A Growing World of Private Banking


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A Growing World of Private Banking

  1. 1. S P E C I A L A D V E RT I S I N G S E C T I O N Asia A Growing World of Private Banking by ANDREA LI Private banking in Asia is experiencing a boom in popularity. There has truly been no better time for the industry.With buoyant economies, hefty bonuses and bulging wallets, the wealthy are turning in ever-increasing numbers to their most trusted financial advisers for help in managing their assets.
  2. 2. ADVER TISEMENT 2 The immediate challenge lies not in finding the clients, but rather, in how best to serve them. private banks in the last two years, driven by the global equity markets and net new money,” says Sebastian Dovey, managing partner at Scorpio Partnership. “The industry saw a median growth of 24% in its operating profits last year.” Beneath the sizzling bubble of economic fer- vor, however, growth has come at a price. The immediate challenge lies not in finding the clients, but rather, in how best to serve them. Such a mammoth task is a work in progress However, the rich aren’t just growing in numbers. and can only be taken on by banks that are committed to High-net-worth individuals (HNWIs — those with more refocusing their business strategies.This includes ditching the than $1 million in financial assets) are also becoming far traditional structures prevalent in Europe and North America wealthier than ever before, thanks to strong corporate earn- and training private bankers to come face-to-face with the ings, a flurry of initial public offerings and foreign invest- new breed of HNWIs emerging in Asia. ment on the continent. In 2006, growth in personal wealth outpaced the increase Reshaping Business Strategies in HNWI population by 3.1%, according to the latest World Change can be a daunting prospect, but private banks know Wealth Report by Paris-based consulting firm Capgemini it is a necessity in order to remain pertinent to Asian clients and U.S. investment bank Merrill Lynch. The wealth of who are building their wealth against a backdrop of regula- HNWIs in the region reached $8.4 trillion, an increase of tory change in the region. 10.5% from a year ago. The financial assets of the world’s There is no one-size-fits-all approach, but banks increas- wealthy have also grown in tandem at 11.4%, totaling $37.2 ingly have been looking within to help customize solutions trillion since 2005. that cater to Asian clients. Singapore, Indonesia and Taiwan saw the fastest growth in “Due to the high concentration of large entrepreneur and the number of millionaires. HNWIs in Asia reached 2.6 mil- family-owned businesses in Asia, clients often seek advice on lion in 2006, up 8.6% from a year earlier and just trailing 2.9 both their business and personal wealth needs,” says Ravi million in Europe and 3.2 million in North America. Raju, Deutsche Bank’s head of private wealth management Private banks are responding to the staggering growth in Asia Pacific. “This is where our model has evolved. We potential with vigor. Many established banking conglom- often think of Asian clients as semi-institutional in nature; erates in Asia are re-engineering their resources to fuel the their complex needs are best addressed by adopting a one- insatiable appetite of the rich, while a growing pool of bou- bank, institutionalized approach.” tique and medium-sized firms have been busy setting up Credit Suisse has done just that through its One Bank offices in Hong Kong and Singapore. strategy, a platform combining the strengths of investment According to Scorpio Partnership, a London-based consul- banking, private banking and asset management expertise, tancy to the wealth management industry, nearly 100 private and one that has prompted cross-divisional teams of experts banking outfits are open for business in the financial hubs of to work closely with clients to craft unique solutions in man- Singapore and Hong Kong. A third of those are international aging personal and business wealth. In 2006, Credit Suisse’s private banks; the remaining are split between mid-sized firms private banking business in Asia Pacific contributed 38 deals with representative offices and domestic players. to its investment banking and asset management divisions. By building a unique business strategy, private banking Taking this multidimensional view of clients has meant businesses retain their key position as top income earners for banks are constantly developing the ways they assess the their global banking group. entirety of a client’s wealth. “Banks look at their life-cycle “There has been a big increase in the growth rate of phase, source of wealth and investment behavior. This
  3. 3. ADVER TISEMENT 4 M a r “Banks look at their life-cycle phase, source of wealth c e and investment behavior. This requires broader and l more sophisticated approaches. This includes looking K at clients’ liabilities as well as illiquid assets such as r e real estate or shares in client companies.” i s Managing Director and Head of Private Banking Asia Pacific, Credit Suisse requires broader and more sophisticated approaches. This Talent Shortage includes looking at their liabilities as well as illiquid assets such Private banks may be expanding in different directions to as real estate or shares in client companies,” says Marcel Kreis, build their own identity, but there is one thing they all have Credit Suisse’s managing director and head of private banking, in common: the headache of recruitment. The dearth of Asia Pacific. bankers needed to manage the fortunes of the wealthy has Citi Private Bank, which has been drawing on the know- become so dire that talent poaching has become an occupa- how of its investment and corporate banking arms for some tional hazard. years now, says its holistic model works for all clients. “Its Banks, however, have realized that luring talent is only a benefits may be more obvious to entrepreneurs, but it is short-term measure to address what is a long-term crisis, and equally beneficial to the general high-net-worth individual, many have taken it upon themselves to groom bankers. given the multitude of investment opportunities in private Baer emphasizes they are not in the business of churning equity and business in Asia,” says Kaven Leung, CEO of Citi out cookie-cutter bankers through run-of-the-mill training Global Wealth Management in Asia Pacific. schemes.