and Grow’ strategy through. And with its recently launched innovation lab, DB looks primed to fulfil APAC wealth head Lok Yim’s desire to compress onboarding times and accelerate growth. [Read more about DB's innovation lab on page 73.]

October HSBC comes out of hibernation After years of relative silence, HSBC burst out in 3Q18 with renewed fervour, vocalising

HSBC comes out of hibernation

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DB WM Asia gets bulk of global tech budget

Architect of UBS WM Asia to retire after 32 years

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UBS Kowloon breaks even ahead of schedule

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INDUSTRY

DBS shuffles its top ranks, Tan Su Shan leaves wealth management

its intent to re-engage in the private banking fray as it once did when Monica Wong was private banking royalty. During the latter half of the year, the bank made a flurry of announcements: it will hire 120 frontline private banking staff throughout the region by the end of 2018 as well as 400 additional bankers for its Jade business in Singapore, and it reported that its DPM inflows grew five-fold in 2017. [View HSBC PB's ASEAN plans on page 64.]

Architect of UBS WM Asia to retire after 32 years Kathryn Shih, a name almost synonymous with private banking in Asia, announced her retirement in October. In an industry known for its high turnover rates, 32 years — the amount of time Shih spent with UBS — is an eternity. No surprise then that she was able to inspire so much loyalty with both clients and employees. Shih has overseen UBS’s wealth management ambitions in Asia since inception, and around US$380 billion in invested assets and 1,110 client advisors later, has turned it into a veritable titan. [Read more about Shih’s legacy on page 10.]

November DBS shuffles its top ranks, Tan Su Shan leaves wealth management Once said to be “a bigger brand than the organisation she works with”, Tan Su Shan, who joined DBS as wealth management head in 2010, will be taking over as DBS’s institutional banking group (IBG) head in February 2019. Succeeding Tan is DBS’s Singapore country head Sim S. Lim and succeeding Lim, in turn, is strategy and planning head Shee Tse Koon. The moves were triggered by the eventual departure of incumbent IBG head Jeanette Wong, who is poised to retire in March 2019.

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INDUSTRY

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TECHNOLOGY

Canopy expands to Switzerland under “monopolistic” situation

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ccount aggregation platform Canopy has announced its plans to expand to Zurich in an effort to “lock down” market opportunities in Europe, CEO and founder Tanmai Sharma told Asian Private Banker.

Interestingly, the move was prompted by Canopy’s ability to handle a format that competitors, according to Sharma, cannot: the PDF. “Even after five years, Canopy seems to be the only company in the world that accepts private bank PDF statements as a bonafide data source,” Sharma revealed.

Tanmai Sharma founder and CEO Canopy

He explained that although the IAM desks of most banks are usually able to provide data electronically, private banking units “can usually only manage PDF statements”.

“While we are able to handle data in any format, Canopy has a monopolistic lock on the PDF-only part of data aggregation,” he said, adding that he estimates PDF-only data is valued at around US$10 trillion — a number certainly large enough to motivate expansion.

“We realised we are in a monopolistic situation and that the market opportunity is much bigger than we anticipated,” Sharma said. “Therefore we needed to move fast to ‘lock down’ Europe in addition to Asia.”

He added that Zurich was “the most logical place” to kick off Canopy’s European expansion due to the number of private banks in the region and because “it’s a big money centre”.

Spearheaded by Sinan Biren, who hails from Zurich-based wealthtech company m2Wealth International, the Swiss data centre will “be for support and general business development”.

No reduction in Asian focus According to Sharma, the new office is a “logical extension from Asia” and Canopy’s Swiss expansion “does not mean any reduction in Asian focus”.

In June, Credit Suisse rolled out Canopy for its Hong Kong and Singapore clients after acquiring a 10% stake in the fintech firm last December, and shortly afterwards, the Zurich-based lender revealed that one-third of its Canopy clients had already elected to share thirdparty information with their relationship managers.

Canopy is currently being piloted with four-to-five private banks and a number of IAMs across Hong Kong and Singapore, and the platform currently handles more than US$20 billion in assets under reporting.

Moving forward, Sharma added, Canopy might open in London “pretty soon” and will also look to acquire “complementary businesses in Europe”.

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INDUSTRY

Kathryn Shih’s singular legacy at UBS Global Wealth Management

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athryn Shih’s retirement from UBS at the end of this year will bring down the curtains on a major act in Asian private banking.

Synonymous with the business she took from virtually ground zero armed only with a handful of RMs to the juggernaut it is today, and synonymous with an industry that has readily taken its cue from UBS when she was at the helm, the 32-year veteran bows out with her reputation for galvanising staff and clients and exacting a progressive influence on how the bank should ply its trade intact.

Shih has achieved this in an environment whose pressure and complexities have taken the ultimate toll on many a peer.

“Markets are now more volatile and are increasingly driven by central bank policies and politics,” Shih told Asian Private Banker during an interview in 2014 — an observation every bit as relevant today. “We are faced with greater uncertainty, while the financial landscape is becoming more globally interlinked, faster and often riskier.”

Indeed, change and transformation would prove to distinguish Shih as an industry stalwart par excellence, and who most would agree has led with grace under pressure, taking UBS Wealth Management on a sustained path of growth that would see the bank arrive at its dominant position in Asia today.

The length and tenacity of her tenure are virtually unparalleled in the industry, even amongst the likes of Monica Wong, Francesco de Ferrari, Bassam Salem, and Tan Su Shan. Shih has also stewarded the rise of industry heavyweights like Amy Lo, Jean-Claude Humair, and ushered in the likes of Ravi Raju.

And the boardroom is not the only arena in which she has excelled.

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A connoisseur of both art and golf, Shih personally handpicked the museum-worthy pieces adorning the walls of UBS’s offices in the prime location of the International Finance Centre, and has been personally involved in the UBS Hong Kong Open for a number of years.

Asia’s “clear number one” wealth manager Prior to joining UBS’s group executive board in January 2016 as president of UBS Asia Pacific, Shih was head of wealth management for Asia Pacific from 2002 to 2015, during which she steered the bank through the global financial crisis, massive internal restructuring undertakings, the rollout of a flat-fee advisory model for Asian clients, and the list goes on.

During the same period, UBS Wealth Management saw its invested assets skyrocket from approximately CHF 60 billion to nearly CHF 300 billion, and the bank opened domestic wealth management operations in Japan, Taiwan, and China.

“She was probably the single biggest factor in clients returning to the bank after the 2008 crisis,” a managing director who had parted ways with the bank told Asian Private Banker back in 2013.

“We would not be the clear number one wealth manager in Asia Pacific without Kathy’s contribution,” said Sergio Ermotti, group CEO at UBS. Ranking first in Asian Private Banker’s 2017 Asia (ex-China onshore) AUM League Table, UBS has CHF 377 billion in invested assets in Asia as of 3Q18, according to the bank’s third-quarter results.

Apart from hitting the numbers, Shih sharpened the bank’s focus on nurturing its talent. In 2013, the bank launched its first ever Asia ‘Wealth Management Master programme’ for its most senior client advisors in the region.

INDUSTRY

“Our ability to serve our clients to the highest standards depends on the quality of our people,” Shih said.

In the industry’s recognition of Shih’s achievements and contributions, she received Asian Private Banker’s Banker of the Year award in 2011.

“Kathryn has done with a Swiss brand in Asia what many of her peers have tried but failed: made it almost Asian,” a veteran banker noted during the nomination process.

Great leaps forward into the digital era With a demonstrable candour for exploring bold and unconventional ideas, Shih told Asian Private Banker in 2017 that smaller private banks could consider outsourcing parts of their businesses to larger rivals, in recognition of the “existential threat” that rising regulatory burdens and the overheads of installing front-to-back platforms were posing to smaller players.

Not one to fall behind the times, Shih vocalised UBS’s plans to house an army of 100 ‘robots’ — systems that automate repetitive tasks — in its Asia Pacific offices by the end of 2017, as part of its ‘robotisation’ initiative. The bank also launched a fintech lab in Hong Kong earlier that year.

“It is not just lower wealth tiers that will benefit from the automation and digitisation of private banks,” she said in a forwardlooking observation.

“Today, our Global Family Office and our UHNW clients want access to information 24/7. Even with UBS Advice, we see a wide range of our clients assessing it. This is because digital advice is very much about the content.”

Passing the torch As her curtain call draws near, it is evident that Shih has already paved the way for the continued success of UBS Global Wealth Management, albeit leaving big boots for her successor to fill, and an inevitable sense of loss in the industry, even as the bank acknowledges her retirement as “well-deserved”. On 1 January 2019, the baton will pass on to Edmund Koh, the incumbent head of wealth management for Asia Pacific who took over the reins from Shih three years ago.

She also leaves as questions over the direction of UBS China sharpen, without any clear answers but with persistent optimism.

But apart from financial standing, how does one begin to measure the intangible legacy she will hand over, not only to her successor but also to all those who come after her in the industry?

Perhaps in her own words. Answering the question of ‘What keeps CEOs awake at night?’ in an interview with Asian Private Banker four years ago, her words encapsulate the values that have infused and fuelled three decades worth of tireless toil in the industry: “In such an environment, how do we ensure that we provide our clients the best advice to grow and preserve their wealth? This is the question that drives me every single day. We are not only looking after the wealth of the present generation but helping to build the legacy for generations to come. So what must we do to carry out this duty?”

With these sentiments ringing no truer than in the present, it is undeniable that it is duty that is the core essence of her legacy.

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R E G U L AT I O N S

Key regulatory trends in 2018 2018 marks a decade since the Global Financial Crisis (GFC) — when watchdogs learnt a painful lesson about lax financial regulations and the need for stringency and transparency. Since then, regulators have endeavoured to eradicate misselling from both a regulatory and enforcement perspective as well as establish bank resolution regimes in order to prevent future crises.

Here are some regulatory highlights from the past 12 months.

Suitability and client risk segmentation

Senior management accountability

Over the past year, Hong Kong regulators have made significant progress in updating suitability requirements for both online and offline sales of investment products. According to the new rules, financial institutions (FIs) are required to categorise each investment as 'complex' or 'noncomplex' and must impose suitability checks prior to every online or offline complex product transaction.

One takeaway from the GFC was that a lack of individual liability facilitated reckless product sales, motivating regulators globally to build clearer regulatory structures around senior management accountability for FIs.

The Securities and Futures Commission (SFC) rolled out the above requirements in phases. In April, it published the consultation conclusion on online suitability requirements and in October, the regulator published the corresponding offline suitability rules.

With both sets of suitability requirements set for implementation in April 2019, most private banks are currently conducting gap analyses and reviewing their existing procedures in the context of the new rules.

Regulators in the UK, Australia, and Hong Kong have implemented senior management accountability regimes in recent years, and Singapore followed suit in 2018, applying the rules not only to banks and asset managers but also to insurance companies, corporate finance companies, and the Singaporean stock exchange.

Further, the SFC’s manager-in-charge (MIC) regime was implemented in October 2017, and as of March 2018, more than 10,000 individuals were designated as MICs.

Meanwhile, the Hong Kong Monetary Authority (HKMA) issued a circular on limiting the number of investment products that require suitability checks, followed by another circular encouraging flexibility when assessing product tenor suitability. However, there are concerns that the new requirements might affect time to market and limit investor choice.

Our MIC regime has been working well to clarify the accountability of the senior management of licensed firms and promote greater awareness of their obligations under Hong Kong’s regulations.

Given the sheer volume of products available in the offline environment, there was a perception that the challenge of conducting product due diligence for every possible product prior to trade execution would lead to intermediaries declining execution-only transactions in products outside their recommendation list.

– Ashley Alder, CEO, SFC

– Karen Man, partner, Baker McKenzie 12

R E G U L AT I O N S

The task to streamline KYC Another common challenge for regulators in 2018 was streamlining KYC procedures and facilitating virtual banks and onboarding amid an increasingly complex regulatory landscape. Both the HKMA and the SFC issued circulars removing barriers for virtual onboarding, such as easing requirements on verified documents and proof of residency.

MAS, however, took a more hands-on approach by exploring the possibility of setting up a shared KYC utility by working closely with locally incorporated banks and tech vendors. Although the project was put on hold due to budgeting constraints, a number of banks benefitted from the process and, together, published a report on the lessons they took away from the undertaking.

Meanwhile, MyInfo — Singapore's personal data management platform — is proving instrumental for the 20-plus FIs that use the system.

According to MAS's Ravi Menon, these FIs provide more than 110 digital financial services and MyInfo enables online and instantaneous account openings.

We have substantially solved the personal KYC problem. But corporate KYC is far more complex. We tried, we failed, we will learn, and we will do better next time.

– Ravi Menon, managing director, MAS

Enhancing transparency is a global effort: MiFID II, UBO, CRS, and more In 2018, a number of regulatory regimes on enhancing data connectivity and transparency were implemented, including the revised European MiFID II. Effective on 1 January, the revision had a ripple effect that extended to the Asian private banking industry. Case in point, the Fund Manager Code of Conduct (FMCC) in Hong Kong and the Securities and Futures Act (SFA) in Singapore were also both revised in order to improve fee transparency.

We have seen the introduction and promotion of retrocession-free mandate offerings in some leading international private banks.

– Tobias Houdek, senior product and marketing manager, Investment Navigator In addition, the first Common Reporting Standard (CRS) international exchange of tax information took place this year, and disclosure requirements of ultimate beneficial ownership (UBO) in corporate and trust structures were implemented. And although reporting scope and complexity increased, so did transparency.

Just accept that tax secrecy is dead — it is not coming back, at least in the foreseeable future.

– Stefano Mariani, counsel, Deacons

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INVESTMENTS

Value Partners raises over US$800m YTD from PB clients for China HY fund

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ollowing a successful 2017, Value Partners’ China high yield strategy has recorded another strong year with a net new inflow of US$1.6 billion year-to-date, with approximately 52% — US$832 million — of the inflows coming from private banking clients in Asia, Asian Private Banker has learnt.

Against the backdrop of the deleveraging campaign and the accompanying risk of rising default rates, Asia’s private banking industry has been cautious about investing in China’s markets.

Yet, Gordon Ip, CIO, fixed income at the firm, said that although “it won’t be easy” in the short term, deleveraging is the “right and necessary” course for the Chinese government.

When contacted, a spokesperson for the asset manager confirmed the figures.

Vicky Yick, managing director, private banking distribution at Value Partners, said the demand for China high yield will persist for the rest of 2018 and into 2019, as Asia’s wealthy continue to seek steady income.

On the condition of anonymity, a Vicky Yick market veteran from an international managing director private bank told Asian Private Banker private banking distribution that given increased volatility in the Value Partners high yield market year-to-date, a number of HNWIs have changed their China high yield exposure from single securities to bond funds due to the higher likelihood of margin calls for single bonds.

“Compared to US high yield, China high yield presents an attractive opportunity as the credit spread is now at a three-year high,” Yick explained.

“At the same time, the fundamentals of the underlying companies that we are invested in, especially property companies, are still solid and we expect them to remain solid. Lastly, high-yield bonds tend to perform in a rising interest rate environment as the papers are less affected by interest rate movements and are more correlated to corporate fundamentals.”

Gordon Ip CIO, fixed income Value Partners

“Deleveraging will force companies of all sizes to become more financially disciplined and is credit positive in the mid-to-long term,” Ip said.

“However, in the short term, it won’t be easy as the system kicks into lower gear. Still, we see that deleveraging is being done in an orderly fashion, and companies have largely been adjusting well.”

Looking forward, the asset manager sees a “much healthier” China high yield market with better-disciplined and better-diversified issuers, which will, in the end, improve the overall liquidity of the market given the asset class’s breadth and depth.

Apart from resilient China high yield demand, Yick said the firm forecasts increasing appetite for alternative investments such as private debt and private equity as investors seek to invest in assets with a lower correlation to secondary financial markets.

“We believe private debt investments are interesting because they take advantage of the funding gap for mid-sized companies across Asia, and we are seeing an abundance of opportunities in that space,” Yick added.

“We believe this strategy will become an important part of investors’ portfolios as it will have less mark-to-market risk in a rising yield and surging volatility environment.”

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INDUSTRY

Wang Jingbo, Co-Founder & Chairman, Noah

Noah Holdings’ Wang Jingbo: “History is an upwards spiral and opportunities always outnumber challenges”

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elf-reflection, honest and constructive criticism, and an unwavering commitment to creating real and long-term value for clients. These are the traits that enabled Noah Holdings to navigate four economic cycles in 15 years and a myriad of industryshaping challenges to cement its status as China’s premier independent wealth and asset management firm.

exceptionally well to date. This track record alone would be cause for celebration for any wealth management firm. However, Noah’s Wang warns against complacency, taking the view that Noah, as the industry leader, must use this critical juncture to ask searching questions and challenge the firm’s role and value proposition in a rapidly changing space.

But as the domestic private wealth management industry enters a brave new era amid widespread regulatory upheaval and macroeconomic and geopolitical uncertainty, Noah is once again taking stock of its role and responsibilities to the benefit of the clients it services and the industry it leads.

“Are our past successes due to our competency or the overall state of the market?” Wang asks. “Has the rising tide elevated us or have we truly improved? Is our continuous growth merely a reflection of an expanding bubble? Do we have the international operational capability to provide clients with global allocation services?”

“We remain vigilant in monitoring the demands of the wealth and asset management industry,” says Wang Jingbo, co-founder, chairperson, and CEO of Noah Holdings. “For example, there is a lack of investor education for clients, leading investors to a false precept that financial planning amounts to merely saving money. Many people are filled with trepidation for the future, including ourselves, and I continuously ask myself, have we created value during our 15 years of business?”

True, the overwhelming majority of Noah’s clients have enjoyed good returns. Indeed, around 99% of the firm’s products have performed 16

To be sure, 2018 was a year marked by anxiety and, in some pockets, panic. From a global perspective, economies and the capital market are closely intertwined — as Howard S. Marks has remarked, “overly generous capital markets ultimately lead to unwise financing, and thus to danger for participants.”

But amid the low spirits, there is a risk that important factors driving short-term ongoing changes may be ignored or misread.

ADVERTORIAL “I think we need to rediscover some basics to truly move forward in the right direction,” says Wang. “Only by facing ourselves, our company, and our industry with full honesty can our country begin to have a difficult but constructive beginning.”

As a thought experiment, Wang asked her team to imagine they were a generation of time travellers who visited the critical years of modern financial history — whether 2008, 2005, 2000 — and to consider what decisions may have resulted in hindsight.

Moreover, a mentality of realism naturally permeates the financial market. But realism typically does not take into consideration principles, common sense, or systems; rather it is a way of measuring all things through the profit and results of a transaction.

“Would we make better choices? Would we build a better company through our experiences and travels? We actually have the opportunity to do just that today,” says Wang.

“Many investors lack a personal investment philosophy because they only recognise returns,” continues Wang. “This is the main reason why many long-term investors fail.”

The message is clear: China’s wealth management industry should not be affected by short-term changes but must consistently look towards the horizon.

It is unsurprising, then, that Noah Holdings — and Wang herself — hold a generally optimistic view of China’s burgeoning wealth management industry, especially as deteriorating market conditions and changing regulations provide fertile ground for Noah to examine and challenge its duty to the end-client.

Above all else, this means going beyond Noah’s commitments of the past decade-and-a-half — namely, no cash pooling, no leveraging for clients, no maturity mismatch, and no rigid redemption whatsoever.

Wang’s priorities are threefold and clear. First, it must continue to embrace financial supervision and provide services that are compliant, particularly as oversight grows stricter with every passing year.

Second, there is a pressing need for Noah, as with all wealth managers, to understand where the new drivers of growth in the Chinese economy derive.

“We cannot make quick money and we cannot speculate,” says Wang.

“If you think that is too much trouble, you will not see returns. We need to learn, to research, and understand finance before we can slowly accumulate our wealth.”

Third, and fundamentally, Noah believes history functions as an upwards spiral, where a low point now would still be much higher than the prior low mark.

“We need to trust in the classic predictions of Wall Street: bull markets are born of pessimism, grow on scepticism, and die on euphoria,” explains Wang. “So if every single person lost hope today, we wouldn’t be this fearful.”

And the omens are positive despite widespread trepidation. This year, points out Wang, Chinese A-shares were a result of opening positions from foreign capital. Strategic foreign investors continue to give overweight ratings to commercial buildings in key regions and cities such as Shanghai, Beijing, and Shenzhen. The emerging Asian market will encompass three billion middle-class individuals by 2030, and they will all be drivers of consumption. Internal demand in China will also increase significantly — China’s consumption market reached US$5.7 trillion in 2018, surpassing the United States for the first time.

Indeed, many of Noah’s employees have remained for the better part of a decade, and many have told Wang that, compared with 2008, circumstance is much better today. Their message is that companies that prevail, and who do right by their clients, invariably come out on top.

This means having a clear and systematic understanding of what wealth management is and how it relates to an individual's life stage and goals.

Investing, in the words of Wang, does not equal saving, nor is it equivalent to wealth management. Rather, the objective of wealth management is overall optimisation, while investing simply seeks optimisation at each step of the process.

“I’m particularly fond of three theories that cleanly capture these ideas,” says Wang.

“First, wealth management is a period in one’s life, where the older we are, the more conservative we become, because we’ve already surpassed our wealth accumulation period. Second, if you trust in the temporal value of money, you will experience pleasant surprises in long-term investments. And third, you need to trust in asset allocation because it will decide more than 90% of your return.”

For a firm that started its business on a genuinely global scale in 2012 and aims to become the primary choice both for Chinese clients seeking global allocation and overseas Chinese investors seeking to invest in China, the building blocks are in place. This year alone, Noah expanded its global footprint to Canada and Australia. It is also establishing a presence in Singapore and has plans to further broaden its international reach.

Noah also continues to improve its investment competencies, where private equity remains a key area and real estate, open markets, and credit are now major points of focus. And, fundamentally, Noah is committed to providing holistic asset allocation services to clients in this new era.

In doing so, Noah has signalled its intent to take a promising industry forward hand-in-hand with clients and their families whose needs go well beyond achieving investment returns.

