This article covers the third panel: The future of private banking, against a background of changing Chinese demographics. Readers can view the first two articles in the series here and here.

First to speak was Andrew Sum, head of Greater China at Coutts. For him, the key to a successful private bank now and 10 years’ time is making the wealth manager relevant to where the customer is now, and where they will be in time.

Coutts finds its relevance through the theme of family businesses, he said. The UK-headquartered bank, with history that dates back more than 300 years, started an initiative three years ago, aiming to bring its learning from family businesses in the West to Asia, particularly Hong Kong and China.

At first, the bank thought the accumulated information and experience might not be relevant to the Eastern world due to “cultural changes and behaviour”, said Sum, but the firm was soon proved wrong.

“A year after the initiative started we got feedback from clients saying that we actually touched on all the points that worry them,” he said.

“Although they appreciate that the way we deliver our service to them may still need to be tweaked, they said a lot of the worries and concerns they have are very similar to the Western world – for us this was a wake-up call,” Sum continued.

According to Sum, if private banks engage clients “at the right level”, and listen to and address their concerns accurately, in this instance in the field of family businesses, then a time-proof strategy emerges.

“That’s pretty much what helps us design the wealth management model,” Sum added.

Flexibility for the future

Meanwhile, James Mok, Hong Kong branch manager at Falcon, the private bank, said a boutique business model will prove a winner when it comes to making a mark in Greater China. Wealth managers need to be “nimble and responsive” when it comes to managing lasting relationships with clients in China, Hong Kong and Taiwan, said Mok.

“We focus on the relationship management very much - it’s very important to boutique private banks otherwise we cannot compete with other big players,” he said.

For example, “we will travel to our clients, no matter whether they invest, in Beijing, Shanghai etcetera - we will listen to needs, look at the background and share information with them”, he added.

Mok argued that a business model like Falcon’s allows for flexibility, which is essential to responding to clients’ ever-changing needs in Asia.

“We can answer the needs of the clients in a swift way - quicker than other banks. For example we can review a credit application within 24-48 hours but the other players might take a week or so,” Mok said.

Engage

While agility and responsiveness help distinguish private banks from the competition, Sigrid Seibold, managing director, capital markets lead ASEAN at Accenture, argued that there is a big enough pie to go around – it’s just about engaging the high net worth individuals in the right way.

Seibold shared Accenture’s finding that China’s high net worth market is massively underpenetrated by wealth managers, with only 7 per cent of its investible assets currently under management.

“There is a serious shortage of professional advice. Many banks simply focus on achieving their sales goals in search for commissions, instead of providing more thorough and client-centric and product selection,” she said.

“Local wealth managers must at look at global and risk. Client-centric fee models should not only be driven by investment returns but rather the long-term development of the client relationship,” she added.

Education

One way to engage new and existing clients is through education, especially considering the concept of wealth management is relatively new in Asia.

“Most of them (HNW individuals), especially the first generation tend to have only a rudimentary understanding of the private banking services. Forums such as professional conferences, investment workshops which could be supported and executed in partnership with universities and social events are excellent vehicles for building social capital,” Seibold said.

 The second generation is also hungry for attention. “Build local relationship manager talent with deep product expertise and relationship skills to provide face-to-face interaction with the young wealthy customers and help them early in their wealth lifecycle,” Seibold said.

With the population of the second generation on the rise, it will be of strategic importance for private banks to understand the needs and requirements such as business continuity, retirement planning, wealth preservation, children’s education and to provide advice and services accordingly, she added.

Finally, Seibold also anticipates the growing importance of philanthropy as a concept to replace the diminishing “family glue”, and give wealthy families of first and second generation “a new meaning” and a framework for financial education.

The bigger picture

Nick Xiao, executive director and head corporate development greater China at Julius Baer, said future success hinges on the ability to see and plan for the bigger picture, especially when China is concerned.

“At Julius Baer, what keeps us awake at night - apart from the regulatory changes and the client shifts in investment patterns is the fear that we could get the big things wrong,” Xiao said. This is why he advises his senior management to “stick to the mega trends”, and try to position the bank accordingly for what may come in the next 10 years.

“On daily operation we have adapted and improved ourselves, but we must get the big things right,” he added.

According to Xiao, one of these “mega trends” is that Greater China is rapidly emerging as “one arena” to private banking clients. This is a call for wealth mangers to realise that clients are becoming increasingly “location-agnostic”.

“We know Chinese, Taiwanese and Hong Kong-Chinese businessman have been doing business across borders for the past two decades now - they are increasingly seeking financial solutions, making investments, migrating and residing across borders,” Xiao said.

“That’s why we say Greater China is one arena – it’s one free trade zone, one financial market, and one habitat for Greater China entrepreneurs,” he continued.

In turn, private bankers need to address “major product and location gaps, and serve clients across multi-locations coherently”, to keep clients happy.

“Clients want you to look after their onshore wealth, offshore wealth and wealth on the move. They want you to look at wealth management but also upstream wealth creation, and downstream wealth transfer,” Xiao said. “Private banks need to demonstrate a commitment to serving clients’ ‘needs-location matrix’ to be successful in Asia in the long run,” he added.

Onshore presence

One way wealth management firms can do this is through the acquisition of onshore platforms, giving them access to the local market and facilitating cross-border transactions ahead of QDII2 and other cross-border wealth flow programmes which are multiplying beyond the now established QDII, QFII, and RQFII, for example.

“I read on WSJ that one small Hong Kong bank formed a securities consulting joint venture in Guangzhou. At first, I couldn’t understand why they would spend the time and money on this purely advisory business. But if and when QDII2 happens, that onshore investment consulting JV could overnight become the advisory sales unit of the Hong Kong booking centre and Hong Kong equity execution desk. So it’s very smart,” Xiao said.

“Private banks should really position themselves for the long term to play the Greater China arena as one interrelated grand game,” he concluded.