“We tailor our training to suit the needs of our staff Others like ING Private Banking Asia, which has sup- in the same way we tailor solutions to our clients,” he says. ported clients with its broad-based platform that comprises In 2005, Credit Suisse set up its Business School campus insurance, asset management and banking, are planning to in Singapore, the region’s first in-house corporate university, accelerate wealth management growth by piggybacking off to provide customized training to ensure the currency of skills the expansion of Asian retail operations. “We will use and knowledge. Last year, the school provided private bank- our retail platform to tap into a bigger customer base and ing training to more than 4,000 employees and taught well simplify the marketing efforts of our brand,” says Renato De over 400 programs. Guzman, CEO of ING Private Banking Asia. “This is all “Our Business School is more than just training. It is a about how well you use different parts of your organization breeding ground for new talent, which helps create and sus- to compete in the marketplace.” tain the Credit Suisse culture and underpins individual career As the market has grown, SG Private Banking has been growth and personal development. It is a key feature that quick to adapt its model to the modern needs of the mobile helps us attract and retain talent,” Kreis explains. rich who want to invest beyond their domestic market. Once training mechanisms are in place, banks must work Launching its Global Indian Subcontinent team did some- to ensure that staff turnover is kept at its lowest possible rate. thing quite different: It offered both onshore and offshore “It might be old-fashioned, but a key factor in retaining banking solutions on one seamless platform. “The industry talent in this environment is to foster a strong employee tends to separate onshore and offshore banking,” explains culture and offer the staff soft benefits: good training, good Pierre F. Baer, CEO of SG Private Banking (Singapore). career development opportunities, a strong team environ- “We were one of the pioneers to integrate both as part of ment and, more broadly, a strong brand that people are a single platform, enabling our clients to avail global invest- proud to work for,” says Raju. ment opportunities and investments into the onshore ING, whose regional head count rose annually by 25% Indian market from a single window.” over the last four years to reach nearly 120 relationship
  4. 4. ADVER TISEMENT 6 R e n a “We don’t just take on people with 20 years of private t o banking experience. We are open to people who have d worked in other areas of financial services such as e investment banking, retail banking, financial G u markets and asset management. z m We will take them on and train them.” a n CEO, ING Private Banking Asia managers, has adopted a more flexible recruitment policy to have been nimble and innovative enough in terms of product ease the shortage. offering and sound advice,” says Raju.“For those clients with “We don’t just take on people with 20 years of private above-average risk profiles, we have seen significant growth banking experience.We are open to people who have worked in advisory services, foreign exchange and equities trading, in other areas of financial services such as investment banking, and derivatives and structured products.” retail banking, financial markets and asset management.We will Those looking specifically at asset allocation have opted take them on and train them,” De Guzman says. for managed products and marketable alternatives, notes One of the caveats that comes with becoming more open Raju, with soaring interest in hedge funds and private to different types of talent lies in the selection process. SG is equity investments. extremely cautious when it comes to passing people on its But it is structured products that are dominating the dinner litmus test of entry. “With private banking in the spotlight, conversations of HNWIs. These vehicles have evolved from one of the dangers is that it will attract people who are com- simple interest-rate-linked notes to complicated multi-asset ing to the industry just for the earnings potential rather than classes, with SG as one of the front-runners in their innovative with the attitude of serving clients. That’s why we are very development. particular about recruitment. We don’t want to grow at any “We first launched these products five to six years ago price,” Baer explains. when markets were volatile. Structured products with The human resources problem is expected to manifest itself multi-asset classes offer various levels of protection against most brutally in China and India, where talent is at its rawest. economic downturns, hence allowing the client to find “Talent in these markets is not developed, so our plan is to exactly what they are comfortable with,” says Baer. continue taking individuals with related financial services “The popularity of structured products,” says Barend experience, train them up and round them out to become the Janssens, ABN AMRO’s head of private banking in Asia, next generation of private bankers,” Leung says. “reinforces what banks have always known: the willingness of most Asians to take a hands-on approach to investment. Broader, More Complex Products That, coupled with the entrepreneurial spirit of most clients, Diversification is the name of the game for this generation’s makes Asia the ideal launching ground for some of the most wealthy, and private banks are drawing on middle- and back- exciting tailor-made products on the market today.” office specialists to craft a conglomerate of complex invest- Citi’s co-investment arrangements have also found favor ment tools that include private equity, foreign exchange, with the more entrepreneurial investors.“In such deals, Citi property, new types of hedge funds and derivative structures invests its own capital alongside the client’s investment,” that allow for currency hedging or yield enhancement. explains Leung. The bank’s recent co-investment opportu- “There has been more interest in Asian investment products nities have included a $400 million China property fund that incorporate real estate and private equity.We have also seen between Citi and real estate developer CapitaLand, and a more innovative use of derivatives,” De Guzman notes. $1.6 billion venture capital private equity fund focusing Meanwhile, product innovation has put banks under the on the emerging markets of India, China and Eastern and microscope: “It has been a real test to see which companies Central Europe.