“We are determined to form tri-generational relationships with our clients in this great land and we are committed to investing the time to form true friendships with our clients,” concludes Wang.

For more information, please contact: +86-21-80358000 noahwm@noahwm.com

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THE FINAL WORD

Alan Luk head of private banking and trust services Hang Seng Bank

Albert Chiu executive chairman of Asia EFG Bank

Didier von Daeniken global head, private banking and wealth management Standard Chartered Private Bank

Edmund Koh head of wealth management, Asia Pacific UBS Global Wealth Management

Jaideep Hansraj CEO – wealth management and priority banking Kotak Mahindra Bank

Jimmy Lee head Asia Pacific and member of the executive board Bank Julius Baer

Michael Blake CEO private banking Asia UBP

Steven Lo region head, Asia Pacific Citi Private Bank

Anshu Kapoor head Edelweiss Private Wealth Management

Bahren Shaari chief executive officer Bank of Singapore

Benjamin Cavalli head of private banking South Asia Credit Suisse

Evrard Bordier managing partner & CEO, Singapore Bordier & Cie

François Monnet head of private banking North Asia Credit Suisse

Karan Bhagat founder, managing director & CEO IIFL Investment Managers

Kenny Lam group president Noah Holdings

Lok Yim head of wealth management, APAC & chief country officer, Hong Kong Deutsche Bank

Tang Ning founder, chairman and CEO CreditEase

Ong Yeng Fang managing director and head UOB Private Bank

Pierre Masclet CEO, Asia and Singapore branch Indosuez Wealth Management

Pierre Vrielinck head of global Asian markets BNP Paribas Wealth Management

Tan Su Shan group head of consumer banking and wealth management DBS Bank

Vincent Chui chief executive Morgan Stanley Asia International

Vincent Magnenat limited partner & CEO Asia Pacific Lombard Odier

Wang Lei assistant general manager China Merchants Bank Private Banking

Enid Yip Asia CEO J. Safra Sarasin

INDUSTRY

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THE FINAL WORD INDUSTRY TRENDS

What is the state of Asia's talent pool and did your firm pay significantly higher for new talent? What is your view on private banking talent development in Asia?

Lok Yim, Deutsche Bank We are competitive payers and Deutsche Bank Wealth Management global management has reiterated that we will remain competitive. Having said that, are we the highest payer in the market? No. Does that matter? No. Why? What happened in our most challenging time has told me when it comes to talent, compensation is important but is never the most important factor.

We are looking for talents who are committed to wealth management and are interested to join us on the exciting growth journey. These people are looking for a bank which provides them ongoing training, the best infrastructure, and the most comprehensive product shelf.

This December, DB WM will provide every client-facing colleague on a global level training by a professional consultant in order to enhance competencies in relationship management. The bank is also spending €65 million in the next three years to roll out digital tools aimed to offload admin work for RMs and shorten account opening times for clients. Further, we’re ready to innovate with tailored solutions and our connection to our corporate and investment banking colleagues has never been stronger — we are, in fact, having a record year in the number of transactions WM has done with global credit trading.

I can’t see a reason why a committed private banker would not want to join a bank like us.

Steven Lo, Citi Private Bank Our approach is not a numbers game. We are deliberate and selective in our hiring. We want to make sure our hires fit into a unique culture that underscores teamwork and a drive to get the best out of our extensive platform. It’s like curating art and making sure the pieces fit into your collection! We want staff who are serious about a long-term career and are motivated by more than just compensation. In fact, we have had great success in hiring bankers who are attracted by our platform so they can serve clients more effectively. We are also committed to developing our own talent and place a strong emphasis on training and career development.

Bahren Shaari, Bank of Singapore The reality that all organisations — not just private banks — face today is that we operate in an open market environment where it is no longer a norm for an individual to be staying in the same workplace or doing the same thing throughout their career.

At Bank of Singapore, we are selective and bring on board those who can value-add to the existing pool of talents we have. Beyond the monetary rewards that a private banker may bring, we seek those who have the right attitude, always want to learn, and are adaptable and innovative. We focus on having a pipeline of internal talents who are able to step up whenever needed

and we strive to excite them with interesting projects and assignments so that they find meaningful career opportunities within the organisation.

Since BoS’s inception, talent development has been a key pillar. We’ve invested more than US$35 million in HR initiatives and talent development programmes and will continue to invest heavily. Given today’s fast-paced environment that is disrupted by technology, ‘future skills’ is a central theme for us and we develop our talent pool by building skill sets and new capabilities through areas like digital, design thinking, and data analytics to meet the evolving needs of clients.

Benjamin Cavalli, Credit Suisse The regional market is indeed very competitive when it comes to hiring RMs experienced in private banking. There is a scarce supply of experienced talent in a relatively nascent industry, so it’s important for banks not only to hire from the market, but to groom talent from within the organisation’s existing talent base.

At CS, we focus on strategically recruiting senior bankers who are the right fit for our integrated banking model, onboarding and integrating the new bankers effectively, as well as increasing the productivity of existing talent, and maximising returns from the investments we have already made.

In addition, with our distinct APAC business model and our integrated wealth management and connected unit combining the expertise of our private banking, and investment banking and capital markets teams, we’re able to leverage on collaboration efforts in the coverage of our clients in both revenues and asset generation, as well as the delivery of holistic solutions.

In the first nine months of 2018, our RM headcount remained stable, while we grew net new assets by 11%.

Wang Lei, China Merchants Bank Private Banking From the standpoint of the China domestic market, the growth rate of talent is backward compared with the rapid development of private banking in recent years. CMB has been very concerned about and invests a lot of resources into the development of talent.

On the one hand, we recruit top-notch talents from all relevant fields around the world — including asset management, investment banking, trust, law, and taxation — to ensure that our professionals are at the forefront of the market.

On the other hand, great importance is attached to the cultivation of talents.

We have established a comprehensive step-by-step training system which has been implemented for many years, transporting a large number of talents to all functions.

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THE FINAL WORD INDUSTRY TRENDS

Anshu Kapoor, Edelweiss Private Wealth Management Wealth management in India is still nascent and, although wealth has grown substantially — today there are some 150,000 UHNW families with US$2 trillion in wealth — talent required to bank this wealth is not readily available.

For the UHNW client category, across the industry, there are no more than 1,000 qualified financial advisors. Hence, scarcity of talent is clearly visible in India. The UHNW horizon is projected to grow to 400,000 families with total wealth exceeding US$5 trillion by 2025. As it stands, a lot more talent needs to be developed to cater to this opportunity. Also, there is no formal training or courses available that can facilitate talent supply.

At Edelweiss, one way we have built our team is by looking outside the wealth management industry — for example, investment banks, securities firms, corporate banks, law firms, consultants. 25-30% of our employees come from these diversified talent pools and the remainder are wealth advisors who join us to seek long-term career growth. We also hire from campuses. Our diversity allows us to deliver our value proposition to an equally diverse range of clients and brings in different thoughts and ideas to enhance our service offering.

Talent development is an integral strategic priority for us. We have divided our talent into three talent pools with sharply defined metrics in a framework called ‘practice management’, which is a classroom-based, digitally enabled mentoring workshop with themed sessions. The career path for each talent pool is specifically managed and tracked.

Ong Yeng Fang, UOB Private Bank Finding the right talent is always a challenge. Other than hiring experienced and senior relationship managers from the industry, we also identify young and bright potential graduates and train them under our Management Associate Programme. We have also established a process of identifying and grooming top talents from other client-facing business segments within the bank and preparing them for roles within UOB Private Bank.

All of our relationship managers are put through a rigorous training programme which keeps them up to date on industry, regulatory, and product developments. These inside and out approaches have enabled us to more than double the number of private bankers at UOB over the last four years.

Jimmy Lee, Bank Julius Baer In general, we all know we have quite a limited talent pool.

The clients are growing faster than the number of wealth management professionals in the market. Of course, some banks are paying more than others when they hire. Our payment practices are in line with the industry. There is a lot that we can do to further develop and strengthen the private banking talent pipeline in the industry. One example is the HKMA/PWMA Apprenticeship Programme, in which we actively participate.

However, along the development of the industry, a large number of outstanding financial talents have joined such wealth management firms that offer a more diversified and complete product and service shelf. In the process, we’ve seen the emergence of a large number of talents who not only understand advanced asset allocation philosophies but also have the ability to put these philosophies to practice. Furthermore, we’ve observed talents from Hong Kong, Taiwan, Singapore, and other established markets relocating to mainland China, which contributes to the domestic talent pool.

On compensation, CreditEase does not offer higher pay to newly joined talents. Since our inception, we’ve made it our mission to promote the healthy development of the industry, uphold a healthy competitive landscape, and follow the principle of attracting talents by the strength of our business platform and culture. At CreditEase, it is a tacit rule that compensation to new recruits shall be flat with how much they earned from the previous job. This never prevents new talents from joining us, but instead attracts talents who agree with our culture and share our values. With this, we’ve formed a unified team that believes in what it’s doing and seeks common development for all.

Vincent Magnenat, Lombard Odier It takes time to find and recruit the right talent in Asia, where there is definitely still a smaller talent pool compared to other more mature regions. However, this is and will continue to change over time.

Our strategy is to present ourselves as an attractive, top-tier place to work with material career opportunities so we can compete for the best possible talent in the region while not being too hasty by appointing those who may not be the right fit just to increase headcount.

We are very pleased with our progress on this front and have been able to attract impressive individuals to Lombard Odier in Asia. We also invest heavily in training and nurturing our existing talent so that we can retain and grow our team.

Kenny Lam, Noah Holdings Our firm’s frontline is relatively stable, especially amongst top-tier relationship managers — we’ve had almost complete retention. For new top management, we were able to attract the most suitable talent to Noah because we’re the leader in a sunrise industry, and along with salary compensation, we provide them with significant bonuses and stock options. I think it’s important to understand that at this stage of industry development, it is no longer just about compensation. We also invest a lot in career development and that allows for great talent to build their careers within Noah.

On talent development of the regional industry, we are seeing a flight to quality — great, high-quality talent is gravitating towards platforms that are more stable and sustainable. The days of high churn for the next higher compensation should be gone soon and it would make for a healthier industry.

Edmund Koh, UBS Global Wealth Management

Tang Ning, CreditEase The recently introduced ‘administrative measures on asset management industry’ in China have created an environment that poses a huge challenge to financial industry professionals who are used to relying on their relationship with clients in building up sales.

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The rapid growth in the wealth management industry in Asia requires experienced bankers who have weathered market cycles and are able to effectively advise their clients on new investment opportunities. At UBS, we have built up a reserve of capacity by continuing to attract and retain such talent over different market cycles.

THE FINAL WORD INDUSTRY TRENDS

Today, we have a strong and deep bench of senior management talent in APAC with an average tenure of 20 years with UBS. Concurrently, we believe that it’s also important to nurture a pipeline of talent and we have over 1,100 client advisors in APAC. As part of our commitment to talent development, the UBS University in Singapore provides training for all our employees. UBS has been running our Wealth Management Diploma for more than a decade. This diploma is a structured certification process for all UBS client advisors and is recognised by the Swiss government. We also have a two-year Master in Wealth Management programme organised in collaboration with the Simon Business School at University of Rochester (US) and the University of Bern (Switzerland) for our key senior wealth managers.

As our compensation model is aligned to individual performance over a period of time, we ensure high-quality performance and long-term commitment.

Meanwhile, the industry demands high standards and we are constantly learning and evolving with the help of academics and training, which provide us with an opportunity to improve our expertise.

At Kotak, fresh talent is procured from educational institutions, existing institutions across multiple businesses are leveraged on to provide talent with a strong platform for growth, and individuals from other financial services are provided private banking expertise with the help of lateral training programmes.

Michael Blake, UBP Our platform and business model is designed for senior, experienced RMs who have deep investment expertise, strong relationship networks, and who are looking for the freedom and flexibility of a pure play bank to deliver customised investment solutions to

Alan Luk, Hang Seng Bank Following the recovery of asset prices after the 2008 financial crisis, many major private banking market players have set up operational bases in Asia — particularly in mainland China. As a result, there has been a significant increase in demand for talented private banking relationship managers in Asia over the past few years. The key business focus of many private banks is not just where to get new clients, but

clients. There will always be a highly competitive market for the very best RMs fitting this description.

also the hiring of a sufficient number of competent and qualified RMs and how to retain talent.

Compensation alone is not sufficient to attract and retain strong RMs — culture, collective success, platform capabilities, and career development opportunities are also critical.

While experienced private bankers and market practitioners who are already working in the private banking industry remain important sources of recruitment, many private banks have started to look for potential talent at domestic retail banks, particularly those with a large potential client base. Additional product knowledge and client servicing skills training is required to develop these retail banking wealth management RMs into private banking RMs.

Didier von Daeniken, Standard Chartered Private Bank At Standard Chartered Private Bank, our focus is on hiring experienced RMs, and this is certainly a very competitive talent pool.

Whilst compensation is one aspect of the decision to move for these individuals, what is more important is the assurance that we are able to offer the highestquality experience to prospective clients. To this end, we have made significant investments in our brand, platform, and processes, which is showing through the quality of bankers we are attracting.

Our Private Bank Academy offers a highly competitive development experience to all of our front-line colleagues. The programme is run with our in-house expertise as well as our partners from Fitch Learning and INSEAD to develop superior client and technical skills for our people. I consider continuous learning to be essential for all of us and the Academy puts us at the forefront of this key priority.

Pierre Masclet, Indosuez Wealth Management Our talent pool has grown significantly in 2018, partly through the acquisition of the private banking activities of CIC and partly through organic growth as we have continued to add talent to our bank throughout the year. Our increased (and positive) media exposure, presence, and participation at key industry events and conferences have led to an increased appetite and interest to join Indosuez Wealth Management.

Jaideep Hansraj, Kotak Mahindra Bank We have seen multiple new players as well as the expansion in terms of existing players. Both these factors have brought in fresh talent to the market.

Karan Bhagat, IIFL Investment Managers We recently acquired Wealth Advisors, one of the largest wealth management firms in South India. We believe we have paid the right price for this acquisition as we’ve strengthened our reach and annualised revenues while bringing on board a great management team along with top-quality talent.

Private banking talent, primarily in India, is very hard to come by. Private banking requires a holistic approach alongside strong domain on the everchanging investment needs and opportunities that come up in a VUCA — volatile, uncertain, complex, and ambiguous — world. Quality talent often comes at a high price, but it is worth it.

Pierre Vrielinck, BNP Paribas Wealth Management The shortage of experienced bankers is still a growing concern in the Asian private banking industry. Our strategy has always been to onboard talents with the right skills and mindsets — regardless of whether they are internal or external — and equip them with our wide product offerings that can enable them to drive business.

Technology has transformed the entire private banking workforce in the last few years and is expected to continue having a profound impact in the future.

Private banks need to reassess talent strategies and take into account the changing needs of clients who demand improved technology infrastructure and agility. We have to think out of the box to onboard talents with skill sets not only from the traditional sector but also from technology startups. We firmly believe that attracting, retaining, and developing talents are critical in order to compete in this environment.

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THE FINAL WORD INDUSTRY TRENDS

How important is it for your business to make substantial inroads in China to ensure sustainability and growth over the next decade?

Vincent Chui, Morgan Stanley Onshore China wealth management opportunities continue to be a secular opportunity, but over the next couple of years, the offshore coverage model with strict compliance to the rules of the road will continue to be the norm among international private banks. Those who are prepared to go onshore need to focus on acquiring talent around compliance, risk, and AML as well as developing the right kind of products for onshore customers. In addition, they will need to be mindful of the high degree of digital sophistication of onshore customers — an area where most international private banks are less advanced than the online wealth platforms in China.

Edmund Koh, UBS GWM It’s our vision to be the pre-eminent global wealth manager in China, leveraging the twin engines of UBS (China) Limited and UBS Securities. We see great opportunities in China across all of our businesses, emerging from China’s wealth creation, market reforms, and globalisation.

In addition to our Kowloon office opening, we opened a sub-branch in Beijing in 2014 for UBSCL — UBS’s wholly owned bank focusing on WM — and a branch in Shanghai in 2016. In December 2017, UBS entered into an agreement with Qianhai Financial Holdings to jointly develop a wealth management business in the Qianhai free-trade zone — we’re the first international wealth manager to establish a presence there.

Pierre Masclet, Indosuez WM China is an important pillar of growth but let’s not forget that Asia as a whole is growing substantially. We view both North Asia and South Asia as growth engines and we are well resourced to be able to serve our clients in this region and capture the growth.

François Monnet, Credit Suisse China now has the second highest number of both HNW and UHNW individuals globally, with the former having increased by 80 times since 2000. Managing this wealth pool is definitely an enormous opportunity and going onshore is a necessity in the coming years as the market is opening up and the regulatory environment is evolving to be more conducive for international institutions.

We are getting closer to that point of inflection. The next phase for us is to capitalise on our existing footprint across our securities and asset management JVs, and be ready to enter the market when the time is right, with the right strategy and building on local knowledge.

Steven Lo, Citi Private Bank China is an important focus for our North Asia business. You cannot say you are a serious player in the region without factoring in the potential and opportunities that China represents which is why we continue to add resources to this market.

Wang Lei, CMB Private Banking CMB Private Banking was established in China and, although we have embarked on global expansion for the past few years, Chinese clients are always our main target of services.

Over the past decade, with the rapid growth of HNWIs in China, the domestic private banking business has developed vigorously. In the next ten years, under the macro background of the Chinese economy which is transitioning from a phase of rapid growth to a stage of high-quality development, it’s reasonable to believe that the domestic private banking market will evolve towards being more mature, standardised, and diversified.

Karan Bhagat, IIFL We understand India and our focus would be more on India for now.

The Indian market remains underpenetrated as far as financial services are concerned and a large part of the population holds savings in gold and real estate. As financialisation of savings increases, a lot of this will directly and indirectly aid financial services-related companies. With growth prospects for India remaining high, we would prefer to fortify our presence here before making any inroads into China.

Jimmy Lee, Bank Julius Baer The Chinese economy is a very attractive market. As China is the second largest economy, demand for wealth services is growing rapidly. We can see a very strong demand for asset diversification in China.

While focusing on organic growth, we will continue to look for strategic initiatives that match our criteria.

Michael Blake, UBP At 60% of Asia’s wealth pool, China is key to UBP’s Asia growth plans, as our hiring track record demonstrates.

Ten years ago, Chinese entrepreneurs were focused on reinvesting excess capital in their businesses.

Today, they are much more open to the benefits of diversification. The increasingly global nature of their financial affairs means they are well disposed to an innovative international wealth management service. We envisage continued tensions in the China-US relationship but do not believe it will derail China’s economic rise and wealth accumulation. The challenge will be to deliver an international wealth management offering that is attuned to the needs of Chinese entrepreneurs.

Tang Ning, CreditEase Wealth growth in China has outpaced all other places in the world, along with the rapid growth of the needs for all-round wealth management services. Over the years, CreditEase has been building up its strengths in terms of talents, investment capability, service capability, and technology capability, aiming to not only maintain its leadership in the Chinese market, but also match its international peers, learn from advanced international practice, and establish cooperation relationships with top-class global institutions to gain access to the best resources.

Bahren Shaari, Bank of Singapore It’s no secret that the number of high net worth and ultra high net worth individuals in China is one of the fastest growing in the world. A substantial proportion of our net new money in the last few quarters has come from the region through our offshore business. Our Hong Kong branch is strategic in that it gives us access to the Greater China market. We will continue to invest in the region, which is one of our core markets.

Kenny Lam, Noah Holdings We were founded in Shanghai in 2005, and are still headquartered there. We have over 3,000 staff working in China in 81 cities, and over 230,000 registered HNW clients from China. We continue to expand our presence in China into regional hubs while solidifying our market share in first- and second-tier cities.

INDUSTRY

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25

THE FINAL WORD BUSINESS PERFORMANCE

In the midst of what has been construed as an increasingly difficult macroeconomic environment, how do you think the private banking and asset management industry will perform in 2019? Will it be a year to separate the wheat from the chaff?

Tan Su Shan, DBS Bank The macro environment will continue to be challenging from both a business and regulatory standpoint. We can expect to see further margin compression and higher costs of compliance.

Against this backdrop, firms that were over-zealous in their hiring efforts during the recent good years may suffer from cost overruns that will not be sustainable. Further consolidation in the industry cannot be ruled out — those lacking scale or a wider range of solutions (for example, boutique-type outfits) may be forced to exit the market. The bigger firms or the universal banks with a ‘one bank’-type solution will be better placed to withstand such volatility and turbulence.

Wang Lei, China Merchants Bank Private Banking I think 2019 will be a tough year for the whole industry. The international political and economic environment is sophisticated and unpredictable, and the stringency and scrutiny of regulators at home and abroad are rising.

This year, China unveiled new rules that regulate the asset management businesses of financial institutions, with the aim of standardising the country’s fast-growing asset management industry. As a result, the current business model of wealth management is not sustainable.

However, CMB Private Banking has been focusing on the strategy of creating differentiated investment consulting services, which are customer-oriented from the outset. In fact, the investment portfolios we build for our clients can withstand market fluctuations better and achieve more robust returns.

Benjamin Cavalli, Credit Suisse In these more challenging markets, we believe our integrated approach and focus on more stable, annuity-like revenue streams leaves us well positioned to support our clients and help them not only navigate the current climate but also capitalise on opportunities that arise.

We continue to strive for a balanced mix of transaction and recurring revenues and net interest income while a key focus remains in driving managed solutions spanning discretionary and advisory mandates — i.e. CS Invest — and funds and alternative fund solutions. In the first nine months this year, our recurring revenues grew 16% YoY despite challenging markets.

In addition, we aim to increase our leading mandates penetration and to make our clients better investors with a fee-for-advice model that increases alignment of interests between the bank and client. CS Invest — our human-led, digitally enabled advisory solution that offers clients access to retrocession-free share classes of funds — is one such differentiator that helps clients improve performance. We’ve seen substantial demand with assets tripling since launch, as clients are acknowledging

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the benefits of a systematic process supported by our house view and the leveraging of technology and digitisation to enhance their investment experience.

