Print this article

Comment: Why Size Matters in Capturing Asian Wealth

Shayne Nelson

Standard Chartered Private Bank

30 April 2012

Shayne Nelson, global head of high value client coverage and chief executive at Standard Chartered Private Bank, tells WealthBriefingAsia why big is beautiful in Asian private banking.

Looking to the future of Asia’s rapidly growing wealth management market, I see three key trends, all of which I believe favour large private banks over their boutique counterparts.

A changing mindset

First, a new generation of rich has different characteristics to private bank clients in the West. In Asia, more than 60 per cent of clients are entrepreneurs or business owners who are busy creating their wealth. Large private banks – particularly if part of universal banking groups – are better placed to meet the wide-ranging needs of these clients, as they can extend beyond wealth management and draw on their parent bank’s wholesale, investment, SME and even Islamic banking expertise and capabilities.

Even through partnerships, this kind of 360-degree view of clients’ interests is hard for boutiques to match.

It also puts large private banks ahead when it comes to winning clients and establishing trusting relationships. At Standard Chartered, for example, many of our new clients are owners of medium-sized enterprises who already have longstanding SME banking relationships with us.

Costs and scale

Second, there is a continued pressure on margins. Regulatory change and competition for talent mean costs are higher, while revenues are struggling to recover in the aftermath of the financial crisis. In the last few years, Asian clients have tended to favour safer, simpler investments, resulting in lower income for banks. Well-run large private banks will cope better in this tough environment as they can spread resource, technology and regulatory cost across a larger client base. And, if they are part of a universal banking group, such banks have the added advantage of being able to share infrastructure costs with other parts of the business, leveraging existing resources and systems.

Clearly, economies of scale give larger banks the upper hand when it comes to managing costs. A survey conducted in 2010 by Scorpio Partnership showed an average cost to income ratio for larger banks of 75 per cent versus 85 per cent for smaller banks. At the same time, larger banks – with their ability to tap into their existing SME and wholesale banking client pools – are able to acquire new business at a lower cost.

Third, the fierce competition for relationship manager (RM) talent is unlikely to blow over anytime soon. All private banks depend on experienced RMs who can offer relevant, timely advice, based on in-depth understanding of their clients’ needs.

Homegrown talent

However, large private banks have an advantage in that they can recruit from within their own ranks. With the right training and support, commercial and investment bankers can transfer their skills to private banking relatively easily for Asia’s entrepreneurial client base. Faced with a shortage of experienced RMs, this allows large private banks to ‘grow their own’. They may also have greater luck attracting talented RMs in the first place as – with their larger, international organisations – they are able to offer more in the way of career opportunities and professional development.

The core purpose of any private bank is to grow and safeguard the wealth of its clients. Large or small, the winners in the current environment – and those best able to capitalise on the extraordinary growth opportunities in Asia’s wealth market – will be private banks who focus on meeting their clients’ needs at the same time as staying operationally efficient.

While no private bank should attempt to offer everything to everybody, I am convinced that well-managed, larger private banks with broad-based geographical footprints, platforms and capabilities, are likely to emerge the stronger in Asia in the coming years.