  5. 5. ADVER TISEMENT 8 K a v “China and India are still finding their way in e n terms of forming their own banking and regulatory system. We would like to add value by bringing L e our international experience to help them u n build their model.” g CEO, Citi Global Wealth Management, Asia Pacific Although it is easy to get swept up in the litany of prod- “China and India are still finding their way in terms of ucts, savvy bankers know they must never lose sight of the forming their own banking and regulatory system.We would essence of private banking. “Private banking is not about like to add value by bringing our international experience to products. It is actually the opposite. It is about understanding help them build their model,” says Leung. Citi Private Bank client needs, their risk profile and how bankers can work with launched its operations in India in 2005 and has offices in financial engineers to structure products that can be tailored Beijing and Shanghai. into a solution for clients,” Baer says. In China, getting the right product mix to clients is not easy. SG Private Banking’s Ultimate Wine Fund is one good “We felt we needed to offer both foreign and local currency example that illustrates how clients are driving a new gener- products,” explains Janssens. When ABN AMRO launches ation of products. Initially set up at the request of a wealthy operations there later this year, it will be one of the few foreign investor who wanted the private bank to buy and sell wines banks licensed to offer domestic currency products. on his behalf, the fund has since transformed into a full- Deutsche Bank asserts that China’s Qualified Domestic fledged product and works with wine experts to source and Institutional Investor (QDII) scheme is a positive indicator of purchase premium vintages from France. the future.The QDII scheme allows domestic institutions and Chinese residents to invest in overseas financial products via Emerging Markets qualified commercial banks in mainland China. No market is more alluring than one in its infancy, where Meanwhile, ING is monitoring the situation in China private ownership is at a nascent stage. Geographically, all closely and plans to move in as soon as regulatory restric- eyes are on the economic powerhouses of China and India, tions are relaxed. “Developing onshore banking capabilities the region’s fastest-growing economies, which have shown in China is a major undertaking. It is a long-term invest- staggering promise in recent years. In 2006, China and India ment and needs to be approached from a long-term view,” sustained real GDP growth rates of 10.5% and 8.8%, respec- De Guzman says. “ING’s stake in the Bank of Beijing will tively, among the highest seen in any economy in the world. help facilitate its eventual move into China’s wealth manage- That is why, despite the regulatory hassles, private banks ment space.” remain so keen on these markets.They are the next new fron- With regulatory reform continuing, the opportunities will tier for the growing industry. become larger, Raju says, and global institutions with well- While most banks have launched private banking busi- trained staff should be a large beneficiary. nesses in India over the last few years, entry into China has been a little slower. Since most outfits already have some The Asian Tycoon banking presence in China, including ABN AMRO’s Van For years, Asia’s wealthy stashed away savings in real Gogh Preferred Banking business, Deutsche Bank’s invest- estate, domestic equity and time deposits, with little ment banking franchise and retail bank, and ING’s 20% stake attention to diversification, says Baer. But following the in the Bank of Beijing, their move into the market will be Asian financial crisis and dot-com bubble burst, even the that much easier. Deutsche Bank launched its Chinese pri- most complacent investor realized that sound financial vate banking operations just last year. advice can be worth its weight in gold. Private banking
  6. 6. ADVER TISEMENT 10 R “Local clients tend to be more active with their a v investments and look for a greater amount of i day-to-day interaction with their relationship R manager. They are much less inclined to ‘set and a j forget,’ and are much more eager to react u as asset markets move.” Head of Private Wealth Management Asia Pacific, Deutsche Bank AG began to take off, and no one has looked back since. Meanwhile, some clients maintain more than one banking From Mumbai to Beijing, clients can’t seem to get enough relationship as a way of segregating different pockets of wealth customized advice as banks scramble to understand a very and maintaining utmost confidentiality, according to Raju. different type of patron. Other investors may have a multitude of accounts because “Asian clients have always been more demanding, given they want to shop the market to secure the best deals. But this that most are wealth creators,” explains De Guzman. “As a strategy might not deliver the best rewards. “It is better to result,Asians have a different level of appreciation and under- concentrate on fewer relationships and allow bankers to have standing of financial markets.” a greater understanding of your needs,” Baer says. Where inheritance is one of the sources of individual