Assets of our bespoke discretionary mandates, which represent more than 80% of our discretionary mandate business, have also grown by more than 20% per year in the past few years.

Ong Yeng Fang, UOB Private Bank One core investment theme for 2018 was investing under mature economic cycle conditions. With the US Federal Reserve tightening monetary policy and other central banks expected to follow suit in 2019, a more volatile market environment is not unexpected. Recent events including Sino-US trade tensions, and pockets of stress in emerging markets are heightening these uncertainties. We are working with some of our clients to reduce risks though most are staying the course. While volatility is expected to increase, there are still some selected opportunities in the financial markets. We have been guiding clients to rebalance their portfolios away from risk areas, to focus on quality, and to advocate for a more diversified portfolio that is less correlated with traditional assets.

Jaideep Hansraj, Kotak Mahindra Bank Like all market downturns, this period should also bring about the consolidation of players and push businesses to refocus on models that are relevant to and aligned with client interests.

We at Kotak have been a consistent leader in our business for the last 20 years by putting forth our clients’ interests first and using our past experience to grow in strength by compromising short-term gains for a long-term leadership.

Karan Bhagat, IIFL Investment Managers We see India on the brink of a quantum leap in wealth generation and the economy is home to wealthy individuals with a combined fortune close to INR 100 trillion. While it will be difficult to predict the growth for 2019, we see this figure almost doubling by 2022. The wealth creation exercise and the number of HNWIs are just beginning to grow, and there is a long-term path of compounding. As the financialisation of savings coupled with monetisation of assets continues to see an uptick, private banking and asset management are set to benefit immensely. At this stage, I would not see 2019 as a year to separate the wheat from the chaff. I would rather think the sowing has just begun.

Edmund Koh, UBS Global Wealth Management Growth is likely to slow in 2019 and so are corporate earnings as the impact of trade tariffs is felt on the US and Chinese economies and as tailwinds from US tax cuts wane. Monetary policy is getting tighter — 2019 will likely be the first year since the financial crisis when balance sheets end the year smaller than they started. Political risks — ranging from trade disputes to Brexit to Italy — abound. And the world continues to use more resources unsustainably.

THE FINAL WORD BUSINESS PERFORMANCE

At the same time, the best opportunities can present themselves amid dislocations. Although volatility and uncertainty have increased, there are few signs to suggest that a recession is looming. Inflation remains contained, rates are being raised in a measured way, and global consumption looks to be in strong enough shape to see us through trade or other specific risks.

Earning higher returns will take more work but opportunities are still out there.

The bank or asset manager who can best guide their clients through the outlook, risks, and opportunities in the months to come to help clients achieve their financial goals amid the uncertainty will continue to perform. This will require significant scale to offer clients opportunities they hardly get anywhere else.

Michael Blake, UBP We expect continued market volatility and lower overall investment returns against a backdrop of moderating economic growth, a rising rate environment, and continued geopolitical tensions. We believe these conditions will continue to favour active managers and demand a highly proactive approach to managing asset allocations and portfolio risk.

Didier von Daeniken, Standard Chartered Private Bank Private banking is all about the clients, macroeconomic difficulties notwithstanding. At Standard Chartered Private Bank, our ambition is to drive prosperity for our clients by providing them with a platform for unbiased decision-making. To do this, we pride ourselves on having an open architecture so that our clients can benefit most from product recommendations that are carefully curated from diverse and independent sources that truly reflect their needs.

Anshu Kapoor, Edelweiss Private Wealth Management Given the wealth management opportunities in India, shortterm macroeconomic events don’t take away our long business growth ambitions. We’re confident that we will continue to grow in the range of 25-40% CAGR for the next five-to-seven years. There could be occasional blips due to macroeconomic factors. Yes, India is an onshore market and brings with it all sorts of complexities. Therefore, to become significant, any new player will have to develop an understanding of local market conditions.

We believe there will be a few players who will start dominating given their size, capabilities, and value proposition and that periodic consolidation will happen in the industry.

Albert Chiu, EFG Bank Disruption will continue — market volatility, trade wars, regulatory recalibration, and new technology requirements will continue to disrupt the private banking industry in 2019. Private banks will have to continue to transform to boost recurrent revenues, increasing discretionary

management or advisory mandates, and to add further value to their clients with sound wealth planning solutions and structured products. We must conscientiously remind ourselves to take stock of the transformational change agenda to ensure clients’ needs are continuously met. At EFG, with our client-centric entrepreneurial approach, our experienced client relationship officers are always moving in step with our clients to meet their financial needs in a swift and straightforward manner.

Pierre Masclet, Indosuez Wealth Management While we are still rather optimistic when it comes to our macroeconomic outlook, 2019 will certainly pose challenges that we haven’t really seen in the past two years. This may indeed be a moment of truth for our industry and as Indosuez always focuses on the long term, we are well positioned to guide our clients through more market volatility or uncertainty.

Kenny Lam, Noah Holdings 2019 will be a year of trials and tribulations. Under tightening regulation, it will be harder for those firms that dabbled in implicit guarantees, shadow lending, duration mismatch, etc. to survive.

This is a good exercise to separate the well-regulated firms from those that are not, and to reduce overall risks in the financial system.

Bahren Shaari, Bank of Singapore Trade tensions are at the forefront of everyone’s minds right now.

We have not felt that great an impact so far on our AUM — in fact, our AUM is still growing steadily. However, we predict that next year would be tougher, especially if Trump extends the tariffs on an additional US$250 billion worth of goods as he has threatened to.

When markets are volatile, that’s when good private bankers will stand out from the rest. A good banker would be able to help keep clients calm and trust in their investment portfolio to ride out the storm.

Tang Ning, CreditEase Asia globally ranks first for HNW and UHNW population growth, which throws into sharp relief the shortage of talents who intimately understand sophisticated asset allocation philosophies and possess professional investment capabilities. The days when relationship managers can simply rely on their relationship with clients to sell wealth management products are over.

We’ve built up strong teams consisting of financial planners, investment consultants, tax planning advisors, family trust advisors, lawyers, tax accountants, and other professionals to provide clients with a one-stop, fullservice wealth management platform. By building up such a platform, CreditEase Wealth Management not only meets the needs of its clients, but also cultivates a generation of professional talents capable of providing wealth management services across asset classes and geographic regions.

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THE FINAL WORD BUSINESS PERFORMANCE

What is the one revenue line that you must build up significantly in the coming few years to ensure business sustainability? What is your view on the revenue mix of the industry in general?

Tan Su Shan, DBS Bank For sustainability, we must think long-term. What would the next generation want and need?

Firstly, getting the wealth structure and estate planning right is paramount to building the foundation for a good, sustainable long-term relationship that can span multiple generations. Secondly, sound advice around proper asset allocation and customised discretionary offerings with an open architecture platform are essential to committing the clients to us. Thirdly, cultivating an ESG agenda for investing and being able to create interesting, timely access to bespoke or good PE or RE deals will also help engage clients, especially the next generation. Fourthly, leveraging our one-bank solution, including capital market and corporate banking services for families that are still very involved in their businesses. Being able to add value to their businesses and better understanding the wealth creation process makes the relationship a lot stickier, and the solutions a lot more relevant.

Michael Blake, UBP We are seeing that a clear trend towards a fee-based advisory model which is aligned with client interests is leading to a healthier transactional/recurring revenue mix, and will be an important factor in business sustainability in the years to come.

Pierre Masclet, Indosuez Wealth Management We advise our clients to have diversified portfolios. Similarly, in our view, revenue has to be a healthy mix of recurring revenue as well as more trading-related income and not be dependent on one specific revenue line.

Didier von Daeniken, Standard Chartered Private Bank Besides ongoing digitisation, sustainable investing or impact investing is an area that is going to drive sustainability (pun intended) for our business.

According to the GIIN’s eighth Annual Impact Investing Survey, out of 229 survey respondents, 225 invested US$35.5 billion into over 11,000 deals in 2017. They also intend to increase their investment by 8% and the number of deals by 5% during 2018.

In Asia, over 85% of billionaires are first-generation business owners and many of these families are preparing their next generation by engaging them in marrying the family’s investment strategy with their desire to give back to the society and the idea of sustainable investing has been gaining traction. They're intrigued by and interested in the idea of driving exponential impact while also seeking financial returns through investing in sustainable businesses.

It’s clear that globally, investors are looking to harness the financial system to catalyse sustainable development and Standard Chartered Private Bank is uniquely positioned to help translate the passion into action.

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Karan Bhagat, IIFL Investment Managers Clients recognise a devolvement of power is needed for them to receive the professional help they seek in managing their wealth. Fees attract scrutiny among HNWIs. As one of the leading companies in wealth management in India, we have recently announced a pioneering shift in the way wealth management is done. We launched IIFL One to migrate to an advisory- and discretionary-led model from a brokerage-led one, across all our product offerings.

The focus is on process-based delivery towards money management and not just product-based execution. IIFL One would be our focus area in the years to come.

Steven Lo, Citi Private Bank We are looking at broad-based growth across all our markets and product lines. This coupled with a keen eye to managing our costs is crucial for business sustainability. We remain focused on client acquisition as one of the key drivers for continued year-on-year growth.

Traditionally, the revenue mix in the industry has been more episodic than annuity-based and that will need to change to ensure business sustainability.

We have recognised this and have spent time building our annuity business.

Today, half of our investment revenues are from managed investments and the other half from capital markets — a marked change from what used to be an 80:20 split between capital markets and managed investments.

Jaideep Hansraj, Kotak Mahindra Bank Clearly the need of the business is to move towards advisorybased annuity models that align advisors’ interests with the interests of their clientele. A majority of the industry functions on transaction-based fee and income-based models that work when the markets are doing well and tend to struggle in downturn.

Tang Ning, CreditEase Asset management fees and carried interest are the main sources of revenue for CreditEase Wealth Management, as we benefit from cumulated AUM scale and good investment performance. Our interest is consistent with clients’ interest. We create value for client assets, provide service to meet their demand, and grow together with clients. Forward-looking wealth management institutions must shift from pure product distribution to asset allocation and comprehensive wealth management services based on client needs. The change of revenue mix reflects the transformation of institutions.

Anshu Kapoor, Edelweiss Private Wealth Management The revenue model of a wealth manager is largely determined by the choice of client segment. Within our segment we believe revenue will go up significantly for alternate and emerging asset classes (distressed assets, structured credit), high-yield fixed income, and credit solutions.

Kenny Lam, Noah Holdings Recurring service fees — which have already risen from less than half of total revenue to more than half.

ADVERTORIAL

Key long-term trends take centre stage in our evolving economy

D

espite investor concerns over the possibility of a shortterm equity correction — potentially triggered by surging volatility, escalating trade disputes, or rising inflation risks — a number of key secular themes that are more resistant to near-term market turmoil are appearing and evolving.

We see a booming use of smartphones for flight bookings, online shopping, and electronic payments, and the increasing application of robots in smart warehouses, surgery tables, and driverless cars — technological advancements are reshaping the world we live in and the way we should invest. Perhaps it’s time for investors to break away from traditional asset allocation approaches and look at thematic investment in long-term opportunities.

Five key multi-year trends have emerged as technology and society evolve: ageing population, digital consumption, automation, cleantech, and transitioning societies, all of which span across sectors and are likely

to largely shape the way companies operate in the future. The good news is these evolving trends are not only visible in our daily lives but are also already providing investment value and diversification benefits, in terms of geographies, sectors, and market caps. “[Thematic investing] provides an additional way to identify true growth companies with pricing power and competitive advantages, without being constrained by the traditional barriers of sectors,” said Mark Hargraves, head of global strategies at AXA Investment Managers (AXA IM). “Many companies are no longer respectful of these (traditional) sectors and are changing — and so are we.”

The digital economy is an exemplar of a trend flourishing in the evolving market landscape. Driven by rapid advancements in data analytics, e-commerce, and mobile consumption, online retailers and mobile payments have become exponentially popular amongst today’s consumers.

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ADVERTORIAL

To put this into perspective, Alibaba sold US$25 billion of goods in just one day on China’s Singles’ Day in 2017, with 90% of the deals transacted through mobile devices1. The number might be surprising but the digital era is still in its infancy — only 9% of global retail sales were transacted online in August 20172 and according to estimates, global e-commerce is set to grow 13% by 20213.

In order to capture the growth of this evolving trend, AXA IM launched a strategy to tap into the potential of the overall value chain of the digital economy.

“Digital transformations are something we are going to hear a lot more about in the coming years,” Jeremy Gleeson, portfolio manager, Digital Economy Strategies at AXA IM Framlington Equities, told Asian Private Banker.

Gleeson said the team doesn’t only look at the entire e-commerce journey from product discovery, buying decision and selection to final payment and delivery, but also at “enablers” — companies that provide technology products and services to help traditional businesses with their digital transformations.

“While we are only at the beginning of this significant trend, it already represents a huge opportunity for investors,” Gleeson added.

As the economy continues to evolve at an increasingly rapid pace given a constantly expanding technological landscape, commercial and environmental innovations, and ever-changing demographics, investors who can seize emerging trends like the digital economy may gain the vital first-mover advantage.

“As we notice the impact that technology has been having on consumers and retail industries more generally, we see that increasingly more of the investment opportunities are around the theme of ‘connected consumers’, and not pure technology companies in a traditional sense.”

For further information, please email: axaimasiasalesmarketing@axa-im.com

Sources: AXA IM as at September 2018 In Singapore, this document has been issued by AXA Investment Managers Asia (Singapore) Ltd. (Registration No. 199001714W). In other countries, this document has been issued by AXA Investment Managers Asia Limited. References to “AXA IM Asia” below shall be references to AXA Investment Managers Asia (Singapore) Ltd. or AXA Investment Managers Asia Limited as appropriate. AXA Investment Managers Asia Limited is regulated by SFC. This document has not been reviewed by the Securities and Futures Commission in Hong Kong (“SFC”).

This document and the information contained herein are intended for the use of professional or institutional investors or accredited investors only and should not be relied upon by retail investors. They are strictly confidential, and must not be reproduced, circulated, distributed, redistributed or otherwise used, in whole or in part, in any way without the prior written consent of AXA IM Asia. They are not intended for distribution to any persons or in any jurisdictions for which it is prohibited.

Such information may be subject to change without notice. The data contained herein, including but not limited to any backtesting, simulated performance history, scenario analysis and investment guidelines, are based on a number of key assumptions and inputs, and are presented for indicative and/or illustrative purposes only.

The information contained in this document is not an indication whatsoever of possible future performance and must be considered on this basis. Information herein may be obtained from sources believed to be reliable.

AXA IM Asia has reasonable belief that such information is accurate, complete and up-to-date. Any views, opinions or recommendations (if any) that may be contained in such information, unless otherwise stated, do not reflect or constitute views, opinions or recommendations of AXA IM Asia.

This document has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation or particular needs of any particular person. Nothing contained within this document shall constitute an offer to enter into, or a term or condition of, any business, trade, contract or agreement with the recipient or any other party. This document shall not be deemed to constitute investment, tax or legal advice, or an offer for sale or solicitation to invest in any particular fund. If you are unsure about the meaning of any information contained in this document, please consult your financial or other professional advisers. The data, projections, forecasts, anticipations, hypothesis and/or opinions herein are subjective, and are not necessarily used or followed by AXA IM Asia or its affiliates who may act based on their own opinions and as independent departments within the organization.

Investment involves risks. You should be aware that investments may increase or decrease in value and that past performance is no guarantee of future returns, you may not get back the amount originally invested. Investors should not make any investment decision based on this material alone.

For Singapore investors: In Singapore, this document is issued by AXA Investment Managers Asia (Singapore) Ltd. (Registration No. 199001714W) and is intended for the use of Institutional Investors and/or Accredited Investors only as defined in Section 4A of the Securities and Futures Act (Cap. 289) and must not be relied upon by retail investors. Circulation must be restricted accordingly.

As an exempt financial adviser under the Financial Advisers Act (“FAA”), AXA IM Asia is exempted from complying with certain business conduct rules (including but not limited to Sections 25, 26, 27, 28, 29 and 36 of the FAA, where applicable) when providing financial advisory services to Accredited Investors, Expert Investors or Overseas Investors, each as defined in the Financial Advisers Regulations.

For Thailand investors: Nothing in this document shall constitute in any manner whatsoever a proposal to make available, offer for subscription or purchase or to issue an invitation to purchase or subscribe for any securities in Thailand or a proposal to implement any of the foregoing in Thailand nor has this document been approved by or registered with the Securities and Exchange Commission of Thailand (“SEC”). No person receiving a copy of this document may treat the same as constituting an invitation or offer to him in Thailand and such person shall not distribute or make available this document in Thailand. The issuer of this document shall not be liable in any manner whatsoever in the event this document is distributed or made available to any person in Thailand receiving a copy of this document. Since no application for approval has been or will be made to the SEC for the offering of the securities, or for the registration of this document, the securities shall not be offered for subscription or purchased or made available, whether directly or indirectly, in Thailand. It is the sole responsibility of recipients wishing to take any action upon this document to satisfy themselves as to the full observance of the laws of Thailand, to comply with all relevant government and regulatory approvals, and to comply with all applicable laws, including but not limited to exchange control laws. © 2018 AXA Investment Managers. All rights reserved.

This is a sponsored article from AXA Investment Managers.

Bloomberg, Alibaba’s Singles’ Day Goes Global With Record US$25 Billion in Sales, 12 November 2017 Citi GPS, Technology at Work v. 3.0, August 2017 3 Euromonitor International, Citibank “Technology at work v3.0”, August 2017 1

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THE FINAL WORD INVESTMENT SOLUTIONS

Though continued geopolitical uncertainty and volatility pose a challenge for DPM performance, will this ultimately prove to be a boon for the discretionary business, converting clients from trade to delegation? In these same market conditions, how critical will the alternatives business be for private banks in Asia moving forward?

Edmund Koh, UBS Global Wealth Management Markets rarely impact a client’s choice on discretionary vs non-discretionary. Rather, they’re impacted by the desire to be involved in day-to-day investment decisions for certain portfolios as well as the actual underlying investments. So it really depends.

Current market conditions have reassured clients who invest in our globally diversified strategies that there’s a strong benefit to have this exposure in light of the home-biased drawdowns this year, with Asian-biased and fixed incomefocused investors having obviously seen more headwinds.

Also interestingly, we’re still seeing that the more our clients follow the asset allocation and the strategic discipline of research-based portfolio management, the better the overall performance. Concretely, the majority of our self-directed portfolios have underperformed our CIO-based portfolios.

In our client conversations we stress that it’s a misconception that control is given up with a discretionary portfolio. The key to investment success is not whether you self direct or delegate. The key is whether you execute the strategy that fits your return and risk expectations with discipline.

This is why we advocate DPM — we believe your chance of successfully allocating across different asset classes and keeping investment discipline significantly increases if you hire a professional manager.

Many of our clients are successful entrepreneurs and understand that hiring professionals to perform a job for you does not mean giving up control.

Jimmy Lee, Bank Julius Baer Typically, uncertainty and volatility are friends of the DPM business. Having said that, we see multiple reasons for sustained growth in discretionary assets. Regulation in terms of risk rating and product suitability is changing the landscape of the business. Market access in certain assets and scale benefits that accrue to institutional-type longterm investing are trends that will make the DPM business more appealing to clients. While returns on profiles across asset classes have reduced the time and effort required to harvest, these returns have gone up, making a case for handing assets to professional investors. As wealth grows, the need to diversify is helping the discretionary business. As generational wealth transfers happen, it hastens the conversion to discretionary and professional asset management.

Pierre Vrielinck, BNP Paribas Wealth Management Our historical returns show that DPM provides better performance than achieved by self-directed clients in both attractive and poor market conditions, as behavioural biases often plague the average investor’s performance across the cycle. These biases lead to destructive market timing and overconcentration are heavily mitigated

through DPM. In a year like 2018, when almost all markets are in negative territory (at the end of October), we’ve actually seen our largest ever inflows into DPM across all different types of mandates.

On alternatives, we see growing interest in private assets, such as PE and RE, rather than in hedge funds, which have delivered subpar performance. On the private side, clients increasingly recognise the value provided by specialist managers who earn attractive illiquidity premiums over the cycle, and add further value through the active management of portfolio companies or properties. Although the importance of private assets should grow at a good pace, Asian clients are, in general, far from adopting a Yale-styled endowment asset allocation focused largely on illiquid assets.

Vincent Magnenat, Lombard Odier Times of uncertainty and volatility make the proposition of DPM mandates even more attractive. Individual investors cannot be expected to deploy a full range of tools and never take their eye off their portfolio, particularly in such volatile times when a single tweet can move markets.

Our DPM portfolios remove this burden and are driven by a strong investment discipline not to let investment decisions be dictated by emotions, markets comments, and subjective views, but rather to stick to observable and measurable facts and systematically adapt the composition of portfolios accordingly. All of our DPM mandates are driven by this proprietary risk-based process, meaning we think of diversification in terms of risk proportions, not capital weights.

Focusing on DPM has been the core of our value proposition in Asia for many years. The advantages of this approach are reflected by the fact that DPM mandates now account for over 65% of our AUM in Asia and we expect this trend to continue amid increasingly unpredictable times.

Bahren Shaari, Bank of Singapore It is during periods of market volatility that DPM actually plays a bigger role and clients start to see the real benefits of DPM. Our AUM under DPM has grown by double figures on a year-on-year basis. About one-third of the growth in DPM has come from existing clients, an indication of their growing confidence in our capabilities to manage their portfolios and help them ride out the storm. Alternatives has been our focus this year as we anticipate increasing market risks and look for asset classes with lower correlation. We will continue to maintain this strategy in the coming year which is not likely to be any less challenging than this year.

