WM Market Reports

Which Business Model Will Triumph In Asia's Wealth Market? Jury's Still Out, Says Report

Tom Burroughes, Group Editor, 16 June 2014


Boston Consulting Group's report looks at the type of business models working in the Asia market and the pressures upon them.

As Asia’s booming economy matures with more second- and third-generation wealth coming to the fore, high net worth and ultra HNW individuals seek a broader mix of services than the kind of transactional products associated with a trader mindset, according to Boston Consulting Group.

Onshore wealth is becoming more significant as a business driver – and such wealth is typically cheaper to serve, which will drive efficiency and revenues, the report said.

These are among the insights from the BCG report issued earlier this week (see here) that demonstrated rising wealth around the world, with Asia set to overtake North America by 2018.

Among the details of the report’s analysis of business models, it focused on the Asia region to work out what types of operation will win. Although BCG reckoned that the “jury is still out” on the type of business most likely to emerge as top dog.

The business models serving wealthy clients in Asia are investment banks; independent private banks; fund-based advisors; brokers, flow players (firms that collaborate distribution network of private banks and product-creation capacities of investment banks), and local commercial banks.

One theme noted in the report is that wealth managers in Asia are finding better ways to collaborate with adjacent businesses working in investment banking, capital markets and commercial banking. “A key consequence has been far greater opportunity to expand relationships with HNW and UHNW clients into other lines of business, thereby spreading the costs of acquisition and retention,” the report said. It noted that client acquisition costs in Asia are “extremely high” because of a shortage of talented individuals able to bring wealthy clients on board.

Significantly, therefore, the improved collaboration by wealth managers and other financial businesses is spreading client acquisition and retention costs. “We have seen revenues stemming from collaboration among business lines reach as high as 35 per cent of total revenues,” the report’s authors said.

Among other conclusions, the report said that “technology innovations that enable benefits such as deeper segmentation, data-driven lead generation and management, and multi-channel integration are paving the way for business models that foster enhanced RM productivity and profitability”.

The rise of a large pool of onshore wealth in Asia-Pacific is also significant for business profitability and growth, the BCG report said.

“For typical wealth managers, the average pretax profitability of onshore business is nearly double that of offshore business,” it said.   

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