This guest article looks at the six most significant big themes in global - and of course Asian - wealth management for 2013 and beyond.

Editor’s note: This article, by Marcello Bertoli, marketing director, strategic initiatives, at Omgeo, a firm working in sectors such as post-trade automation, examines market trends in the global private banking industry, including the Asian region. The global private banking sector holds around $19.3 trillion of assets (source: WealthInsight); among other recent figures to emerge was that $1.1 trillion of high net worth AuM has changed hands in mergers and acquisitions in the sector between early 2008 and the middle of last year. This is a sector seeing considerable change and this article summarises the "big picture".

The world of private banking is not immune to the pressures that are reshaping the financial markets. General trends, including globalisation, regulation and cost pressure indiscriminately affect most financial institutions, albeit to varying degrees. Some, on the other hand, are specific to the private banking segment.

Here, there is growing importance around client segmentation and demographics, increasing client expectations over service, and the need to balance business goals like client acquisition and retention with operational goals around risk management and infrastructure.

Trends

Among the general drivers of change, the most obvious instance is the shift of wealth from West to East.

One of the by-products of globalisation, this eastward shift is causing the private banking landscape to change. Traditional leading territories like London, New York and Switzerland are on the verge of being superseded by the Asian hubs of Hong Kong and, most of all, Singapore. More wealth is being created in Asia, a larger share of which is now managed locally.

It took decades for the current private banking hubs to rise to prominence and the status quo will certainly not change overnight. But despite on-going debate, the consensus seems to be that Singapore will become the dominant private banking centre over the next few years, if not months.

Such a shift will also impact global private banks’ portfolio management strategies. For instance, while Europe-based wealth managers often rely on more conservative strategies for the preservation of “old wealth”, many Asian clients prefer more aggressive investment strategies and expect more complex and varied investment options. 

2, A second general trend in financial services markets which is also impacting private banks is the growing impact of regulation.

A number of legal initiatives are heavily impacting financial services across the globe. Some of the initiatives are implemented at national level, although most of them are regionally coordinated. Global coordination remains mostly an ambition, a far flung objective. Staying on top of the evolving regulatory agenda almost invariably tops managers’ concerns these days.

3, The third global trend is a relentless pressure on cost.

Achieving steady returns on investment is increasingly challenging for clients: safe asset classes are a nostalgia-tinted memory. Profit margins are being squeezed and assets under management are becoming scarcer, as investors put their hands deep into their pockets, use up their savings and apply pressure on their financial service providers for return. 

In addition to these pressures, private banks around the world are facing sector-specific challenges. How they respond to these challenges will determine the winners and losers in the private banking arena in the years to come. 

4, The first segment-specific trend is the increasing importance of detailed client demographics, to segment investors and enable a focus on “sweet spots”.

In order to thrive, private banks need to target their value proposition to the most profitable client segments and markets, according to their own expertise and core competencies.

As a result, these firms are placing an increasing focus on demographics, segmentation and marketing. 

For example, countries with similar growth patterns may require very different client marketing approaches. In China and India, for instance, both have similar populations and are regularly touted as the main engines of Asian economic growth. However, their populations have very different demographic profiles. On the one hand, China has almost 10 per cent of citizens over 65, over a third more than India. On the other hand, over half the population of India – and other Asian fast-growing countries - is under the age of 30. As a consequence, their wealth management needs vary greatly.

In addition, private banks increasingly need to match their internal capabilities and expertise with the right client segments. Each can deliver different levels of return, and require a different sales and marketing approach.

5, The second challenge to impact private banks in particular is the need to focus on improving service to attract and maintain new clients, as their trading activity becomes commoditised.

Most clients have not reached their target returns on investment over the last couple of years. Obviously, this is primarily due to turbulent markets. Clients are nevertheless becoming increasingly sceptical of the value provided by their wealth managers, and more demanding.

Outstanding client service requires highly qualified relationship managers, admittedly in scarce supply and ever more expensive, and their empowerment with modern CRM (customer relationship management) tools. Fewer resources should be spent on manual operations and more on client services.

6, Finally, private banks are under unique pressure to find the right balance between business goals such as the current focus on client acquisition and operational goals, including the standardisation and improvement of their middle and back-office trade processing capabilities.

Adopting global, best-in-class standards in the middle and back-office is paramount to meeting the demands of regulation. This area of the trade processing life cycle – or the part of the trade process that occurs after execution – is littered with manual processes that increase risks and costs and the chances of trade failure.  While firms look to expand their trading strategies and client service model, they must also consider how they process their trades.  It is here, in the middle and back-office, that investment in technology and infrastructure deliver increased transparency while creating a competitive advantage and the scalability required in today’s turbulent markets.

Additionally, while middle and back-offices have suffered years of under-investment, the financial crisis has focused clients, and not only the biggest and most sophisticated investors among them, sharply on risk. Spread sheets and manual processing are just not good enough to ensure both the security and transparency required by clients and the efficiency that is essential when bottom lines are under pressure. Investors are increasingly looking at the degree of sophistication of private banks’ middle and back-office in order to assess their overall risk profile. In an increasingly crowded market place, middle- and back-office infrastructure has become a differentiator.