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THE FINAL WORD INVESTMENT SOLUTIONS

Tan Su Shan, DBS Bank On the contrary, DPM services are better equipped to handle such environments. DPM managers have the expertise to manage portfolios in times of turmoil, and the discipline to adjust, rebalance, and ensure holdings align with clients’ risk appetites. Selfdirected clients may not be as disciplined. When markets get tougher, we see stronger interest in discretionary mandates as clients want more than just products — they’re also seeking expert advice and investment solutions, and consistency in portfolio management.

Alternatives have been gaining traction as they provide valuable diversification from classic asset classes — hedge funds, long-short, and relative value strategies may perform well in volatile times. Private investments through private debt, private equity, and real estate should also be considered as they require longer-term investment horizons and are less subject to perceptions of short-term volatility.

Kenny Lam, Noah Holdings The alternatives business is what Noah has always focused on, and that has proven very popular with our clients, where standard product returns had not been satisfactory. More and more of our clients are coming to us and looking for discretionary asset allocation portfolio solutions. In this volatile market, they need to constantly upgrade their knowledge in order to keep up with the changing markets, thus they find the management fee of discretionary portfolios more worthwhile.

Anshu Kapoor, Edelweiss Private Wealth Management In our market, clients do have the tendency not to give away control on investing decisions. However, we’re noticing an increased preference of the newer generation of decision-makers for partially giving up control on the core or passive part of their portfolios.

We believe this trend will continue. Alternate solutions in India is a fairly new asset class and we believe these will become sizeable in the coming years.

Edelweiss is the largest alternative asset manager in India — we manage India’s largest distressed asset and structured credit funds.

Lok Yim, Deutsche Bank In the volatile market situation, clients in general turned more cautious. They are concerned about any further downside risks in the financial markets.

However, some of our DPM strategies still receive inflows because of clients’ trust in our capability to protect their portfolios in the face of market volatility.

Risk management is key in this environment and it supports our campaign: ‘stay invested but hedge’.

In the current market, clients would prefer delegation in our more actively managed DPM mandates. Besides, they also rely on our capability to invest in markets outside of the Asia region as they are less familiar with them. In this market environment, the alternatives business is getting more important for private banks in Asia because of the lower trading volumes in traditional product offerings.

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Karan Bhagat, IIFL Investment Managers A structural shift has been taking place towards the advisoryled engagement model over the last decade. The GFC and high market volatility only amplify this shift. Within advisory-led engagement, retaining final say on product/fund manager selection and TAA or delegating the same to one’s trusted wealth advisor within a well-structured institutional framework is a matter of personal preference.

Of late, many entrepreneurs and senior professional wealth clients see value in discretionary offerings.

Most UHNW investors are increasingly getting sophisticated and often want to diversify their portfolios from traditional market-linked fund products to market neutral products like hedge funds, credit and real estate funds, venture capital, and private equity. Having the capability to source and even manufacture the right set of alternate products is today the key differentiator for any private bank as market-linked products have become extremely commoditised.

Pierre Masclet, Indosuez Wealth Management The increased uncertainty and (significantly) elevated levels of volatility in the market are causing clients to consider discretionary mandates or other forms of delegated solutions, such as funds and private equity mandates or in certain cases, not full delegation but more handholding through advisory mandates.

The GFC was probably the starting point for this trend. In the case of discretionary mandates, pre-GFC, industry-wide penetration was 2% while it is currently around 10%. We have seen similar trends for funds penetration. The alternatives business has grown significantly over the past decade, partly as a result of solid returns whilst it also shows how the industry in Asia and its clientele are maturing and are more open to longer terms and less-liquid investing. As an example, Indosuez has been pioneering the private equity space since 2001 and has a dedicated team in Asia covering this asset class.

Tang Ning, CreditEase As the sector is shifting from product distribution/trade to asset allocation and comprehensive wealth management service based on client needs, wealth management institutions should make adjustments accordingly in business and talent systems. Those who lag behind will be weeded out by the market.

Jaideep Hansraj, Kotak Mahindra Bank The success or failure of any strategy cannot be predicted. We are in a constantly evolving world that has more information than what can be processed. Thus, systematic models and disciplined rebalancing should work in market volatility.

Again, going back to fundamentals, we look at ourselves as asset allocators and think that we need to design portfolio strategies that take into account both market forces and client risk profiles. Alternatives may thus be relevant on a case-by-case basis.

THE FINAL WORD INVESTMENT SOLUTIONS

Ten years on from the GFC, how has your product shelf evolved and how has clients' perception of structured products changed since then?

Steven Lo, Citi Private Bank Although Asian clients have been widely known to be more short term and capital markets-oriented, we have seen a shift as our clients are having more of a mediumto-long-term view. They’re taking a portfolio approach and utilising tools like our investment lab analytics to design more constructive portfolios. There’s also more appreciation for the diversification benefits of alternatives such as hedge funds as well as increasing appetite for PE and RE opportunities. Our platform has evolved extensively in these areas as we leverage our extensive network to source these unique products.

Anshu Kapoor, Edelweiss PWM Structured products are a fairly new instrument in India as regulations don’t permit product diversity the way it is available in offshore markets. We’re attempting to evangelise structured products as a core investment solution in client portfolios to help manage risks/volatility and are the largest issuer of structured products with more than 50% market share in India.

Wang Lei, CMB Private Banking CMB Private Banking has always been committed to an ‘open product platform’, incorporating thousands of high-quality financial products from various brands and sectors.

The structured product market has developed slowly in China as Chinese clients are accustomed to lowrisk products. However, as China’s capital markets have developed, client knowledge of and demand for structured products have stepped up as well.

With low-risk products poised to see significant shrinkage given new regulations, the traditional model of relying on these products will transform.

At present, domestic structured products are still in their infancy, with few ELN-based products.

Tan Su Shan, DBS Bank Structured products have come a long way since the GFC and are an important asset class for private clients in Asia given their flexibility, customisable solutions, and pay-off profiles that can be tailored according to investment preferences.

DBS offers a suite of innovative structured products that articulate our clients’ investment objectives and are designed to take advantage of prevailing market conditions and trends — for instance, products linked to ESG-compliant companies outperforming the broad market or increasing volatility in equity markets. We also invest significantly in helping clients to understand structured products.

Pierre Vrielinck, BNP Paribas WM On the back of increased investor sophistication and need for more customised solutions, our product shelf has evolved substantially in terms of breadth and depth. For example, investors were previously only given selected products to trade in brokerage with relatively larger minimum sizes. Now, they can easily participate in smaller-sized trades across a range of products electronically.

As for structured products, Asian clients are now much more knowledgeable and controlled in their use of leverage and we see them used as an instrument to express a view or as a tool to hedge overall portfolios.

Lok Yim, Deutsche Bank In the last ten years, the fundamental change is that there has been a move towards a more advisory nature.

When you look at clients ten years ago, they were putting on trades and transactions which were, in some ways, very market dependent.

Clients look at a lot more downside protection now than they did ten years ago. Hence we are talking more about downside protection and hedging. Our theme has become ensuring clients have exposure to the upside of the market while they do not necessarily suffer the same amount of downside than they did in the past.

Benjamin Cavalli, Credit Suisse Since the GFC, the use of leverage and the level of risk-taking has decreased significantly, our solutions shelf has diversified more, and clients are increasingly demanding managed solutions and adopting a more structured portfolio approach to investing.

In addition, our front office is more educated on products and solutions and the industry has a much better understanding of client suitability.

We still see good interest from clients for structured products as they recognise that these can be an efficient way of investing in multi-asset classes that are tailored to individual risk appetites and risk/ return profiles. Increasingly, we’ve observed that more clients are venturing into more bespoke products.

Karan Bhagat, IIFL We have seen strong growth in the breadth of our product offerings with the addition of many focused, managed account strategies on the listed equity side, and big additions on the alternate side. Structured products have continued to be part of our core portfolios right from 2008 — we, as well as our investors, have always stuck to products issued by highly rated issuers of structured products. Clients are comfortable with higher-rated issuers.

Jaideep Hansraj, Kotak Mahindra The product shelf for Indian investors has witnessed an expansion. However, we have always believed in the simplicity of products. If our clients can’t understand a product completely, it is not fair to allocate such products to them. Having said that, we do have investors who not only understand structured products but also run their own models. While we see a larger demand for customisation in each portfolio, we do find limited acceptance of structured products.

Tang Ning, CreditEase We believe asset allocation is the best way to realise long-term value for clients. We have optimised our product line based on this concept and formed a model where we put asset allocation at the core and make long-term investments in alternative assets across regions, countries, asset classes, and FoFs. With a deeper understanding of the market, more clients have realised that asset allocation is a science-based approach to wealth management.

Jimmy Lee, Bank Julius Baer We look upon the evolution more in the sense of a holistic approach to wealth advice and management as against a product shelf change. On structured products, they — like any other solution — are an effective tool to have in the portfolio mix. The understanding, knowledge, and disclosure levels of the structures themselves have seen significant improvements since the GFC.

THE FINAL WORD R E G U L AT I O N S & C O M P L I A N C E

What's the essential tool you have or are planning to create that will help your firm tackle the uptick in regulatory stringency and scrutiny? Do you think that the compliance costs of your business have peaked?

Tang Ning, CreditEase First of all, the industry needs to be well regulated as a wellregulated, well-ordered environment is key to success. We have the intention and determination to be compliant with regulations in all jurisdictions that we practice in. We also have a complete set of policies, procedures, and enforcement processes to ensure compliance, alongside very experienced compliance colleagues recruited from worldleading financial service companies to keep dialogue with regulators constant and open.

The cost of compliance has dramatically increased in the past decade for everyone, and it keeps increasing. Most of our business is in China where cost compliance is increasing big time and I do not think that it has peaked. We are working with the regulators to create a balanced regulatory environment that allows for good ideas and innovations to still be tested — and flourish once they are proven.

Evrard Bordier, Bordier & Cie We work with the best-in-class technology partners in order to build seamless services for our clients. Presently we are working on a new suitability tool that integrates our private banking relationship philosophy with regulatory demands. Along with robust research, we find that for a boutique firm like us, vendor support is the most important when it comes to choosing compliance and reporting tools. Essentially, we need to be agile to adapt and even preempt ever-changing regulatory demands. Compliance has not peaked as costs will continue to rise for as long as regulators aim to continuously build a robust framework.

Vincent Chui, Morgan Stanley Regtech is a critical area for regulators and banks to explore and deploy to improve their effectiveness, efficiency, and productivity, but it is not clear how fast such technology can evolve and be ready to substitute the vast amount of labour and paper being consumed in the governance process. Meanwhile, compliance costs on a per-RM basis have probably peaked but will likely stay at a high level for the time being given the regulatory and risk management frameworks banks are subject to.

Didier von Daeniken, Standard Chartered Private Bank In private banking or, for that matter, banking in general, it is absolutely critical to have a set of robust governance frameworks that guides how business is done. In light of changing landscapes, be it technology, political, or macroeconomic changes, keeping this set of rules up to date at all times is even more crucial. Clients are at the centre of everything we do, so safeguarding of clients’ interests is paramount. While we continue to invest in technology to enhance how we serve our clients, these digital initiatives also factor in the latest regulatory requirements.

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Jaideep Hansraj, Kotak Mahindra Bank Regulations are changing in line with the market evolution and we think that such changes are relevant and important for a market like India. We are also adapting to those changes accordingly. However, regulatory changes also bring about a great amount of reassurance to investors and acceptance becomes that much easier to communicate to investors. While it may increase compliance cost in the interim, it helps leaders like us grow in the long run.

Steven Lo, Citi Private Bank The discipline of compliance is very much embedded in our culture. It will continue to be part of the cost of doing business.

Oftentimes, the regulatory agencies in the countries that we deal in look to us in leading the rest of the market in higher standards of regulatory adherence. I believe our extensive and long-running experience in the region gives us the capability to understand the complexities and the risks and therefore lead the way in developing the appropriate processes and oversight.

Karan Bhagat, IIFL Investment Managers ‘Technology’ and ‘risk foresight’ are the needs of the day for compliance and governance. We are constantly upgrading technology to bring a better experience to the customers and ease of operations. We have implemented suitable integrated systems for our wealth, asset management, and lending businesses to meet the customer and business requirements and to monitor the regulatory requirements including limit monitoring, customer profiling, and AML checks. We are constantly working towards making the system more control-driven, and alerts are nearlive rather than post facto.

Further, a dedicated risk management team is in place to understand the risk of products and processes to ensure a better governance setup, and audits have become an integral part of our compliance and governance framework.

Any business which must grow over a period needs a strong compliance and corporate governance framework in place to ensure no regulatory bars are crossed. We would classify compliance as an investment rather than as a cost because you need a monitor to mind the class.

Pierre Masclet, Indosuez Wealth Management Given the fact that our proprietary core banking system S2i is being used by 30 industry participants globally, we have the advantage of being at the forefront of dealing with and integrating the rules and regulations in our policies and automated processes.

We view this being ahead of the regulatory curve as a competitive advantage, both for our private clients as well as our clients from the financial industry who work with our system.

THE FINAL WORD R E G U L AT I O N S & C O M P L I A N C E

Michael Blake, UBP It’s possible to say that we have ended the first phase of regulatory change post-GFC which, by definition, has driven wide-ranging reform of the prudential and conduct agenda. But this rather misses the point.

Regulatory change is a constant and all banks should anticipate continued scrutiny and stringency, particularly in the AML, suitability, and (with a rising interest rate and slower growth environment) credit space. I also expect to see increased regulatory focus on the non-bank financing, asset management, and IAM segments. I expect compliance costs to remain broadly flat, but within this there is an opportunity to spend more intelligently on compliance systems and less on manual processes.

Anshu Kapoor, Edelweiss Private Wealth Management Our belief has always been that regulatory change which is good for the client is good for the business and for the industry.

We frequently engage with regulators to propose changes to safeguard client interests and avoid any friction in the processes that can help the industry. We believe costs can be managed by enhancing efficiency through technology and automation.

Kenny Lam, Noah Holdings We have always held ourselves to the strictest compliance standards, and so we continue to keep track and regularly check and cross-check various functions, from relationship manager training to KYC to product risk to after-sales.

Are you satisfied with how regulators interact and solicit the industry for feedback?

Pierre Masclet, Indosuez Wealth Management The way regulators interact with the industry and vice versa has been improving substantially over these past few years. To give an example, the founding of the Private Wealth Management Association (PWMA) in Hong Kong has led to substantially increased and improved interaction with various regulators, both at home as well as overseas.

Vincent Chui, Morgan Stanley Regulators in Hong Kong and Singapore have been very proactive and constructive in their interaction with banks within their ambit. There is constant formal and informal dialogue shaping the regulatory framework and regulations in these private banking hubs.

Another trend is that regulators globally communicate, interact, and align more with each other these days than was the case previously, which in turn has resulted in better outcomes for banks and clients alike because of increased clarity, transparency, and alignment.

Karan Bhagat, IIFL Investment Managers SEBI [the Securities and Exchange Board of India] as a regulator has been a great stimulant and has been true to its vision by also promoting development and regulating the securities market.

SEBI has started meeting independent directors and various intermediaries, having feedback meetings, and seeking comments and observations of market participants. It voluntarily meets market participants and intermediaries to hear difficulties and constantly endeavours to bring up the segment to its fullfledged potential.

Tang Ning, CreditEase As with everything, there is always room for improvement.

Though all regulators are coming with excellent intentions to protect financial systems and manage systemic risks, sometimes regulation comes with unintentional consequences.

Frequent dialogue with practitioners can minimise the risk. We have very good relationships and interactions with Chinese regulators and have always been open and transparent with our regulators. We give them our feedback, show them our practice, and try our best to work with regulators to help them achieve what they intend to achieve.

Jaideep Hansraj, Kotak Mahindra Bank Yes, they actively engage and take feedback. We appreciate their effort.

Anshu Kapoor, Edelweiss Private Wealth Management Yes.

Kenny Lam, Noah Holdings We see China as a market that is evolving quickly to reach global standards. While there may be some volatility ahead, we believe things are moving in the right direction and that the industry will ultimately be protected in the long run.

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10th APB SUMMIT 2019 Greetings to you our friend and supporter!

Thank you for your trust and friendship over the last 10 years.

As our most valued guest, we cordially invite you to attend the largest and most influential private banking event, the 10th Annual APB Summit.

14 May | Hong Kong 16 May | Singapore For more information, go to

www.apb.events/joinapbsummit

This event qualifies for CPT/CPD accreditation.

RSVP to Koye Sun koye.s@asianprivatebanker.com / +852 2529 0617

Confirmed CEO speakers for 2019 include:

Albert Chiu EFG Bank

Amy Lo UBS Global Wealth Management

Kenny Lam Noah Holdings Limited

Derrick Tan Bank of Singapore

Michael Blake Union Bancaire PrivĂŠe

Conversation Partner

Francois Monnet Credit Suisse

Pierre Masclet Indosuez Wealth Management

THE FINAL WORD TECHNOLOGY

What is your view on robo-advisors and is your firm developing robo-capabilities of its own? Have you observed any robo-advisory developments that could materially disrupt the industry?

Lok Yim, Deutsche Bank My principle is: before going to the fancy stuff, don’t ignore the core platform and never forget there’s only one chance to impress new clients. I’m proud to share that we have transformed our account opening process and we can now onboard clients much faster. This helps to support our growth and, more importantly, helps us to make the best first experience for clients.

With our ambitious hiring initiative, the stakes are high for us in Asia. Once we can onboard all those clients brought to us by relationship managers, our ability to push our growth agenda becomes much easier.

In the next phase, we’re looking at integrating AI and client screening, and streamlining and automating the information-gathering process for clients and prospects. The account opening process is, indeed, the core to our strategic revamp to grow clientele and revenues. We aim to make the efficient account opening process our key differentiator.

Next year, we’ll begin to address the other parts of the overall process.

For example, e-signatures, providing investment ideas and house views, and trade execution.

Tan Su Shan, DBS Bank Robo-advisory has democratised investing by lowering barriers to entry, but our view is that customers are not ready for a fully ‘human-less’ experience. We believe in an integrated approach, and are developing capabilities by investing in intelligent digital advice and portfolio solutions technology to automate parts of the process.

We’re observing several potentially disruptive developments. Firstly, as traditional robo-advisory models originated from the US and rely on ETFs, local investors using these are taking on currency risks that they may not be fully prepared for, since global ETFs denominated in local currencies have relatively limited liquidity outside of the US. There may be significant change in the industry as investors get savvier.

Further, high customer acquisition costs question the sustainability of a B2C business model. We believe market share will likely go to B2B robo-advisors that work with banks and other financial institutions and are able to provide an intuitive, integrated customer journey.

Lastly, regulation. The environment is still nascent and differs across jurisdictions, but this could change as robo-advisory becomes more prevalent.

François Monnet, Credit Suisse Our clients in Asia are largely U/HNWIs with complex financial needs and, as such, often require integrated solutions that cover

both corporate and personal wealth needs across generations. These demands cannot be serviced solely by an automated platform.

While digital evolution in the private banking space is important to the future of our business, RMs will continue to be the core of client relationships, which are built on trust and highly personalised solutions. What technology does, to use a fashionable term, is to ‘augment’ the service ability of each RM by providing scale, content, and convenience. CS Invest is an example of such a hybrid model, where algorithms send relevant investment ideas directly to clients, but the RM remains the core of the relationship.

By introducing more ‘robo’ and AI capabilities, our focus is not to replace our RMs, but to make them smarter, more efficient, and focus them on the things that matter most to clients. Thus far, our AI capabilities can provide RMs information about clients’ portfolio health, investment ideas, and other actionable insights.

Karan Bhagat, IIFL Investment Managers With more and more people fascinated by AI, robo-advisors have been successful in attracting investors’ attention. However, the key point on accuracy lies with the algorithms used and the design of the engine. We believe that faceless robo-advisors will not be the correct approach, but a hybrid solution is for the UHNW business segment.

As such, we are investing in building platforms which arm RMs with quick and appropriate investment decisioning capabilities. To ensure complete transparency, we intend to extend these engines to clients also.

There are a good number of players in the robo-advisory space for retail clients and they have been regularly trying to make an advisory model supported by the banks through their distribution framework. Until now, we have not come across a model which can clearly emerge as a disruptor but given the number of players, we may start seeing some consolidation in the space of robo-advisors.

Tang Ning, CreditEase Robo-advisors have been around for quite some time. CreditEase rolled out its own robo-advisor product, Toumi RA, a few years ago. While robo-advisors are great tools that democratise financial advisory services, they need to overcome two limitations: how to earn humans’ trust and how to quickly react and adapt to drastic market changes.

The solution is to combine a robo-advisor’s algorithmic recommendations with a human advisor’s experience, judgement, and ability to make quick decisions, i.e. AI (artificial intelligence) + HI (human intelligence) = MI (mixed intelligence). That’s the role that I see robo-advisors playing.

(Continued on next page.) →

37

THE FINAL WORD TECHNOLOGY

Pierre Masclet, Indosuez Wealth Management We have designed our digital value proposition in such a manner that it is easy to navigate and use. In our business, however, we very much emphasise the human aspect of banking which one should typically expect from a wealth manager. All our clients have a dedicated RM, who they are in frequent contact with, looking after their (often very personal) needs.

As such, almost all of our interaction between our clients and us is on a ‘humanto-human’ basis and whether our clients want to use our digital offering is entirely up to them. We strongly believe our clients value banking ‘the oldfashioned way’ where personal interaction is the main driver in solutions delivery. Pure robo-advisory will probably, at some stage, be available to retail clients specifically. Having said that, we employ technology that helps us in portfolio construction, but ultimately it gets a ‘human review’ before it is delivered and discussed with our clients by a human private banker.

Enid Yip, J. Safra Sarasin At Bank J. Safra Sarasin we are always focused on our clients’ best interests. We deploy technology that will assist in managing a client’s assets but at the heart of our offering is people. Our clients are people, not datasets to be optimised. They have complex and sophisticated needs. These can be very nuanced — they don’t fit an algorithm. Some of their needs are emotional, which a machine cannot understand. But a client relationship manager has empathy which, when combined with expertise, allows us to offer clients the support and advice that they need. In person, by a person.