Dealing with this genre of client is far from simple, so, to wealth in Europe, in Asia it is primarily generated from busi- better capture what they are really up against, banks are no ness ownership and investment performance. “Almost every longer relying on the dated paradigm of identifying clients private banking client in Asia Pacific is an entrepreneur.They according to their asset base. “Client segmentation is finally are mostly first- or second-generation business owners with taking off,” says Kreis. “Leading private banks are developing their wealth tied to their business and to real estate. Many of specific value propositions for strategically attractive target them also have family-owned businesses,” says Kreis. groups based on client needs.This will allow private banks to With most entrepreneurs still active in the daily operation cope with the increasing complexity of clients’ demands.” of their businesses, these investment-savvy capitalists have higher expectations on investment performance.“The wealth Succession Planning creators expect to see the same growth in their portfolio as in As the first generation of wealth creators and holders heads their own business,” Baer adds. toward retirement, many Asian businesspeople are turning to So bankers, in turn, have stepped up their game. “Local banks for advice on the orderly transfer of wealth from one clients tend to be more active with their investments and generation to the next. look for a greater amount of day-to-day interaction with “This is the soft side of wealth management. With their relationship manager. They are much less inclined to family-controlled businesses as the typical setup in Asia, ‘set and forget,’ and are much more eager to react as asset there are a host of issues in succession planning and markets move,” says Raju. inheritance. It is as much about banking as it is about No wonder that discretionary portfolio management, emotions and psychology, family dynamics and relation- whereby clients delegate the management of their assets to ships,” says Leung. the private bank, has failed to gain ground.“This area is grow- Succession planning and wealth transfer is often fraught ing, but it is still relatively small compared with other areas of with tension from second- and third-generation wealth banking,” says De Guzman.“Only about 10% of Asian clients holders who are armed with international investment are opting for this type of service, versus nearly half of clients experience from studying overseas. Consequently, they in North America and Europe,” he says.“There is potentially hold a vastly different mentality of wealth and are often another 10% of growth in this area, but not much more than at odds with the cautious business methodologies of that due to the culture.” their parents.
  7. 7. ADVER TISEMENT 12 B a r e n d “The biggest issue is about where the money is going. J Part of the difficulty is in the limited data available a on charitable programs and charities, and how we can n s involve the beneficiary more closely.” s e n s Head of Private Banking, Asia, ABN AMRO Bank N.V. In 2006, ABN AMRO Private Bank’s study on the that things are happening with their contributions,” explains emotional aspects of wealth transfer and inheritance found Baer.“This is a new area for private banking; the greatest chal- that 85% of the younger generation surveyed saw diversi- lenge for us is to monitor the philanthropy and make sure it fication as a key strategy to growing the family wealth. In is being used according to the client’s wishes.” contrast, the older generation focused on protecting and Janssens, who in September was named Asia Pacific’s preserving wealth and viewed diversification as too risky. “Outstanding Private Banker” by London-based trade publi- It is within this context that advisory services can really come cation Private Banker International, agrees.“The biggest issue is into their own.Bankers not only advise but can help smooth out about where the money is going. Part of the difficulty is in the the arguments over what to do with a family’s fortune. limited data available on charitable programs and charities, “This is about capturing the best meaning of wealth. It and how we can involve the beneficiary more closely.” doesn’t draw so much on our holistic platform of capabil- ities in investment and corporate banking, although such Singapore: The Switzerland of Asia? expertise could come into use if the family company The Lion City is rapidly emerging as Asia’s new private banking required help with restructuring or had the need to mon- hub. Hong Kong is where the new money is made, but Singapore etize the business, for example,” Leung explains. is where clients who prize confidentiality go to book assets. While still in its infancy, bankers are trying to find their Recently, the Singapore government has worked hard to footing on the issue. Operations like Citi’s are able to trans- develop the city’s attractiveness as an investment center by fer some of their expertise in managing investments and establishing a degree program to roll out savvy private bankers, trusts for wealthy families in the U.S. to Asia. Others, like raising the bar on breaching bank confidentiality laws and hav- ING, have chosen to outsource trust and estate-planning mat- ing an attractive tax regime: no tax on capital gains, interest ters to external consultant specialists. income or income earned overseas. “Singapore has the advantage of being an independent Philanthropy and Charity country that allows you to do proper banking.The Monetary No one was more impressed than the legion of Asian tycoons Authority of Singapore (MAS) has strengthened regulations when Warren Buffett, the world’s second-richest man, made and has been very creative about attracting money,” notes the largest philanthropic gift in history last year by donating Janssens. 