New waves of digital disruption have been fueled by the COVID-19 pandemic. In this article, we explore six key trends in Asia’s wealth management industry.
In recent years, the wealth management industry in Asia has experienced rapid growth, outperforming Europe and North America. This growth is expected to continue in the near future due to the fast-growing affluent segment in major Asian countries.
Global private banks and large regional retail banks are competing aggressively for the share of wallet of high-net-worth individuals (HNWI) across Asian markets. The competition is further intensified by an increasing emphasis on regulatory compliance (investment suitability, pricing transparency, and fee disclosure), greater digital and analytical capabilities, a stronger focus on customer-centric advisory, and the rise of fintechs. In addition, the changing expectations among the HNWIs on how wealth management advisory services are delivered has become more accentuated due to the COVID-19 crisis.
Six key trends in Asia’s wealth management industry
1. Growing potential from the new generation of HNW clients
The rapid economic growth in Asia will be the main driver for continuous growth of the wealth management industry. Private banks are shifting their focus to the fast-growing affluent wealth segment (clients with AUM of 1-5 million US dollars) that offers higher margins compared to ultra-high-net-worth individuals (UHNWIs), and aim to serve affluent clients by offering highly cost-efficient, digital-led propositions.
Asian retail banks, such as DBS, Citibank, etc. are offering wealth advisory services to the affluent segment by introducing cost-efficient standardized model portfolios in combination with digital investment recommendations. Such model portfolios are implemented with strategic asset allocation in core investment products and enhanced with the personal touch of a dedicated relationship manager (RM). In addition, such services are paired with an online trading platform, so relationship managers can focus on addressing client requests and providing financial advice.
2. Digitalization continues to improve customer experience and serve HNW clients cost-efficiently
Banks are accelerating their investments in technologies and digital capabilities, namely in two key areas: First are client-facing platforms to encourage self-serve and reduce cost-to-serve. Second are RM-facing digital tools to support RMs in providing better advice and service. Most banks have launched online trading platforms that allow clients to trade major investment products conveniently on the go. In addition, RM productivity tools are embedded holistically into the advisory process. For instance, portfolio analysis features provide a more granular and comprehensive understanding of the client’s trading behavior and preferences, while portfolio alerts with investment recommendations support RMs in generating more sales systematically. These digital capabilities open new ways to reduce cost-to-serve and enhance the customer experience, which will become crucial elements for effectively retaining and serving HNW clients.
3. Discretionary mandates for the affluent segment
Faced with increased market volatility due to big macroeconomic events in recent years (e.g. Brexit, US-China trade wars, the COVID-19 pandemic), clients are becoming more inclined toward discretionary mandates due to their proven superior performance and better risk management compared to self-directed ad-hoc investments. As a result, private banks in Asia are experiencing double-digit growth in managed assets, e.g. Bank of Singapore and UOB Private Bank have both reported 40 percent and 50 percent growth, respectively. UBS has also introduced a modular DPM offering, My Way, which allows clients to build their own portfolio through the RM from around 50 different building blocks in order to cater to a large affluent segment with heterogeneous needs.
On the other hand, robo-advisors that offer low-cost portfolio management solutions are gaining in popularity in Asia and are growing at a rapid rate of 18.4% per annum, with total AuM projected to reach 393 billion US dollars by 2025 in Asia. As such, Asian retail banks like OCBC are partnering with fintechs and asset management in offering robo-advisory services. Other retail banks are offering ETF and mutual funds-based discretionary offerings through their private banking unit in offering clients with managed solutions.
4. Shift toward recurring fees and value-add services
Banks have started developing advisory mandates with differentiated service levels and are shifting away from transaction-based toward asset-based pricing, which is more align with clients’ interests. However, clients in Asia are not yet familiar with asset-based pricing and as such are less willing to subscribe to this model. Therefore, it is crucial that banks emphasize and effectively communicate the value of ongoing contracted services (such as regular advisory and portfolio reviewing services) to their clients.
5. Surge of ESG sustainable investing
As the demographics of wealth shift, so will the expectations and needs. The new generation of wealth clients (millennials) is more environmentally conscious and seeks ESG investment opportunities for their portfolio. This trend has been further amplified with the emergence of the COVID-19 pandemic and the recent surge in stocks prices among electric vehicle companies. To cater to this new investment need, banks are developing ESG-focused thematic mandates with a clear proposition for sustainable investing. Some banks even produce ESG-endorsed reports in order to prove the ESG compliance of their investment products. In addition, some offer dedicated product specialists that are specifically trained to provide ESG investment advice.
6. Increasing regulatory emphasis on pricing transparency
In recent years, there has been an increasing regulatory emphasis on greater price transparency in Asia. As a result, banks have to introduce new measures to increase price transparency and disclosure requirements, and must ensure fair treatment of clients. For instance, banks are disclosing their spreads for client scrutiny and confirming client-agreed fees in writing. As such, many are switching from spreads to commission-based pricing in order to ensure that bilateral client-agreements (including pricing) can be captured and adhered to. The trend was further accelerated, where a leading private bank was fined by Hong Kong’s Securities and Futures Commission (SFC) in late 2019 for overcharging clients on bond trades. To avoid further overcharging cases, the bank has shifted to commission-based pricing, where client-agreed fees are captured in the system and automatically applied during trade placement.
Leverage on the trends to remain competitive
Changes in the digital landscape, regulations, value proposition of offerings, and clients’ preferences are the main forces disrupting the wealth management industry – but also pushing it to newer heights. While the changing environment in Asia’s wealth management industry may present multiple challenges, it also offers a myriad of new opportunities for banks to gain market share and drive revenue. It is therefore crucial for banks to stay on top of these six key trends to remain competitive and retain customers moving forward.