Didier von Daeniken, Standard Chartered Private Bank In my view, private banking and wealth management will be best served by a combination of man and machine. Using the prowess of technology to analyse and process massive amounts of data in an unbiased way is a great complement to the adaptability and nimble thinking of a human advisor. We partnered with Thomson Reuters to launch ADVICE 2.0 — an industry-first advisory tool that helps our private bankers provide clients with actionable investment advice within minutes.

Bankers have access to multiple sources across assets, from equities, bonds, funds, FX, and derivative products to the latest news and commentaries.

And with my wealth management hat on, we also introduced the Personalised Investment Ideas (PII) tool for the Priority client segment. PII uses deep machine learning and augmented intelligence to design advisory algorithms and integrate data from multiple sources. It differs from other tools in the industry as it’s able to generate investment ideas unique to each client’s risk profile and portfolio performance.

Kenny Lam, Noah Holdings Robo-advisory will be an efficient and great way to standardise how we interact with our clients, especially the mass affluent, who may not need or want face-to-face guidance from a financial advisor. Further, it might not make economic sense for them to pay for an advisor.

We have an online platform that offers standard products to the mass affluent, along with financial educational tools, texts, and videos. This platform is

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developing robo-advisory capabilities to capture the needs of this market segment and provide AI fund selection and precision marketing services.

Michael Blake, UBP We continue to be guided by our clients who express limited appetite for robo-advisory in its current form. I believe the real disruptive threat to the financial services industry comes from big tech and will initially be focused on mass affluent money transmission and consumer finance. For example, Amazon today accounts for nearly 50% of all US e-commerce sales, more than double the next nine competitors combined.

The threat to wealth management certainly exists but I’m not convinced it comes in the form of robo-advisory given the high level of customisation that underpins our key client relationships.

Edmund Koh, UBS Global Wealth Management Robo-advisory is seen by some as a growth area in wealth management, but that does not mean that there will be a onesize-fits-all approach. Others point out that wealth management clients especially value personal and emotional aspects as well as the translation of advice more than digital efficiency alone.

While there is space for further digitalisation in some parts of wealth management, any system will need the human factor and rely on the full expertise of our specialist teams. It would also need the ability to adapt to the specific needs of each client. In the foreseeable future, technology alone cannot provide the context, insight, and interpretation required to make the best investment decision. Since 2013, we have used automated systems to enhance our investment decisions. However, a lot of qualitative human judgement goes into these systems and are an irreplaceable part of their development.

Anshu Kapoor, Edelweiss Private Wealth Management We have opted to deploy a hybrid business model which means an expert financial advisor aided by digital tools combined with digital delivery of our offerings directly to the clients. We believe that the role of the financial advisor will transition from being a quasi investment advisor to a solution provider.

Jimmy Lee, Bank Julius Baer The goal of robotics, as we define it at Julius Baer, is to automate processes instead of having robo-advisors. Therefore, we use the term RPA — Robotics Process Automation. RPA is not just about reducing costs and improving processing time — it is about allowing employees to focus on complex tasks which no computer can do. In Asia, the RPA initiative kicked off earlier this year.

Jaideep Hansraj, Kotak Mahindra Bank Robo-advisory is great at providing seamless execution capabilities to investors. However, in a market like ours, there are a large number of clients who do not have the time or the understanding to use these technologies. Thus, the role of robo-advisory is limited in our market as of now. However, we do expect that technology will be the next driver of industry growth and we actively build solutions to expand our business.

THE FINAL WORD TECHNOLOGY

What emerging technology applications do you expect to reach an inflexion point in their convergence with private banking and wealth management? What impact will they have on the operational models of private banks and wealth managers? Who will be the biggest industry disruptors?

Edmund Koh, UBS Global Wealth Management Never before have we seen such a favourable combination of big data, powerful processing, cheap storage, and refined techniques such as deep learning. All of these inputs can now be combined to train and optimise learning algorithms to a sizeable extent.

AI will affect the entire value chain of a typical bank. From front office activities like customer services and producing investment strategies to middle and back office tasks like identifying fraud and cyber risk, delivering legal and compliance assessments, managing IT infrastructure or employees — everything that is a process can and will be automated.

We expect future benefits to impact customer experience, employee satisfaction, etc. through the vast improvements that can be made to the way we run our business today. Cost efficiency, effectiveness, and controls are also relevant drivers of AI implementation. Many banks have large complex infrastructures with large amounts of data — deploying AI or machine learning solutions to improve these areas and reduce error rates is critical. Robotic solutions can be designed to be highly reliable and might help reduce the operational risks, especially when considering that robots can be deployed 24/7/365.

Tan Su Shan, DBS Bank Private banking traditionally has a high cost-to-income ratio given bespoke offerings, low customer-RM ratios, and stringent regulatory requirements. Applications addressing these will be most disruptive.

Fully harnessing technologies like AI and big data for data-driven insights, such as predictive analytics, can enable banks to provide personalised, algorithmdriven financial advice and do more — especially relevant as we move towards open banking. As regulatory requirements and compliance costs increase, these can also ramp up efficiency by automating parts of the KYC, sales surveillance and monitoring processes, and decreasing customer onboarding times.

Whilst we invest significantly in digitalising client experiences, we still believe human advisors have a key role to play in designing customised solutions and client engagement. Tools that enable seamless integration across offline and online advice and boost RM productivity will prevail.

We are also monitoring the use of blockchain technology in wealth, which is still in the experimental stage.

Kenny Lam, Noah Holdings I expect more and more private fund transactions to be made online by HNW clients, after making an informed decision from information provided through applications. This will make in-person standard financial advice obsolete. Private banks and wealth managers will need to focus more on the higher UHNW client segment and institutions, providing them with tailored advice and portfolio management services to cater to their different asset and cash flow needs.

Tang Ning, CreditEase I think a financial virtual assistant (an AI program) powered by financial knowledge graph technology could reach an inflexion point in the next few years. We’ve already seen Amazon Alexa, Google Assistant, Microsoft Cortana, and other virtual assistants helping people get real-time traffic information, order food, and shop online.

I can imagine that your financial virtual assistant will feed you real-time market data and analysis, recommend investment portfolio changes, and even transact on your behalf. You interact with your virtual assistant via voice/text, on your cell phone, in your car (through an in-vehicle infotainment system), and at your home (through a smart speaker). Even though your private banker or wealth manager is away from you, 24/7 expert advisory is always with you through the virtual assistant.

Financial industry outsiders — technology giants such as Google, Microsoft, and Amazon — could be the biggest disruptors. But the biggest beneficiaries could be financial institutions that embrace the technology and build their own financial knowledge graph to feed the virtual assistants and serve their customers well.

Steven Lo, Citi Private Bank The transactions we deal with are large and unique and the human element is crucial to maintaining a client’s trust and sense of security. Therefore, the ability to connect with a private banker remains paramount. Emerging technology can add value in the way we communicate with clients and analyse portfolios. For example, our investment lab can dissect, study, and analyse our clients’ portfolios in a manner that is precise and that allows them to make informed decisions.

Our InView ecosystem provides access to real-time account information and confirmations while applications such as DocuSign make signing forms a seamless and environmentally friendly exercise.

(Continued on next page.) →

39

THE FINAL WORD TECHNOLOGY

Wang Lei, China Merchants Bank Private Banking What we are currently doing is applying emerging technologies to improve the aspects of business such as information interaction with customers, investment and risk management, transactions and data processing, among other things. CMB Private Banking’s focus has always been on doing our best to deliver the best private banking client experience. Through the application of new technologies and service models, we are continuously upgrading our capabilities and standards. This will enhance our core competencies and create better products, better services, and greater value for our clients.

Karan Bhagat, IIFL Investment Managers The emergence of cognitive AI tools with intelligent NLP and NLG [natural language processing and generation] engines may provide platforms which can be consumed across the private banking and wealth management business thus bringing the cost of advice and service down. These effective tools in a hybrid scenario will aid the relationship manager to garner more time to service a higher number of customers, thus adding to the bottom line contribution.

The jury is still out on the point that robo-advisors may cause a serious dent to wealth managers. Even in developed economies, we haven’t seen a significant disruption in the robo-advisory space.

François Monnet, Credit Suisse The next phase of the private banking business lies in the use of innovative technology to improve the client experience and provide access to private banking services digitally.

In APAC, CS was the industry’s first mover in embracing digital innovation when it launched a global digital private banking platform for Singapore clients in March 2015. By creating a new multi-channel hybrid private banking service delivery model that combines digital technology with the bank’s RMs, we believe our digital platform places us at the forefront of providing digital wealth management services to our current clients and the next generation.

Today, our digital private banking platform has continued to gain client traction, with the number of users increasing by more than 15 times since the platform was launched.

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Anshu Kapoor, Edelweiss Private Wealth Management So, the way we see technology, it serves two purposes: empowering clients and empowering employees.

For clients, data analytics will be a key success enabler which all banks and the financial services industry need to develop. In our opinion, today most of the advice delivered to clients is reactive and comes with a time lag. By using technology and data analytics, this gap can be bridged.

For our people, the tools which enable them to understand and analyse client needs and behaviours and enable them to respond proactively will be the key. All of these will help deliver insights that can be used to drive decisionmaking. Core asset allocation will get commoditised fairly fast and anyone can provide that at a very low cost to the clients.

Hence, disruption can potentially come from anywhere. The disruptors can be anyone, including technology companies. However, as long as the incumbents — wealth managers — keep moving up the value chain in offering customised solutions, they will scale up.

Jaideep Hansraj, Kotak Mahindra Bank There is a growing number of tools that provide solutions to different parts of the market. Without getting into specific names, some of these will be used in the near future in India as well.

THE FINAL WORD BUZZWORDS

UNSETTLING ROLLER COAST ER

U N P R E D I C TA B L E CONSOLIDATION

B U ILD F OR SU STA IN A B IL ITY

TRU MP

DE L E V E R AG ING

What word best describes or captures 2018 in terms of Asian private banking?

FINANCIALISATION OF SAVINGS

‘N EW ’ R EA L I TY

MARKET VOL ATIL ITY MOVING FORWARD V O L AT I L I T Y AMID CHANGES D I G I TA L , C L I E N T S , A N D S U S TA I N A B I L I T Y

What will be 2019's buzzword?

DIS CIPLIN ED EXECUTION

ST I L L D I G I TA L , C L I E N T S , A N D S U S TA I N A B I L I T Y

C U R R E N C Y WA R S

INVEST TO G R OW

GET FUTURE REA DY

TECHNOLOGY: THREAT OR OPPORTUNITY?

PART NE RSHIP R E S P E C T F O R R I S K

T HRI L LER

SUCC ESSI ON

A N D R E A L LO CAT I O N OF CLIENT ASSETS

TU RN IN G POIN T S Buzzwords of the past...

2017 Resilience Incredible markets Seizing the day A race to RM productivity

Opportunity Growth Serendipitous Rejuvenation (and Trump)

2016 Seismic Changeover Patience Surprise!

Risk-on-risk-off Transformation Volatility Oh, God!

RESEARCH

Succession Planning 2018: Perceptions and Opportunities for HNWIs Executive Summary

A

sia Pacific continues to lead the way in HNW (High Net Worth) population and wealth growth due to a number of social and demographic factors. According to UBS, around 85% of Asia’s billionaires are first generation, and the demographic transition in East Asia and the low expectation of social and family support have contributed to a second demographic dividend, which is substantial capital accumulation. As a result, the region is home to 6.2 million HNWIs, whose investable assets amounted to US$21.6 trillion in 2017.

Entering the third year of its research partnership with Transamerica Life Bermuda, Asian Private Banker examined Asia’s life insurance market and explored the nexus between succession planning, wealth transfer, and life insurance products in Hong Kong and Singapore, subsequently publishing the respective report ‘Succession Planning 2018: Perceptions and Opportunities for HNWIs’. Based on our findings, there has been a significant increase in the penetration of life insurance products in the private banking sector. The percentage of RMs (Relationship Managers) who reported that more than 10% of their clients have life insurance policies increased to 79% in 2018, up from 13% in 2016. This finding validates the widespread optimism surrounding the life insurance market in Asia that was recorded in Asian Private Banker’s 2017 life insurance report.

What percentage of your clients currently have a life insurance policy?

Less than 5%

5% - <10%

10% or more

Unsure

80%

60%

40%

20%

0% 2016

2017

2018

Across all institutions, nearly 70% of RMs reported that at least 20% of their clients have some type of life insurance, and at IAMs (Independent Asset Managers) and MFOs (Mutli-family offices), more than 60% of RMs reported that more than 3 out of 10 of their clients are life insurance policyholders.

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RESEARCH

This observation can be partially explained by the fact that for a number of IAMs and MFOs, part of their business involves the management of portfolios under an insurance wrapper, in cooperation with insurance brokers and insurance providers. The observation is in line with the increasing interest among brokers and insurance providers in penetrating the IAM/MFO market, a trend we have observed while conducting research on IAMs and MFOs and the life insurance market.

Institutional breakdown of RMs’ clients currently with a life insurance policy < 5%

5% - 10%

10% - 20%

25% - 30%

> 30%

Asia Pacificheadquartered bank

2%

8%

8%

24%

58%

External/Independent Asset Manager

4%

6%

8%

17%

65%

Multi-family office

3%

6%

9%

16%

66%

Swiss/Euro pure-play private bank

6%

24%

10%

37%

23%

Swiss/Euro-headquartered universal bank

4%

14%

11%

35%

36%

USA-headquartered bank

0%

6%

25%

44%

25%

Insurance-wrapped products have become increasingly popular in the US market and are gaining traction in Asia, mainly with clients with big books, as is often the case with IAMs and MFOs. Insurance wrappers can provide an additional layer of protection against regulatory risks, and based on our interviews, the average fee ranges between 0.5% and 1.5% of AUM size with the exception of very large AUM where fees can be capped. In most cases, this is a profitable business model for IAMs and MFOs as they receive retrocession fees.

For end-clients who do not hold life insurance policies, 37% cited that it is due to the fact that their RM has not discussed life insurance solutions with them, while 29% said they felt no need for one. If we combine these findings with past research published by Asian Private Banker, we conclude that the discussion between RMs and end-clients about life insurance products is far from optimal and, despite higher penetration rates, there is considerable room for improvement for the life insurance distribution model within the private banking space.

Reasons for not having life insurance policies among sampled end-clients Relationship manager has not discussed life insurance solutions with me

9% 12%

No perceived need

37%

Unable to find suitable solutions Unsure about the benefits of a life insurance policy

13%

Relationship manager advised me against life insurance solutions based on my needs

The ongoing increase in interest rates does not appear to have negatively impacted the life insurance industry, at least for now. 65% of RMs expect rising interest rates to significantly impact their clients’ wealth management decisions, particularly in terms of premium financing.

Despite concerns over the potential negative impact of China-US trade frictions, the resultant falling yuan can benefit the life insurance markets of Hong Kong and Singapore as they become more attractive to Mainland Chinese who can buy life insurance products denominated in Hong Kong, Singapore, or US dollars to hedge against currency risk.

In times of political and economic instability, clients tend to seek shelter in financial products that will help protect their economic security and mitigate external risks — to this end, life insurance policies can serve as a valuable solution. In particular, according to Asian Private Banker’s 2016 life insurance report, 35% of RMs responded that the buying behaviour of their private banking clients increased with market uncertainty when purchasing life insurance policies. In the same context, Chan Kin-por, a member of the Legislative Council of Hong Kong and representative of the insurance functional constituency, said the recent yuan drop has forced more Mainland Chinese to buy their insurance products in Hong Kong.

The need for a comprehensive and efficient succession plan has become more relevant as within the next 30 years, the total value of global UHNW (Ultra High Net Worth) wealth that will be transferred to the next generation is estimated to reach nearly US$16 trillion — the largest wealth transfer in history. Against this backdrop, private banks, IAMs, and family offices are seeking to capitalise on this intergenerational wealth shift by developing a value proposition relevant to the next generation of inheritors, as well as retain the loyalty and assets of their clients.

Frequently, the decision to launch the process of succession planning and wealth transfer follows a trigger event, and an overwhelming percentage of the sample population said “retirement” (43%) and “significant investment portfolio changes” (25%) were the two most significant trigger events that led them to consider succession planning.

Trigger events that led clients to start succession planning Family death or serious medical issues 7% Childbirth 9% Significant changes in underlying business assets 8% Significant business ownership changes 8%

29% Significant investment portfolio changes 25%

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Retirement 43%

RESEARCH

In order to conceptualise and implement succession planning and wealth transfer, one needs to be able to respond to two very important questions: ‘when?’ and ‘how much?’

What percentage of wealth should be allocated to succession planning?

End-clients

RMs

Based on the collected data, end-clients project that they need 2080% of their wealth to maintain their economic lifestyles. 77% of the respondents fall into this segment, and the remainder are almost equally divided between needing less than 20% and more than 80% for post-retirement lifestyle maintenance.

40%

30%

20%

Interestingly, RMs tend to advise their clients to allocate a higher percentage (around 40%) of their wealth to succession planning, showing that end-clients tend to be less cautious and more confident in their own capabilities. This difference denotes the existence of biases such as the ‘Lake Wobegon effect’ and ‘hyperbolic discounting’, that lead end-clients to discount potential risks and allocate less for succession planning than RMs, who, as professionals, tend to be more aware of the possible risks in succession planning, thus suggesting a larger percentage of wealth to be allocated to such planning.

10%

0% < 20%

20% - 40%

40% - 60%

60% - 80%

> 80%

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RESEARCH

As for ‘when?’, 39% of our respondents — the majority of our sample population — believes the ideal age to start planning for succession is 50-59 years of age, while 28% and 22% believe the ideal age is 40-49 and 30-39 years old, respectively.

Ideal age to start succession planning 60 - 69 6%

Before 25 5%

30 - 39 22%

Overall, almost 60% of our survey respondents do not have a wealth transfer plan in place, and there is a distinctive trend among HNWIs that wealthier clients are more likely to have one. Less than 15% of emerging HNW respondents have a succession or wealth transfer plan in place, and this number doubles to 30% for mid-tier and upper mid-tier HNW segments. Further, over 75% of UHNWIs already have a succession plan or are currently in the process of planning their wealth transfer.

Do you currently have a succession/wealth transfer plan?

100%

Yes No

50 - 59 39%

75%

50% 40 - 49 28%

25%

Meanwhile, a number of brokers and RMs take a more qualitative approach and suggest the ideal age and minimum amount of wealth vary, depending on the specifics of each case. For wealth allocation, one needs to take a number of parameters into consideration, such as the wealth structure and the descendants’ family status. Concerning the ideal age, respondents recommend that succession planning should begin once the next generation is ready to take responsibility or asks for the process to be initiated.

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0% Less than US$1m

US$1m US$5m

US$5m US$10m

US$10m US$30m

More than US$30m

Our surveyed RMs also said their clients have shown more interest in succession planning, with 32% of RMs seeing a significant increase and 45% of RMs noticing a slight increase in interest.

RESEARCH

Has your existing clients’ interest in succession planning and wealth transfer changed in the last two years?

Slight decrease 4%

Remains the same 19%

According to our contributing RMs, apart from universal life insurance, end-clients use other succession planning tools, the most important being joint investments, whole of life insurance policies, annuity products, and trusts.

Apart from universal life insurance, which of the following financial products are you using as succession planning tools?

Significant increase 32%

Joint investments

4% 8%

Whole of life insurance

4%

Annuity products

32% Slight increase 45%

Top 3 external risks RMs

Rank

End-Clients

1

Regulatory risk

1

Political/geopolitical risk

2

Political/geopolitical risk

2

Market risk

3

Cross-border jurisdiction risk

3

Cross-border jurisdiction risk

Variable life insurance

16%

Succession planning and wealth transfer are designed to ensure economic security to end-clients and their descendents, yet their success is often threatened by internal and/or external risks. Concerning external risks, regulatory, political/geopolitical, cross-border jurisdiction, and market risks top the choices of both RMs and end-clients. Meanwhile, RMs and end-clients identify the possible inability of beneficiaries to properly manage their inherited assets as the highest internal risk.

Rank

Trusts

Insurance product with a joint feature Other

16%

20%

27% of RMs said less than 20% of their clients treat life insurance as part of their succession plan, but 26% of RMs also said more than 80% do so. Such an inconclusive trend can be traced to differences in RMs’ perceptions as well as training at different institutions that might have different philosophies to approaching succession planning, thus leading to differences in training that can include or exclude life insurance as a succession planning and wealth transfer tool.

What percentage of your clients use their universal life insurance as part of their succession plan?

Top 3 internal risks 30% Rank

RMs

Rank

End-Clients

1

Beneficiaries will not be able to properly manage their inherited assets

1

Beneficiaries will not be able to properly manage their inherited assets

2

Possible disputes among family members

2

Succession plan will not be able to ensure the economic security of their beneficiaries

3

Wealth will be passed on to people who clients had not intended to benefit

3

Beneficiaries will inherit their assets too early

Traditionally, succession planning has been dominated by time-tested means, such as wills and trusts. However, complexities arising from regulations and taxes have been growing globally. Clients in need of fiscal optimisation are progressively seeking alternatives that could ensure an unscathed wealth transfer to their successors in such an environment.

One of these alternatives is life insurance policies, which RMs and endclients rank as one of their top three succession planning tools.

How would you rate the following succession planning tools in terms of contribution to your Chart 29: How would you rate the following succession planning tools in terms of contribution to your clients’ succession planning needs? clients’ succession planning needs?

20%

10%

0% < 20%

20% - 40%

40% - 60%

60% - 80%

> 80%

81% of the surveyed RMs have discussed HNW succession planning solutions with their brokers. Brokers are equally interested in initiating conversations around succession planning insurance solutions with their distribution channels, with 80% of RMs reporting that their brokers have introduced them to a HNW succession planning insurance solution.