85% of his $40 billion fortune to five foundations. In July of this year, the MAS tightened its compliance For years, wealthy Asians have donated to charities, but regulations further, requiring banks to closely monitor client their approach was unorganized. Many have been inspired information in efforts to curb money laundering and the by Buffett and are stepping up efforts to streamline their financing of terrorism. philanthropic strategies by partnering with banks that can “The compliance requirement for banks will increase in the guide them along the way. Private bankers are helping future as regulatory authorities learn from the market,” says clients identify their crusade, decide how much to donate Janssens. “Having tightened our own know-your-customer and determine how to manage that money. checks two years ago, much of what the MAS is requiring of us “As donations become larger, individuals want to ensure now is very close to what we have already installed internally.”
  8. 8. ADVER TISEMENT 14 P i e r “Even in difficult times, our role is not to say, r e ‘I told you so.’ It is about how we can best protect the client in the downturn, how we can restructure their F. portfolio and how we can find the right solution B a until the market changes again.” e r CEO, SG Private Banking (Singapore) ABN AMRO’s own system requires bankers to keep up- they can better guide clients in both wealth preservation to-date information on their clients, documenting every- and creation. In the future, they must be more dedicated to thing from the activity in their accounts to where their wealth structuring and wealth planning.” client’s wealth has come from.“Having taken these steps, we Many private banks have already laid the foundation in know our clients a lot better now, and this will make it sub- working toward that goal, but it is a journey requiring signif- stantially easier for us to meet any compliance rules required icant commitment and innovative thinking. by regulators in the future,” says Janssens. “In a fast-growth environment where regulatory reform continues to open up new investment opportunities and A Promising Future investors become more sophisticated in terms of capital mar- The growth of Asia’s wealth may seem monumental now, but kets knowledge, successful private banks will be those that this is only the tip of the iceberg. According to Capgemini and are at the forefront of new product trends, have invested in U.S. investment bank Merrill Lynch, the wealth of HNWIs is asset allocation and portfolio management technology and set to grow at an annual global rate of 6.8%, reaching $51.6 have invested in their people,” Raju points out. trillion by 2011. This means the fortunes of the region’s “Even in difficult times, our role is not to say, ‘I told you wealthy will rise 51% to $12.7 trillion in just four years’ so.’ It is about how we can best protect the client in the down- time, making this the fastest-growing wealth management turn, how we can restructure their portfolio and how we can market on the planet. find the right solution until the market changes again,” Baer Meanwhile, Credit Suisse estimates show that the top 15 notes.“This is our bread and butter and the key to success.” international private banks in the region currently hold just 6%, The viability of different private banking approaches will or the equivalent of $433 billion, of the total high-net-worth play out in the years ahead with the global market indices market, making the potential in Asia seem overwhelming. as the greatest test. But one thing is for sure: The blueprint Industry experts warn, however, that if private banks are for the future of Asian wealth management is grounded in to stay in the regional market for the long haul, they cannot understanding a client’s needs and wants. • solely focus on growing the wealth of their clients. More importantly, they need to step up their work as well-rounded Web Directory strategic advisers. In a market where wealth creation dominates so many of ABN AMRO www.abnamroprivatebanking.com the headlines, it has been easy to focus on asset management. Citi Private Bank www.citi.com/privatebank But things are changing, and the recent market volatility caused by the subprime meltdown in the U.S. is likely to Credit Suisse www.credit-suisse.com increase that pace of change. Deutsche Bank www.pwm.db.com/en “Hopefully the recent market fluctuations would have given banks a cold shower,” says Scorpio Partnership’s ING Private Bank www.ingasiapb.com Dovey.“They are not just in the business of making money. SG Private Banking Asia Pacific www.sgprivasia.com They must also take into account the issue of liabilities so