Will Trusts Life insurance Joint investments Asset liquidation/ buy-sell agreement Joint account/ pooled income funds Annuity products 0

2

4

6

8

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RESEARCH

Have you ever enquired with your broker about a HNW succession planning insurance solution? / Has your broker introduced you to a HNW succession planning insurance solution?

No 19%

No 20%

Yes 80%

Yes 81%

For clients, lifelong coverage, death benefit, high coverage amount, and guaranteed benefit are the most important policy features that a succession-focused insurance solution should address. Premium financeable, however, remains remarkably low, which can be attributed to the fact that given their wealth, end-clients prioritise other features that do not determine only their asset allocation but also the economic security of themselves and their families.

Rate the following features in terms of their importance when choosing a succession planningfocused life insurance solution Lifelong coverage

According to our sample population of RMs, the top three preferences of providers of succession-focused insurance solutions are AIA, Transamerica Life Bermuda, and Manulife Hong Kong/Singapore, respectively. It is important to stress that Transamerica Life Bermuda enjoys high popularity among a certain demographic group within the UHNW population as well as life insurance professionals in terms of succession-focused life insurance solutions.

The research team at Asian Private Banker interviewed different brokers from different segments of our research sample, who indicated that Transamerica Life Bermuda is one of their top three options when it comes to HNW succession planning insurance products. This highlights the importance of a life insurance provider having a strong brand name and reputation, especially vis-Ă -vis market-entry strategy towards a targeted demographic, which was highlighted in our 2017 report.

Which insurance providers do you associate with HNW succession planning insurance solutions?

End-Clients

RMs

HSBC

32%

AIA

32%

Prudential

28%

Transamerica Life Bermuda

29%

AIA

22%

Manulife Hong Kong/Singapore

25%

Manulife Hong Kong/Singapore

21%

Sun Life Bermuda

21%

Transamerica Life Bermuda

17%

Manulife Bermuda

21%

Sun Life Bermuda

16%

HSBC

18%

AXA

16%

Prudential

15%

Death benefit

Of the RMs who associate Transamerica Life Bermuda with HNW succession planning insurance, 45% work at Swiss/Euroheadquartered universal banks and 26% are from External/ Independent Asset Managers or multi-family offices.

High coverage amount Guaranteed issuance up to a certain limit Regular income payout No medical underwriting needed

What best describes the institution you work for? (among RMs who chose Transamerica Life Bermuda)

Guaranteed benefit Joint life Change of insured option

6% Premium financeable

Asia Pacific-headquartered bank

14%

External/Independent Asset Manager Multi-family office

0

2

4

6

8

Single-family office

16% When it comes to selecting succession planning tools from an insurance provider, RMs said financial strength/rating is of the highest importance to their clients, while end-clients believe that servicing and responsiveness of their insurance brokers are the top priorities.

As in the case of perceived risks, RMs tend to put greater importance in product features of HNW succession planning tools. Overall, RMs rank the importance of each characteristic significantly higher (1.4 higher on average across all options) compared to end-clients.

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45%

Swiss/Euro pure play private bank Swiss/Euro-headquartered universal bank

10% 8%

USA-headquartered bank

1%

For Further Information, please contact: Kammy Liu Tel: +852 3655 8319 Email: kammy.liu@transamerica.com

INVESTMENTS

Key investment trends in 2018 Equity repositioning Despite robust fundamentals, equity markets in 2018 underwent turbulence due to a flurry of economic and geopolitical headwinds. Asian HNWIs that were raking it in last year through aggressive beta investing found themselves rethinking their equity exposures to adapt to new market norms.

Private banks in Asia swiftly shifted focus in equity investing to downside protection and even more longterm holdings. In addition to directly buying options, private banks have experienced successes through the distribution of structured products with partial to full principal protection, transitioning away from conventional yield enhancement solutions.

Non-directional trades also gained traction, such as structured notes that generate returns based on stock dispersion or the divergence of returns. Meanwhile thematic investing, despite a hit on growth stocks, are playing an even more prominent role due to a structurally supportive outlook that is unlikely to be derailed by short-term events.

Fixed income de-risking Fixed income markets surprised on the downside in October as bond yields spiked with J.P. Morgan Asia Credit Index (JACI) high yields trading at a 5-year high of 8.4%. Whilst industry sources claim that margin calls for leveraged bond portfolios were not substantial, mark-to-market losses were sufficiently material to cause de-risking from investors and, effectively, even higher cash allocations.

But more important than a shift in asset allocation is the implication for private banksâ&#x20AC;&#x2122; near-term bottom lines. Bond and bond fund distribution have traditionally been all-weather mainstays for Asian HNWIs and this recent scare could put a dent in private banksâ&#x20AC;&#x2122; transactional income streams, in addition to already weakened equity sentiments.

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INVESTMENTS

DPM shelf expansions Discretionary portfolio management (DPM) penetration at private banks in Asia reached a record high of 9.6% (a 1.6 percentage point uptick) at the start of the year, with assets growing 52.7% year-on-year due to strong returns and inflows in 2017. Combined with a spectacular year of profits from the broader industry, private banks devoted more energy in late 2017 and early 2018 to develop their DPM shelves by adding new capabilities and mandates, particularly to generate non-conventional alpha from equities.

Deutsche Bank Wealth Management launched a thematic mandate based on a portfolio constructed with approximately equal-weighted exposure to its CIO office’s top ten themes following successful traction on an advisory basis. EFG launched its “US Future Leaders” mandate which focuses on “undiscovered” midcap names and applies a security selection process which includes a framework built by a panel of experts from varying fields including neuroscience, behavioural psychology, and more, in addition to bottom-up analysis. And Goldman Sachs Private Wealth Management leveraged the emerging capabilities of big data and machine learning to launch an equity mandate that conducts stock picking based on non-traditional sources of data including web traffic, credit card data, and aggregated research reports.

A concerted drive for ESG investing in Asia Despite Asia’s lacklustre demand for ESG-compliant investment solutions, private banks in the region are still mirroring the ambitions of their counterparts in the west with hopes for a first-mover advantage, if not immediate business outcomes. UBS Global Wealth Management’s efforts in the space were most notable, especially with the launch of the industry's first cross-asset sustainable investment mandate which includes ESG-specific securities such as green bonds and World Bank bonds.

Others have followed suit with other efforts to populate their platform with ESG solutions. BNP Paribas Wealth Management launched a sustainable equity mandate in an effort to be “at the forefront of what will eventually be a growing trend in Asia”. DBS recently launched a structured note that generates returns based on the equity performance differential of ESG-compliant and non-compliant companies in emerging market Asia, and will seek to launch an ESG mandate in 2019.

The next big thing: Advisory mandates After years of grappling with the notion that Asian HNWIs do not pay for advice, larger private banks that have developed and promoted advisory mandates are beginning to see their efforts come to fruition. Robust technology platforms, persistent internal communications, and some help from uncertain markets have contributed to clients demonstrating an increased willingness to pay up front to receive investment ideas and execute at their own discretion.

But the opportunity is not limited to the offerings of large universal banks, namely UBS Advice and CS Invest, with other mid-sized players joining the competition. UBP is observing “growing adoption of advisory mandates” and expanded the offering to include a ‘Premium Advisory’ offering, which delivers communication about investment ideas, switching positions and risk management to clients through relationship managers. In August this year, EFG said it was in the midst of rolling out an investment advisory tool for “a more fruitful dialogue with clients” in a two-pronged effort to boost recurring income, in addition to DPM.

50

EVENTS

China Global Wealth Leaders Summit 2018 Asian Private Banker held its inaugural China Global Wealth Leaders Summit in Shanghai in October, attended by 115 delegates from the institutions at the forefront of Chinese wealth management.

We would like to thank H.E. Dr Jean-Jacques de Dardel for his keynote address, and all our partners, speakers, and attendees â&#x20AC;&#x201D; especially those who flew in from far-flung timezones to be with us for the day's discussions on the brisk growth of Chinese wealth, the formation of innovative solutions in the new era of wealth management, and the delivery of value to the increasingly sophisticated Chinese investor.

View more photos at apb.events/cgs18.

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INDUSTRY

A year of Straight Talk Process is my biggest passion because if you have rubbish processes with great technology, matters become worse. You’re better off having bad processes and old technology because you’d be manual anyway.

Lok Yim head of wealth management, APAC & chief country officer, Hong Kong Deutsche Bank

It’s the back and forth that frustrates. Why do we need to ask clients five or six times for information? Unfortunately, the process is built that way — it is linear, from the client to RM, to account opening to AML, and it will ping back and forth between those forever. But, fundamentally, processes in the world have changed. These things should operate in a parallel fashion.

If we are going to hire 100 bankers and each bring in, say 30 relationships, if you can onboard all those clients in a matter of days, your ability as a wealth manager to push your growth agenda becomes that much easier.

So for me, this is a religion.

Vincent Lecomte co-chief executive BNP Paribas Wealth Management

I recall there was a debate during our annual family office forum on whether [our ultra and family office] clients would be willing to share otherwise confidential intelligence on deals. In the end, we said we would make the app and see if the demand for a sharing forum was really there.

If some apps fail, it’s not an issue. What is important from our perspective is to learn as we go, to be able to adapt our services and to provide new features. The choice we made was to play to win, but we are also ready to fail.

Arjan de Boer head of markets and investment solutions, Asia Indosuez Wealth Management

Our penetration of DPM assets is still slightly below the industry average, but the offering has gained significant traction, especially in Q4 which was a direct result of our decision to reorganise and re-energise our DPM activities.

We appointed Grizelda Lee who was formerly the Bank’s head of advisory and is extremely impressive, and unlike other European banks, we now offer Asia-specific mandates — demand for these is big in Hong Kong. If I look at our pipeline, I expect we will at least double our DPM penetration this year.

We want to increase our market share because there is no reason why we shouldn’t given our extensive network — not just in Asia but also throughout the world.

Siew Meng Tan regional head of global private banking, APAC HSBC

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You might have thought we had exhausted our growth potential, but that’s not the case. There’s still a lot of room for us to grow. Take China, for example, where the bank has invested massively. Our brand resonates strongly there, so from the perspective of group-connected clients, there is a tremendous opportunity for us to grow.

Marisa Drew CEO of the impact advisory and finance department Credit Suisse

An area that is not yet well-travelled in Asia but I suspect will be in due course, is blended finance. The idea of blended finance is that you can marry donor or grant capital with for-profit capital in the same structure, thereby crowdingin capital. In the impact investing space, there are sometimes risks or returns that may be unacceptable for the for-profit capital world, but if a non-profit could take on that risk or provide some other kind of credit support, then it can become a scale play. So this is another area where my team are spending quite a lot of time collaborating with partners on innovative investable structures.

Francesco de Ferrari [former] head of private banking APAC and CEO Southeast Asia & frontier markets Credit Suisse

I would find it difficult to express an opinion [on meeting responsibilities as industry stewards] on my fellow CEOs. We have spoken about this before; I buy every major product we launch. I hope that the fact we are trying to drive a more ethical business will resonate with clients and show through in better performance.

You have a belief that it is the right thing to do and you just do it. If I think about the mid-tolong-term, and if I look at the new generation and how they feel and talk, creating impact is very important. To some extent, this is where the future lies.

INDUSTRY

Alvin Lee head, group wealth management & community financial services Singapore Maybank

Liu Min general manager Bank of China Private Banking

Ten years ago, Bank of China founded the private banking market [in China], building China’s first private bank. Ten years on, we need to follow the trends and change with the times. But more so, we should stick to our principles and not forget our initial intentions.

Bank of China Private Banking must seize this once-in-a-century opportunity to transform.

How we can forge a new path for private banking developments that is Chinese? How can we find a place for Chinese private banks amidst the global private banking industry?

This is a proposition for the long-term and requires practical actions in its interpretation.

Amy Lo chairman and head of Greater China, wealth management and country head, Hong Kong Branch UBS

It is always going to be very challenging to compete with local Chinese banks, just in terms of scale. But if I had my wish, I would want to have a small presence potentially in Shanghai and maybe in Shenzhen.

If Chinese banks want to come in, they can be lossleading for several years, so they could potentially price us out. I also foresee Shanghai becoming a more prominent financial hub in time. That being said, Singapore-based banks are likely to remain in good stead because the richest people in China will ultimately still want to park money offshore and diversify their risk. So, non-Chinese players are likely to continue being relevant.

[Read the full interview on page 58.]

While women’s roles in banking have improved over the years, challenges remain. Striking the right balance between work and family is not easy. It involves setting priorities and maybe some sacrifices. Around 60% of our workforce in [the] Asia Pacific are women, so we need to have mechanisms in place to provide the support they need to excel. These include, inter alia, flexible working, designated mothers’ rooms, paid maternity leave, and training programs aimed specifically at women.

I am convinced that if you are passionate about what you do, you will have a greater chance of being satisfied, and making a positive impact on clients, your colleagues and the community. At the same time, it is important to take time off, enjoy yourself, stay healthy and remain motivated.

Shiv Gupta founder and CEO Sanctum Wealth Management

What we’ve seen is that as a private, domestic and independent firm, regulatory changes and the flip-flopping of foreign players have played to our advantage. We are more agile and in sync with the local environment, and clients do not want to adhere to foreign regulations that do not quite apply to them. In fact, the current marketplace remains favourable to local players which are seeing a real increase in business activity, with a number of firms recently raising money.

Peter Boyles chief executive global private banking HSBC

We were intent on fixing issues and refocusing on core markets to the group in places where we had scale and a right to win — which usually means a fully universal banking presence — and focusing on clients from countries where we had a group presence and therefore were able to get comfortable with the background of the client.

So we didn’t want to be overly vocal until we were absolutely confident we had really solid foundations, which required us to put every single client through a deep due diligence exercise, from both global compliance standards and tax transparency perspectives.

Kenny Lam group president Noah Holdings

In the past, we lost out to players that were providing guarantees. Not now, however, because doing so is effectively illegal. You also need to have clear licensing to conduct any kind of fund distribution, but a lot of the online wealth managers are operating in a grey area when it comes to distribution. Also, a number of players are encouraging clients to invest in opaque pooled products for returns of around 10-12%. We have consistently eschewed products like this – and now regulators are cautioning against pooled products.

We do not wish to compete with local institutions and prefer to build up strategies around the region focusing on creating a unique private banking segment according to the market needs.

Evrard Bordier CEO and managing partner Bordier & Cie

We like to explore new markets through partnerships instead of setting up onshore offices. With an eye towards setting up best-inclass wealth management capabilities in the new markets, we would prefer to set up a joint effort that builds a globally recognised niche offering specially designed for HNW clients.

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AWARDS

Asian Private Banker would like to applaud the following investment banks and structured product platform providers for their outstanding achievements and demonstrations of industry excellence in 2018.

The Structured Products Awards for Excellence are based on the anonymous polling of 52 structured product gatekeepers from 30 private banks/wealth managers across 17 different categories. The shortlisted structured product providers were then invited to pitch on a category-specific basis.

Congratulations to those who came out on top.

AWARDS

55

ADVERTORIAL

Heart of the machine: AI with a human touch transforms sustainability investing

T

he application of artificial intelligence is opening up extraordinary new frontiers in asset and wealth management, as machine learning increases the speed and efficiency of critical data processing and optimisation exercises.

Thomas de Sainte-Seine CEO, founder and senior fund manager RAM Active Investments

Meanwhile, another powerful theme is reshaping the investment universe: sustainable, socially responsible investing and the overarching need to build portfolios on strong ESG (environmental, social, and governance) foundations.

As a pioneer in this field, quant specialist RAM Active Investments is harnessing the convergence of these two themes by leveraging the power of machine learning to tap increasing growth to take a more informed approach to ESG-based investing.

Shifting responsibilities The global shift towards sustainability investment has been remarkably swift. In 2011, fewer than 20% of S&P 500 companies disclosed ESG data. Five years later, the number of companies issuing sustainability reports or chapters on sustainability in their reports had risen to more than 80%.

you achieve that performance,” de Saint-Seine said. “What kind of companies is the strategy investing in? Are they sustainable? Are they being responsible?”

These considerations were thrown into sharper focus following the US’s withdrawal from the Paris Agreement on climate change, placing President Trump out of step not only with political allies but a growing congregation of companies and investors worldwide, particularly the younger generation on the receiving end of the intergenerational wealth transfer.

Benjamin Li Head of business development and head of SRI and CSR RAM Active Investments

“Typhoon Mangkhut, the strongest signal 10 incident Hong Kong has ever had to endure, is a stern reminder that climate risk is very real, and closer to us that we like to think. As a manager, if you don’t offer a strategy that truly takes such risks into consideration, you are not necessarily speaking to the needs of your clients and nor considering the long-term viability of the investment,” argued Benjamin Li, head of business development and head of SRI and CSR at RAM.

Goodness dividends

Recent geopolitical implications and growing awareness of climate issues have only strengthened the imperative for sustainable and responsible investment, according to Thomas de Saint-Seine, CEO, founder, and senior fund manager at RAM.

In discussions with de Saint-Seine, executives at RAM Active Investments concluded investing responsibly and in a sustainable manner, does not have to come at a cost to performance. In fact, there is increasingly strong evidence that companies with strong fundamentals and a strong ESG profile perform better than those with weak ESG credentials.

“Investors, particularly those of the next generation, are not just concerned with the actual performance. They also care about how

According to RAM’s extensive research, companies that embrace good governance tend to offer higher and more sustainable payouts, while

56

ADVERTORIAL financial and non-financial transparency favours sustainable financing, and restricting carbon emissions leads to sustainable earnings. Simply put: businesses that do good, tend to perform well.

RAM’s machine learning infrastructure helps it select long/short equity strategies and evaluate stocks using 10 times more factors and qualities than it had previously been able to do.

“Our philosophy is not to integrate ESG criteria just to satisfy the need for ESG elements,” de Saint-Seine explained. “We only integrate something if it improves the quality of the portfolio and the overall risk/return profile of the strategy. We understand it has to be a win-win scenario in order for investors to truly appreciate this extra initiative’s value.”

“Until now, in one strategy, we would typically combine five-to-ten factors,” said Hauptmann. “Now, we are able to combine more than 50 and up to hundreds of factors to make the right investment decision on one stock.”

He added that while some market offerings trade concessionary returns for added impact, this would not be RAM’s approach.

“As a specialist, people place their trust in us because of our superior performance and top-tier rating. We must continue to deliver and keep it our priority,” he explained.

The asset manager is able to do just that thanks to its quantitative research team, which has fashioned four pillars to underpin its systematic ESG investment process: governance, transparency, climate, and diversity. According to the team’s extensive research, companies that operate in accordance with the pillars, tend to perform well in terms of fundamentals and stock performance.

However, verifying the data to confirm a company’s ESG credentials is itself a key challenge. Just a few years ago, ESG data was scarce, but now there is an avalanche of information drawn from a multitude of sources and compiled using a wide range of methodologies. Further, ESG performance is not reported in a universal format, and consequently often lacks the consistency, reliability, and timeliness necessary to make informed investment decisions.

RAM tackles this by focussing on low-level data that is consistent across both time series and platforms, basing metrics on simple, repeatable, and transparent methodologies, and adopting conservative data availability assumptions to avoid look-ahead bias.

Decoding data Evaluating huge quantities of data and identifying companies with strong ESG profiles and correspondingly strong investment potential is a scientific and highly involved process – one in which the artificial intelligence of machine learning has a key role to play.

RAM is ideally placed to make optimal use of such technology because of the vast stores of data it has amassed and analysed over the past 12 years, according to founding partner and senior equity fund manager Emmanuel Hauptmann.

Emmanuel Hauptmann “Machine learning is driven by data. The Founding partner and senior more data, the better the algorithm,” equity fund manager Hauptmann said. “We have processed RAM Active Investments this wide array of data sources to build hundreds of factors capturing a variety of different market inefficiencies. This research on the inefficiencies provides us with many inputs and dimensions we can now embed in our machine learning effort, making us well positioned to benefit from it.”

“It is compelling because it helps us identify high-alpha stock profiles that we missed before because of the biases we had when combining information. Machine learning has improved our work as systematic investors. We now have a more complete picture of all information, and we can leverage all our data sources.”

For investors, this means better, more diversified access to all the inefficiencies captured by RAM, which, according to Hauptmann, has an additional alpha engine in its portfolios that is able to “capture a new set of attractive opportunities”.

“When we first introduced this type of technology in our process, the exercise was precisely to see whether we were missing names that were potentially high alpha,” he explained. “Now we can identify and add to our portfolios between 80 and 100 of these high-alpha names, depending on the region. This diversifies our risk exposures, increases the alpha of the book, and it is actually also reducing the turnover in the portfolios.”

Preserving humankind However spellbinding the technological capabilities, machine learning will not lead to the removal of the human element or the replacement of portfolio managers with banks of computers.

“We are using machines and technology to enhance our ability to uncover alpha and uncover opportunities – but it still starts and finishes with the human,” de Saint-Seine stressed.

“It’s not, as some think, purely statistical and purely based on maths.

We are just trying to use the machines and technology to make our work more efficient and to leverage the power to look at a broader set of opportunities. There are still a lot of parameters and a lot of design based on the discretion of the human being, our managers.”

Rather, in a fast-changing global environment where responsible investing makes financial as well as moral sense, machine learning provides an unprecedented opportunity for man and machine to work together towards a common good and a more sustainable future.

“Our objective is to keep searching for new data sources with the aim of further improving our capture of market inefficiencies,” Hauptmann added. “Looking ahead, our objective is to increase the size of our research team to keep up with the current exponential growth of data, leveraging our machine learning platform even better.”

For further information, please contact: investor.relations@ram-ai.com

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INDUSTRY

Straight Talk: Alvin Lee, head of group wealth management and Singapore community financial services, Maybank Maybank’s Alvin Lee has big ambitions for the lender’s private banking business.

Growth, group connectivity, talent cultivation — Lee sits down with Asian Private Banker to discuss his plans and take stock of what Maybank Private has achieved in the past half decade.

Alvin, Maybank recently received a nod from the Monetary Authority of Singapore (MAS) to incorporate its community financial services business as a local subsidiary in Singapore. How does this change things for you?

Alvin Lee head of group wealth The fifth anniversary of the launch of management and Singapore Maybank’s private banking arm coincides community financial services with Maybank’s incorporation of our Maybank community financial services business in Singapore as a local subsidiary, wholly owned by the head office, this November. Locally incorporating means a lot, not just to the bank but also to the regulators and the customers because actual capital will be injected in Singapore. It means we are a domestic systemically important bank — important enough for regulators to say we have to be locally incorporated.

The three other big foreign banks in Singapore — Citibank, HSBC, and Standard Chartered — have all done so in the last few years.

With the newly incorporated Maybank Singapore Limited, Maybank Private in Singapore, which currently sits within what we call ‘community financial services’ — another name for consumer banking — is going to be moved to the new subsidiary while global (wholesale) banking stays in the existing branch. As we celebrate with a commemorative dinner on 16 November, the board and the group executive committee are generally happy with our progress and there is a renewed push for us to be even better and bigger.

Speaking of size and growth ambitions, where does Maybank Private stand at this juncture, and what are your growth targets?

Maybank Private currently has about US$10 billion worth of assets under management across Singapore, Malaysia, and Hong Kong, with Singapore and Malaysia constituting 95% of the total, as Hong Kong is a one-branch operation and has always operated as more of a corporate 58

We intend to quadruple our AUM to approximately US$40 billion. I am not certain how many years this will take, but there is every intent to grow the business more aggressively. banking outfit rather than a consumer banking one. We intend to quadruple our AUM to approximately US$40 billion.

What is your timeframe for achieving this?

I am not certain how many years this will take, but there is every intent to grow the business more aggressively.

And what will this entail?

What that means is a comprehensive relook at our entire business model and strategy. This is driven in part by necessity. For any private bank to be profitable in the long run, you must have some scale because the overheads can be quite high with IT and compliance costs, and so on.

Consolidation has slowed down drastically in the wealth management industry of late, but given your intention to grow “more aggressively”, would you consider accelerating growth through mergers and acquisitions?

Our growth has been all organic so far, but we are always open to inorganic growth and we’re looking out for potential targets. However, we are careful as we want to make sure that no matter what we buy, the book stays with us for a while. We also look at a potential target’s capabilities and platform. If there is a player out there that’s very strong in capabilities that we do not have, it may make for a reasonable and logical acquisition.

INDUSTRY

Let’s break down your growth ambitions by market.

You’re headquartered in Kuala Lumpur, so it would be fair to say that you have a competitive advantage in Malaysia.

We are the bank with the largest market share there. We have been opening private banking centres in Kuala Lumpur, Penang, Kuching, and Kota Kinabalu. We are looking at possibly opening new centres in Johor Bahru and Malacca where there’s a high concentration of high net worth individuals.

And for the broader Southeast Asian space?

Thailand has seen strong growth in both high net worth individuals and wealth. Its rapid growth and constructive regulatory environment make it an attractive country to establish a wealth management presence.

Maybank has a presence there in the form of Maybank Kim Eng Securities, but we don’t have a banking licence.

In Indonesia, we have premier and privilege banking and I’m keen to explore setting up an onshore private wealth segment, but we have to work out the sums to see if they make commercial sense. Globally, scrutiny over capital flows is likely to continue increasing. We have seen tax amnesty from Indonesia and China clamping down on capital outflows over the last five years. The world is potentially moving towards more protectionist regimes, which will then make it necessary for banks to consider building onshore presences and capabilities, resulting in an even costlier operational environment. For private banking, costincome ratios can range from 60-90%, not only because of headcount cost but also compliance costs. All that sums up to a significant portion of revenue.

China is, of course, an unavoidable market when it comes to discussing growth potential.

Roughly speaking, I would expect a brand new entrant to the job market to start at mass banking for perhaps a year or two, move up to privilege and address the emerging affluent for maybe two years, spend another three years in premier, and then within a span of six or seven years they should be able to reach the private banking space. If they continue to stay with us for another five years, then we have them for 12 years. This is one way to make sure we have good staff stay with us for the long haul, but we are also hiring externally for each of the sub-segments.

With a talent war intensifying in the industry as various private banks move to bulk up frontlines, do you have hiring targets?

We intend to hire quite aggressively for the entire ecosystem at Maybank Private. This includes not just relationship managers but also product talent in particular, as well as operations, compliance, and credit personnel — the whole works. The challenge is always in competing to attract and retain talent. Many banks are growing their wealth businesses and Chinese banks are coming onboard as well.

We intend to hire quite aggressively for the entire ecosystem at Maybank Private.

We’ll probably hire more aggressively first in Singapore, followed

by Malaysia, and then Hong Kong. Mentally, I’m working towards ultimately 150 relationship managers across the three geographies in a 5:3:2 ratio between Singapore, Malaysia, and Hong Kong.

It is always going to be very challenging to compete with local Chinese banks, just in terms of scale. But if I had my wish, I would want to have a small presence potentially in Shanghai and maybe in Shenzhen.

Some private banks are reportedly offering a 30-45% wage increase for competitors’ talent, although we have heard conflicting information. Are you prepared to take the same tack?

If Chinese banks want to come in, they can be loss-leading for several years, so they could potentially price us out. I also foresee Shanghai becoming a more prominent financial hub in time. That being said, Singapore-based banks are likely to remain in good stead because the richest people in China will ultimately still want to park money offshore and diversify their risk. So, non-Chinese players are likely to continue being relevant.

If we have to keep our staff happy by purely paying top dollar, that is not going to be sustainable. I’m quite confident that at some point, the wealth management industry will come to the realisation that we should not be pricing ourselves out by overpaying bankers, and the rat race for talent will taper off. That being said, we do pay relationship managers what we think they’re worth and deserve. We are probably somewhere in the middle of the park.

As you pursue growth and geographical expansion, how do you cultivate and strengthen relationships between clients and the bank?

Our competitive advantage lies in the rich customer base we have for new joiners to tap into, not only within the banking system but also from our securities and insurance businesses. Private bankers who join other banks often have to bring their clients in with them and at some point, customers do tire of following their relationship managers as they move from bank to bank. Each time a customer opens a new account with a new bank, the level of scrutiny increases.

We focus on onboarding our large pool of existing customers. As their wealth grows, we upgrade our customers from Privilege to Premier, and from Premier to Private, so we create a wealth journey for the customers.

And it’s not just the customers — our relationship managers get to upgrade as well. With that, we set a career path before them. We do hire mid-career private bankers, but if you give me another five years, I would have a lot of relationship managers rising internally from the privilege tier through premier to private.

We do have revenue pressures, but we look at performance on a rolling basis throughout the year, rather than penalising people if they miss a quarter’s targets. I measure performance against industry or market performance rather than setting hard targets.

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INDUSTRY

You set up the Wealth Management Academy in partnership with the Wealth Management Institute of Nanyang Technological University (NTU) earlier this year. What progress has it made so far, and how does it fit into your broader initiatives for talent development?

Our Wealth Management Academy was launched in line with our desire to make sure our bankers are well-trained and have a career with us.

We have a say in how the programme is run and some modules are conducted by our own staff because I don’t want to outsource everything.

It’s not purely technical training. I’m mindful of using the programme to inculcate the right Maybank culture and mindset, so I deliver the opening and closing talks. With more than 1,000 wealth managers across the banking group, we have started with private banking first, after which we’ll look into making some of the modules more relevant for premier and eventually privilege as well. The programme is run over eight-to-ten days in three separate modules held in May, August, and October. Three cohorts — one in Singapore and two in Malaysia — have been enrolled so far.

As an increasing number of Asian banks upgrade their legacy core banking systems in efforts to digitalise, what are you doing on the platform front to expand your capabilities?

We have invested in Avaloq for Singapore and will extend that to Malaysia in the new year. We shouldn’t bring too many people in before we set up the platform since the suite of products on offer would not be as comprehensive. So, the hiring will be concentrated in Singapore first, and we’ll ramp that up in Malaysia and subsequently Hong Kong once the platform is ready there. Like other private banks, we need to address the challenge of using digital capabilities and automation to our advantage to augment the human relationship that non-bank players like fintechs offering robo-advisory services can’t really provide.

In the people, platform and product trifecta of growth, where do your product strengths lie?

Outside of the GCC region, Maybank is the biggest Islamic financial services provider. We probably rank amongst the top three in sukuk AUM. We should play to our strengths and Islamic Banking is our strength. In March 2017, we launched Islamic private wealth in Kuala Lumpur, given Malaysia has a bigger Muslim community than Singapore. We intend to expand our Islamic wealth management services and establish a presence in GCC and the Middle East region.

for us is still low — a few hundred million dollars out of a book of US$10 billion. Asians are typically relatively self-directed but those who are too busy will put some money into it, and I do see the acceptance level going up in tandem with a good track record.

As competition intensifies in the industry, in what ways do you add value to your product and service offerings, and set yourself apart from your rivals?

Being a universal bank, we have the ability to provide ancillary services across asset management, investment banking, global banking, and insurance. For example, a lot of the pure play banks would not be able to issue a credit card or extend a loan for a housing mortgage, or if they do, it’s very selective.

Operating on a leverage model, we offer cross-border financing and fund properties not just domestically, but also in London and Australia.

We also have a small desk in London to service Malaysians and Singaporeans who travel there for their real estate transactions, though they don’t offer the full wealth management suite. We’re also looking at other countries in which to provide mortgage financing.

Leveraging on the mothership, we have embarked on segment play.

The private banking segment decides on what we need and then the mortgage team housed in consumer banking, which effectively is the product team, supports the strategy.

We also have a significant corporate banking business in which our key clients are typically family-run, so we are close to the second generation, who naturally bank with us at a private banking level. We have some second generation customers acting as our ambassadors.

You mentioned you want to deliver and instil the Maybank culture and mindset when training your staff and in serving your clients. What is the Maybank culture?

We’re driven by three key thrusts. The first is that we want to help customers achieve steady returns, year in, year out, and to consistently beat the benchmark by around 3-5%. As such, our research team’s KPIs are linked not to revenues but to customer performance.

Secondly, our differentiator cannot be products, because products can be quite easily replicated. I want our bankers to think service all the time. By that, I don’t mean just lip service. Service should really be ingrained in our culture and that, I hope, will be our key proposition and differentiator.

Discretionary assets at Asia’s private banks increased 52.7% year-on-year in 2017, going by our data, and there is a genuine urgency across the industry to channel client assets into managed solutions. How is Maybank faring, especially when it comes to DPM?

Finally, given that private banking sits in consumer banking here and that we have strong balance sheets, we want to extend that to our customers. It’s all about making the capital work hard. We have a lot of products which can help customers generate positive carry.

Our partner for discretionary portfolio management has continued to perform well this year, despite a fairly challenging market. If I go all the way back to when we started this mandate, it has seen approximately a 100% return, doubling the customers’ money. Maybank conceptualises the high-level mandate strategy and selects reputable partners to manage and provide investment ideas for execution. DPM penetration

So these are the three key objectives we seek to reach when we serve our customers. I’m still in the midst of refining a tagline and overarching concept we want to use to gel the three together.

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I’ll probably end up with “private banking with heart”.

EVENTS

Discretionary Dialogue 2018 The second annual Discretionary Dialogue â&#x20AC;&#x201D; closed-door mornings designed for DPM decision-makers â&#x20AC;&#x201D; hosted over 90-plus attendees in discussions involving the continued implementation of thematics, the growing usage of ETFs, and the management of downside risks in a turbulent market environment.

We thank all of our partners, speakers, and delegates for making such a successful event possible.

View more photos at apb.events/dd2018.

INVESTMENTS

Strong potential for developing alternate discretionary mandates What is your top overweight call within your asset allocation strategy for 2018?

46%

2017 2018

Note: Percentages may not add to 100% due to rounding.

28%

20%

10%

10%

Complexity, past experience, illiquidity, and lacklustre recent performance have led Asian HNWIs away from investing in alternatives, despite growing market risks across all types of long-only assets.

By relying on mandates, private banks will be at liberty to leverage derivatives, structured products, and lesser-known hedge funds to deliver uncorrelated returns amid an increasingly volatile market.

According to survey participants, multi-asset mandates — especially ESG-related solutions and those focused on local flavours, such as Asian multi-asset — lead the pack (59%) as the mandate type with the greatest potential for product development.

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Private banks and their discretionary managers remain broadly constructive about risk assets despite growing concerns over a potential correction. More than a quarter (27%) of respondents expect US equities to continue leading the pack in 2019 as the top overweight asset allocation call.

Meanwhile, optimism around European and Asia ex-Japan equities has switched. Expectations on European equities has plummeted, with only 2% of respondents seeing it as an overweight call in 2019 versus the previous year’s expectation of 39%, while confidence in Asia ex-Japan equities has more than doubled from 15% to 33%.

In which area do you see the most potential for further DPM product development within your platform in Asia?

What do you expect to be the top overweight call for 2019?

39% 33%

Alternatives (24%)

Expectations in 2017 about 2018 Expectation in 2018 about 2019

27%

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4%

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10%

8%

7%

4%

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s tie ui eq S U

7%

2%

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6%

Equities (15%)

And for allocations, discretionary managers predominantly selected US equities (46%) as their top overweight pick for 2018, a stark contrast to last year’s 10%. Asia ex-Japan equities, emerging market equities, investment grade bonds, and ‘other asset classes’ shared the second spot in a four-way tie, each with 10%.

17% 17%

15%

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Multi-asset (59%)

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Fixed income (2%)

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lmost a quarter of discretionary managers recognise the potential for developing discretionary portfolio management (DPM) solutions invested in alternatives, amid a year that has seen significant growth in new mandate solutions, according to a recent Asian Private Banker survey.

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2%

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7% 7%

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8%

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10%

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10%

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10%

18%

The survey was conducted during Asian Private Banker’s Discretionary Dialogues in Singapore and Hong Kong.

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INDUSTRY

HSBC PB’s Kunz says stage is set for major ASEAN push ASEAN markets will figure prominently in HSBC Private Banking’s push to gain market share across Asia and recover lost ground after years of restructuring at the global level, according to Philip Kunz, HSBC’s head of global private banking for South East Asia.

K Philip Kunz head of global private banking for South East Asia HSBC

unz, who rejoined HSBC in 2017 after a seven-year stint at rival UBS, told Asian Private Banker that the pieces are now in place for the business to flex its groupconnected muscle and harvest more from a subregional client roster that boasts some 10,000 corporates, 4,500 multinationals and their subsidiaries, and 20,000 SMEs.

“The heavy work that we put in in previous years, and when we were quieter, now allows us to know our clients extremely well — the quality of the files that I now get to see is impressive, and so this is the starting point of our optimism,” said Kunz. “By tapping into these existing relationships, we increase our agility and reduce our risk simply because these are clients we already know.”

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His comments come on the heels of a major announcement in September that the bank will target 400 new client-facing staff — including RMs, ICs, and product specialists — and double total wealth in the retail and private bank in Singapore over the next five years, with a focus on HNW clients.

The heavy work that we put in in previous years, and when we were quieter, now allows us to know our clients extremely well — the quality of the files that I now get to see is impressive, and so this is the starting point of our optimism

INDUSTRY

To this end, HSBC Private Banking, under the regional leadership of Siew Meng Tan, has already pivoted to a team-based servicing model.

Kunz said this was a logical development given that the nature of client relationships has evolved, from them initially wanting portfolio content in a domestic context, to asking broader regional questions, to having conversations that are global in nature and where the portfolio content aspect has lessened. “[At] one stage you realise that the demands a client can have on you — whether for knowledge on simple local markets to more sophisticated products across all asset classes — makes it necessary to source help from the colleagues and skill sets surrounding you,” Kunz explained.

“It also dovetails into the fact that clients want and expect more, and that there is no individual that can straddle it all.”

In practice, then, the emphasis has shifted towards ‘farming’ and ‘hunting’ as a pack, with an expectation that investments must work in lockstep with markets, according to Kenneth Yeo, head of investment services and product solutions for South East Asia.

Kenneth Yeo head of investment services and product solutions for South East Asia HSBC Private Banking

“We go as a dynamic duo — this is the model we have installed and this is the model we are trying to cement across people, platform, process, and product,” Yeo told Asian Private Banker.

This has involved reducing Singapore’s dependence on Hong Kong, which traditionally has housed central functions, and making strategic and tactical enhancements to the platform.

The private bank is currently modernising its order management system, implementing a third-party platform with an enterprise risk management system which should aid its advisory proposition, overhauling its downstream backbone system, and developing a digital frontend.

Peter Boyles, HSBC’s outgoing chief executive for global private banking, previously told Asian Private Banker that he expects Avaloq’s Banking Suite to go live in Asia in 2019, amid a group-wide pledge to invest US$100 million on information technology and digital solutions in the region.

year increase in Asian discretionary assets in 2017, while inflows into alternatives have topped US$1 billion this year alone at the private bank.

“At the end of the day, when you have the client team in place, rather than going to the client in a piecemeal fashion and saying, ‘Hey, this is an interesting play and we’d like to sell you this’, the approach becomes far more client-centric,” Caceres said.

“And when we have a team that can address the client’s needs, build a portfolio from the ground up and focus on the importance of our strategic asset allocation, the real value-add that we bring segues brilliantly into, say, our DPM or alternative offerings as implementation vehicles and not as products per se.”

Meanwhile, Kunz said his priorities within the subregion begin with Indonesia as the biggest economy, and notwithstanding recent challenges, alongside Thailand and the Philippines.

Joseph Caceres head of managed solutions and alternative investments, South East Asia HSBC Private Banking

But Singapore is also a hub for offshore Chinese money — a fact not lost on Kunz, who points out that while Hong Kong commands 36% of this wealth pool, Singapore, in a short period, has emerged as the second-largest home, tied with New York with 17%, based on Capgemini figures.

“For me, far more compelling are the growth rates of the two centres, and that is not to arbitrage the two, but more a cognisance that we, as the Singapore office, have our part to play where the Singapore piece is growing at 18-20% per year,” he said, downplaying any notion that local players, having grown at a rapid clip in recent years, boast a competitive edge in the city-state.

Much of this growth can be explained by acquisitions, essentially an outcome of economics and not a result of having something differentiated, according to Kunz, who expects their appetite for further purchases will diminish in the near term.

“That will allow me, on a time axis and through the position of the offering we have, to catch up,” he said.

Efforts to shore up group connectivity and surround the client with investment specialists are also stirring up tailwinds for the private bank’s managed investments business in Asia, according to Joseph ‘Joe’ Caceres, head of managed solutions and alternative investments, South East Asia.

Neither is Kunz concerned about meeting his ambitious hiring targets, which some would call fanciful — “There are those who tell me I’m dreaming,” he said — but which are not completely far-fetched given HSBC’s global talent pool of 230,000. Accordingly, the private bank not only intends to look towards the broader financial services industry, whether fund houses or hedge funds, to boost its ranks but also within its own ecosystem.

Over the past two years, discretionary portfolio management (DPM) inflows have grown multifold, amid an industry-wide 52.7% year-on-

“The one thing we can be sure of is that somewhere in this global bank, we can find what we need,” Kunz said.

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RESEARCH

ESG in Asia: Preparing for a paradigm shift

E

SG has become a recent buzzword for private banks and asset managers, as approximately US$23 trillion in assets are being professionally managed under responsible investment strategies by late 2016. The growth of sustainable investment, including ESG, has been robust in recent years with assets managed under sustainable investment strategies growing by 25% between 2014 and 2016.

Responding to growing interest in ESG, Asian Private Banker, under the sponsorship of Robeco, explored the role of ESG in Asia drawing on data collected from 187 key leaders and relationship managers from asset management firms and private banks in Hong Kong and Singapore.

While the volume of ESG-related investments in Asia remains relatively limited, the penetration of ESG is particularly high among younger investors and women — 56% of those who invest in ESGrelated products are younger than 40 years old and 43% are women.

At the same time, given that the region is experiencing “the largest wealth transfer in history”, ESG is expected to grow in the coming years as the so-called “next generation” will seek a more active role.

What is the age breakdown of your clients who invest in ESG-related products?

Below 3030 years old old Below years

6% 10%

28%

10%

6%

30 to 39 years old

30 to 39 years old

40 to 49 years old

21%

21%

28% 35%

35%

1 Global Sustainable Investment Alliance. “Global Sustainable Investment Review 2016,” Global Sustainable Investment Alliance, 7, available at: http://www.gsi-alliance.org/wp-content/uploads/2017/03/GSIR_Review2016.F.pdf.

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40 to 49 years old

50 to 59 years old

Over 60 59 yearsyears old 50 to

old

Over 60 years old

RESEARCH

For both, asset managers and private banks, ESG-integration remains more popular than ESG-thematic investments.

81%

66%

asset managers

private banks

What is the gender breakdown of your clients who invest in ESG-related products?

Male Male Female

Female

43%

43%

57%

57%

On the other hand, three out of four RMs have less than 20% of their clients with ESG-related investments. For both asset managers and private banks, ESG-integration remains more popular than ESG-thematic investments, the former of which accounted for 81% and 66% of ESGrelated investments for asset managers and private banks, respectively.

From a thematic perspective, environmental themes are the top priority of private banks and governance ranks first among asset managers. What is more, asset managers and private banks adopt a wide array of ESG strategies, with ESG-integration and negative screening being the two most popular.

Notwithstanding the different approaches to ESG as an investment strategy tool, data quality and quantity remains one of the biggest challenges across the market. This showcases the potential for improvement in the functioning of the ESG market in Asia, but it is a

problem that we expect to be ameliorated in the coming years as the ESG market in Asia develops and matures.

Compared to private banks, asset managers have developed relatively stronger ESG capabilities and, compared to private banks, have allocated more resources to ESG-research — 41% of contributing asset managers have a specialised ESG team and reported a 66% YoY increase in their ESG team headcount, while a further 79% of asset managers stated that they plan to increase the size of their ESG team within the next 12 months. On the other hand, only 28% of private banks have a dedicated ESG team and 27% plan to increase headcount within the next year. However, our contributors on both sides of the market highlighted the difficulty they face in finding specialists in ESG with a solid background in investment.

While there is no denying that Asia’s first generation HNWIs’ and UHNWIs’ familiarity with the ESG value proposition is far from satisfying, attributing the limited flows of ESG products in Asia to the lack of interest among clients would be an oversimplification of the current landscape. In fact, a significant percentage of Asia’s RMs and wealth advisors do not possess the necessary conceptual tools required to develop a deep understanding of ESG’s contribution to alpha generation and portfolio risk mitigation, and consequently, lack the familiarity to educate their clients about ESG’s value proposition.

While familiarity with the concept of ESG among asset management firms remains relatively high, RMs have not yet developed a thorough understanding of ESG. After all, if RMs are not confident with a certain product they will be unwilling to sell it to their clients. According to the respondents, 66% of RMs received limited or no training during the last 12 months, while almost 60% of contributing private banks and independent asset managers/family offices did not organise any ESG-related training programmes for their relationship managers in the last 24 months.

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RESEARCH

Over the past 24 months, how many ESG-related training programmes did you organise for your RMs? None 1-5

17%

17%

None 1-5

Have you received any training on ESG during the last 24 months?

Extensive training 7%

More than 5

More than 5

No training 31% Some training 28%

58%

25%

58%

25%

Limited training 34%

As a result, RMs are still not very familiar with the concept of ESG and its value proposition, with private banks assessing it to be just above average — 5.6 out of 10. The fact that RMs self-assess their knowledge of ESG as significantly higher, 6.9 out of 10, highlights the lack of solid training plans and further reinforces our aforementioned argument.

Apart from limited familiarity with ESG products across a particular segment of the Asian market and the unsatisfactory quality of data, we also need to highlight that the supply of ESG products is far from a Pareto frontier.

It is encouraging, however, that 90% of RMs are demonstrating some or high interest in receiving more training on ESG-related products.

In line with this, our contributing private banks responded that they plan to increase their offered ESG-related training sessions over the next 12 months, with 69% reporting that they are planning to organize at least one training session for their RMs.

90%

of RMs want more training on ESG-related products Against this backdrop, asset managers and private banks should focus on raising awareness among Asia’s professionals who will, in turn, impart the idea of ESG to their clients. It is important to help all segments of Asia’s private banking and asset management market understand that an a priori rejection of ESG without deeply understanding its mechanism can lead to problematic price valuations, inefficient risk management strategies, or investors overlooking investment opportunities, such as the recent agreement between the French company Danone with 12 leading global

banks to link its US$2 billion syndicated credit facility with its ESG performance and lower the respective interest if the company increases its respective goals. 2 Predictably, there is a linear relationship between the difficulty RMs have convincing their clients to invest in ESG-related products and their training on the particular topic. As Asia’s next generation of HNWIs and UHNWIs emerge, the interest in ESG-related products is expected to intensify, and therefore, asset managers and private banks should give priority to raising awareness among their employees and ensure that they align with the values and preferences of their clients.

To accomplish this, a two-pillar approach that pays attention to training and reach-out activities as well as improving the quality and quantity of ESG-related data is imperative, and it will promote a deeper understanding of how ESG can contribute to clients’ portfolios and needs vis-a-vis ESG. In parallel, it will help professionals optimise the integration of ESG principles and develop an effective understanding with clients with respect to sustainable investing.

Amidst a rapidly changing demographic landscape in Asia’s private banking industry, asset managers and private banks that identify this emerging challenge will turn today’s challenge into an important investment opportunity and emerge as thought leaders in Asia’s sustainable investment industry. Furthermore, apart from existing initiatives taken by firms, regulators have also been offering training opportunities, such as the recent partnership between MAS and the International Finance Corporation who signed an MOU that includes capacity building programmes that will “enhance the awareness and knowledge of professionals working in financial institutions on green finance issues”.

Looking ahead, 69% of our contributing private banks and IAMs reported a steady or growing interest in ESG products among their clients, a promising sign that validates the potential of ESG in Asia.

2 Danone. “2017 Full Year Results - Press release,” Danone S.A., February 16, 2018: 7, available at: http://danone-danonecom-prod.s3.amazonaws.com/COMMUNIQUES_DE_PRESSE/ EN/2018/FIN_PR_FY17.pdf.

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RESEARCH

How active was the interest of your clients in ESG-related products in the past 24 months?

No interest 13%

High interest 20%

Do you plan to increase/decrease the share of ESG-related investments in your clients’ portfolio?

Significantly increase 7%

Significantly decrease 4% Decrease 9%

Remain the same 29%

Low interest 35% Some interest 32%

Increase 51%

In this context, 81% of asset managers and 78% of private banks plan to increase the integration of ESG principles in their products within the next 12 months. In addition, 58% of our contributing RMs

reported that they plan to increase/decrease the proportion of ESGrelated investments in their clients’ portfolios — a percentage we can expect to see increase looking ahead.

Do you plan to increase the integration of ESG principles in your products within the next 12 months? [Asset managers]

Do you plan to increase the integration of ESG principles in your offered products within the next 12 months? [Private banks] Yes Yes

Yes Yes

No

No

No

19%

19%

No

19%

22%

81%

81%

78%

81%

For further information, please email: robecohongkong@robeco.com (Hong Kong); robecosg@robeco.com (Singapore)

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R E G U L AT I O N S

New offline suitability rules in Hong Kong may limit investor choice

T

he offline suitability requirements recently published by Hong Kong regulators could prompt intermediaries to narrow the scope of available execution-only transactions to avoid onerous suitability checks, thereby limiting the investment choices open to private clients.

In order to create a level playing field between online and offline transactions of investment products, the Securities and Futures Commission (SFC) published the consultation conclusion on offline suitability requirements for complex product sales last month, making suitability checks mandatory for all online and offline complex product sales, effective 6 April 2019.

According to the revised suitability requirements, before executing a trade, intermediaries have to classify products as complex or noncomplex by referring to the regulator’s lists of principles and examples, conduct product due diligence, and ensure the client’s risk appetite matches the risk profile of the investment.

Karen Man, partner at Baker McKenzie, told Asian Private Banker that if product due diligence and risk matching has to be done prior to every execution-only transaction, intermediaries will find it challenging to offer a broad range of sophisticated products while endeavouring to meet private clients’ speed and efficiency expectations.

“Given the sheer volume of products available in the offline environment, there was a perception that the challenge of conducting product due diligence for every possible product prior to trade

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execution would lead to intermediaries declining execution-only transactions in products outside their recommendation list. This, in turn, would limit investor choice,” Man said.

Limited investor choice, she added, might prompt private banking clients to shift their accounts out of Hong Kong to jurisdictions that do not impose similar suitability requirements on complex products, potentially weakening the city’s position as a wealth management hub.

Corporate professional investors unaffected According to Helen Fok, partner at Morgan Lewis, the regulatory changes will unlikely signify the end of execution-only accounts in Hong Kong as the complex products requirements do not apply to corporate professional investors.

“Non-corporate professional investors may still enter into transactions in non-complex products on an execution-only basis provided the private banks have not solicited or recommended these products to the relevant clients,” Fok told Asian Private Banker.

Despite concerns in the industry about suitability checks increasing time to market, Karen Man said removing the distinction between individual professional investors and retail investors, insofar as suitability is concerned, is consistent with the SFC’s commitment to prioritising client protection, as laid out in its Code of Conduct.

“Individual professional investors who qualify solely by meeting the prescribed monetary thresholds under the professional investor

R E G U L AT I O N S

While it makes sense from an operational perspective to align the effective dates for the online and offline requirements, we expect that private banks, in particular, will be dealing with a much larger range of offline complex products, and the proposed transition period may be challenging for some banks.

rules are not necessarily financially sophisticated and may be just as vulnerable as retail investors when dealing with complex products,” said Man. “In recognition that most selling misconduct cases involve individual investors, the SFC does not consider it valid to segregate individuals into a professional and a non-professional class for the purpose of exempting intermediaries from their Code of Conduct requirements.”

Tight implementation timeline Learning to distinguish between complex and non-complex products and implementing the necessary sales procedures require frontline

training and the development of new systems. As such, one response to the consultation suggested the implementation period should be extended to longer than six months.

According to Fok, although the SFC offered some guidance, distinguishing between non-complex and complex products requires “due skill, care, and diligence”, and that “different banks may take different views on whether a product is complex or not”, potentially affecting clients’ experience.

“The SFC also states that if an intermediary, being under the obligation to ensure suitability, considers a product to be unsuitable for a client, the intermediary should not effect the transaction for the client even if the client still wishes to proceed. Again, private banks need to put in place procedures to ensure this,” she added.

Meanwhile, Man said the April deadline was set to ensure online and offline suitability requirements are implemented simultaneously, adding that private banks should be able to implement system changes before the end of the six-months-long timeline.

“While it makes sense from an operational perspective to align the effective dates for the online and offline requirements, we expect that private banks, in particular, will be dealing with a much larger range of offline complex products, and the proposed transition period may be challenging for some banks,” Man said.

“Nevertheless, the industry has already had six months to implement system changes to existing online platforms, and we would expect that further changes needed to meet the offline requirements will be manageable for those who also operate online platforms.”

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R E G U L AT I O N S

Stakeholders’ “widely divergent” needs were a challenge for halted KYC project

T

he Association of Banks in Singapore (ABS) has identified stakeholders’ “widely divergent” needs as a key takeaway from the halted shared KYC utility as they have contributed to a longer and more complicated process which required more stakeholder management than previously anticipated.

“It also became more evident that the cost of performing KYC varies considerably between banks — something to be expected considering the various stages of sophistication and evolution of the banks,” according to ABS. “This required an analysis of profitability on a perbank basis as well as a systemic industry basis.”

“The parties involved in the project are of the firm view that KYC remains an industry-wide pain point from the perspective of regulatory risk, operational cost and customer experience,” the ABS wrote in its ‘after-action’ report for the KYC utility project conducted jointly by locally incorporated banks and the Monetary Authority of Singapore (MAS).

Meanwhile, given that the scale of corporate clients ranges from smallto-medium-sized enterprises (SMEs) to multi-national corporations, the report added that a balance must be struck between the application of manual and technological procedures in order to achieve cost and time efficiency.

In order to build a shared utility for corporate clients, experts from both the public and private spheres envisioned a platform that could not only identify customers but help identify and verify (ID&V) clients, ‘unwrap’ corporate hierarchies to verify the nature of businesses, as well as screen customers and associated persons for anti-money laundering (AML) purposes.

“When approaching the KYC problem, it is insufficient to consider the problem statement to be limited, say, to the identification of a customer. That is only a small part of the problem,” the report read.

“It is necessary to consider KYC as a combination, and a continuity, of the operational tasks required to satisfy the regulatory obligation.”

According to the report, the different views and priorities of the stakeholders — ranging from the regulator to banks to tech vendors — meant that “it was often necessary to accommodate a long process of requirements gathering and then distilling a common view to achieve consensus”.

In addition to different priorities, a variety of bank sizes not only created diverging KYC costs between players but increased the cost and complexity of the project as a whole.

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“By better identifying such segments (such as simple small/medium enterprises with limited operating history) it may have been possible to apply better technology solutions and avoid impact from seeding needs,” ABS pointed out. “However, this needs an important caveat because in certain other client segments — for example, complex multinational corporations — it is very unlikely to be able to avoid operations entirely.”

On private banks, the association said the KYC utility intentionally excluded the segment even though the clientele often overlaps with the project’s target segment — corporate clients.

This, the ABS explained, is because competition among private banks is fuelled by their deep and thorough understanding of clients and because ‘source of wealth corroboration’ is an operational challenge unique to private banks that utility technology is not yet equipped to handle.

The ABS report was published shortly after Ravi Menon, the managing director of MAS, said that despite being on hold due to cost constraints, the project has assisted in “harmonising” various banks’ KYC systems and has been integrated with a number of banks’ infrastructures.

TECHNOLOGY

Deutsche Bank’s new APAC tech lab to supercharge WM business

A

s shared with Asian Private Banker in September, Deutsche Bank has launched its Asia Pacific innovation lab in Singapore in order to facilitate collaborations with startups in the region which will, in turn, benefit the lender on a global scale.

According to Deutsche Bank WM’s APAC COO Sudhir Nemali, the innovation lab will look into solutions that will “accelerate business growth” in areas such as digital advisory solutions, automation for client onboarding services, and technology solutions that will enrich the end-to-end client experience.

“It is important that the innovation labs not only shine a light on the future of WM but to also open windows of opportunity in the near- to mid-term for the business to grow as we move towards that future,” Nemali told Asian Private Banker.

Sudhir Nemali COO, APAC Deutsche Bank Wealth Management

With the new Singapore-based setup, Deutsche Bank aims to reach out to startups across Asia Pacific to collaborate on solutions that can be rolled out across the bank globally.

The lender will do so by undergoing “supervised trials or proof-ofconcept exercises in the region” that will eventually “contribute to the global inventory of capabilities”. This is the first innovation lab the private bank has opened in the region and the fifth worldwide, with two located in Europe (Berlin and London) and two in the US (New York and Palo Alto).

“The lab operating model ensures that we follow a structured, stagegated process from ‘ideation to commercialisation’ while ensuring key KPIs are met at each stage,” said Nemali.

Nemali is optimistic that the APAC lab “can increase capacity for WM-focused fintech lead generation”. He is confident that the lab would accelerate collaboration for digitalisation and will also instil “a strong innovation culture” across the division’s business operations and the broader global operations.

The Monetary Authority of Singapore (MAS), which has been actively cultivating the city-state’s fintech landscape, officiated the launch of the lab, welcoming Deutsche Bank’s presence in Singapore’s growing innovation ecosystem.

“We are pleased to welcome Deutsche Bank to the growing community of innovation labs in Singapore,” said Jacqueline Loh, deputy managing director of MAS, adding that global financial institutions are “crucial partners” for fintechs to develop and scale up.

“Asia, particularly Singapore, is proving to be fertile ground for talented startups and we are very excited about the potential for partnerships here,” said Werner Steinmüller, Deutsche Bank’s APAC CEO. Nemali previously told Asian Private Banker that Asia will receive the lion’s share of the wealth manager’s €65 million investment in new technologies on the condition that solutions built in the region are globally adaptable across the wealth management business.

“With today’s launch of the APAC Innovation Lab, Deutsche Bank is uniquely positioned to tap the ecosystems in every region around the world,” he concluded.

To date, Deutsche Bank’s innovation labs have interacted with more than 3,000 startups globally to develop solutions in a range of areas, including wealth management and compliance. To join the network, firms can pitch through the lender’s startup portal.

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TECHNOLOGY

HK Fintech Week & Singapore Fintech Festival: 2018 wrap-up Over the autumn season, Hong Kong and Singapore have celebrated fintech innovation and excellence in their respective jurisdictions. The former’s Fintech Week was jointly hosted by Finnovasia and InvestHK, while the lion city’s Fintech Festival was organised by the Monetary Authority of Singapore (MAS).

Asian Private Banker attended both events and has rounded up the most significant announcements and developments that took place.

HONG KONG FINTECH WEEK 2018 HKEX partners with Digital Asset to provide blockchain platform Hong Kong Exchanges and Clearing (HKEX) CEO Charles Li announced that the exchange is partnering with distributed ledger technology (DLT) provider Digital Asset to provide a blockchain platform for investors looking to trade companies listed on the local exchange as well as China A-shares via Stock Connect.

The move is a response to investors’ concerns over post-trade operational challenges and tight settlement cycles. Through the platform, called eTradeConnect, post-trade settlement capabilities can be settled in real-time by using blockchain technology.

“HKEX will now be working together with Digital Asset to introduce the first blockchain platform for financial services in Hong Kong,” Li said. “This could be the beginning of a long journey of innovation and revolution and we’re very excited to share this important milestone.”

“We also set up a data lab in our Commission to do data analytics.

Our IT staff is great, but we really need another team to revamp our database while trying to improve the experience when we collect data from stakeholders,” said Leung.

SFC extends reach to crypto During the course of Hong Kong’s Fintech Week, the SFC published a new framework on virtual assets for licensed corporations that perform securities- and futures-related activities.

Despite the guidelines’ narrow focus, the cryptocurrency industry in Hong Kong views the framework as promising.

“There is no doubt that this asset class will grow given that there is now more clarity in the regulation. Public trust is crucial to the development of the virtual assets industry and the regulatory guidelines will help build that trust,” blockchain specialist Ken Lo, co-founder of ANX International, told Asian Private Banker.

SFC looks to suptech The Securities and Futures Commission (SFC) is seeking to leverage supervisory technology (suptech) in order to better monitor the market amid rapid fintech developments.

During a Fintech Week panel, Julia Leung, deputy CEO of the SFC, announced the watchdog is collaborating with a local startup to create a ‘market intelligence’ program that can detect cases of possible misconduct.

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Hong Kong Fintech Week

Singapore Fintech Festival

Dates

30 Oct - 2 Nov

12 Nov - 16 Nov

Attendees

8,000+ from 50+ countries

~45,000 from ~130 countries

Speakers

200+

250+

TECHNOLOGY

SINGAPORE FINTECH FESTIVAL 2018 MAS’s Menon pushes for data without borders, announces FEAT principles

Matchmaking platform launches during festival, poised to generate US$12B in 3 years

Kicking off Singapore’s FinTech Festival, MAS’s managing director, Ravi Menon, stressed the importance of data connectivity across jurisdictions and urged governments to step away from “oldfashioned protectionism”.

The lion city is now officially home to MATCH — ‘Meet ASEAN’s Talents and Champions — a deal-making platform that connects investors to the region’s rising talent.

“Data localisation measures are on the rise around the world. This is a serious risk — if data cannot cross borders, the digital economy cannot cross borders and we will be poorer for it,” Menon cautioned.

He also announced the release of the watchdog’s new Fairness, Ethics, Accountability, and Transparency (FEAT) principles, developed to ensure responsible use of AI and data analytics (AIDA) in Singapore’s financial sector.

The set of principles — “the first of its kind in the world”, according to Menon — requires firms using AIDA to be accountable for both internally developed and externally sourced AIDA models used in the business.

MAS and SGX leverage blockchain for DvP prototypes Following the launch of Project Ubin, an interbank payments processing system announced at last year’s fintech festival, MAS and the Singapore Exchange (SGX) have successfully completed Delivery versus Payment (DvP) pilot capabilities for the settlement of tokenised assets to simplify cross-border post-trade processes.

The prototypes were developed in conjunction with Anquan, Deloitte, and Nasdaq, further emphasising the city-state’s push for tokenised digital currencies and securities across various blockchain platforms.

“Blockchain technology and asset tokenisation are fuelling a new wave of innovation globally,” said MAS’s chief fintech officer, Sopnendu Mohanty. “This project has demonstrated the value of blockchain technology and the benefits it can bring to the financial industry in the short-to-medium term.”

“Already, participating investors have indicated their intentions to invest up to US$12.2 billion into ASEAN enterprises over the next three years,” said Peter Ong, a MAS board member who officiated the platform launch. “The interest shown by the investors in our region is indeed encouraging.”

MAS proposes regulatory sandbox As the end of the FinTech Festival neared, MAS released a consultation paper on regulatory sandboxes — a complement to its fintech counterpart launched in 2016.

Dubbed ‘Sandbox Express’, the environment will allow approved applicants to operate in a low-risk environment in order to expedite innovative operations’ time to market.

“To facilitate quicker experimentation and faster introduction of innovative financial services to the market, we are now offering the option of Sandbox Express,” said Mohanty.

Singapore’s minister for education, Ong Ye Kung, highlighted during his speech at the event that MAS encourages financial institutions to make use of regtech and that the government is setting aside S$35 million to boost regtech use in the market. Further details will be released “in the coming months”.

Singapore inks two new fintech MoUs During the week, MAS signed fintech cooperation agreements with Bahrain and Kazakhstan in an effort to boost and promote fintech activities across the respective jurisdictions.

To date, Singapore has signed fintech cooperation agreements with 24 jurisdictions.

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Asian Private Banker looks forward to hosting you at one of our functions this year

1st Year

WOMEN OF WEALTH This milestone forum will study the decision making role of matriarchs in managing Asia’s family fortunes, and explore the current state of female leadership and empowerment in the wealth management industry.

Hong Kong

2nd Year

CHINA INTERNATIONAL PRIVATE BANKING & WEALTH MANAGEMENT LEADERS - PRIVATE DIALOGUE The C-suite leadership of China-linked wealth managers and private banks convene to examine and debate the future of off-shore wealth management for Chinese clients.

9 Apr

Singapore

5th Year

11 Apr

Hong Kong

DISCRETIONARY PORTFOLIO MANAGEMENT LEADERS CONVERSATION Key DPM leaders from private banks discuss and debate new products for their DPM mandates, and examine other key issues affecting DPM traction in Asia.

14 May

Hong Kong

10th Year

16 May

Singapore

APB SUMMIT The largest conference of senior private bankers held in Asia.

Over 600 private bankers will participate in our flagship summits in 2019.

15 May

Singapore

5th Year

16 Oct

Singapore

CHIEF OPERATING OFFICERS LEADERS CONVERSATION Peer networking and experience sharing between COOs, CTOs and CDOs around their respective private bank’s technology and innovation agendas.

28 May

Hong Kong

1st Year

30 May

Singapore

ESG DIALOGUE Gathering of key families, product selectors & private bankers who are leading the ESG, SRI & impact investing change within Asia.

18 Jun

Singapore

3rd Year

20 Jun

Hong Kong

IAM LEADERS CONVERSATION Key leadership of Asia’s largest IAMs gather to examine the industry’s development, innovative products and future expansion plans.

17 Sep

Hong Kong

8th Year

19 Sep

Singapore

FUNDS SELECTION NEXUS The premier product gatekeeper function in Asia.

5 Mar

Hong Kong

7 Mar

Singapore

14 Mar

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We deliver targeted and differentiated solutions by connecting our clients to Citi’s trading strength, product origination capability, research insights and regulatory expertise in local markets.

Discover more at www.crossassetsolutions.citi.com

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