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ASIAN PRIVATE BANKER APRIL 2016 • ISSUE 98
STALLING GROWTH FOR ASIA’S PRIVATE BANKS INSIDE:
APB’s 2015 AUM & RM Headcount League Tables Report – all you need to know on Asia’s top 20 private banks, pg 9
US$1.5tn 13.9% 17.6% 5,213 25% 27.8%
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Total value of managed assets Highest YOY growth in AUMs Largest YOY drop in AUMs Total number of RMs Highest YOY growth in RMs Largest YOY drop in RMs
STRAIGHT TALK
BAHREN SHAARI, BANK OF SINGAPORE, p12
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APRIL 2016
CONTENTS 4
Letter from the Editor The best and the rest...
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APB On-the-Spot Online poll results
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Editorial The Scoop: Why good bankers leave good banks
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Editorial Crow’s Nest: A proverbial gold mine, but 2,000 shovelers short
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Industry Asian Private Banker’s 2015 AUM & RM League Tables: Industry posts first contractions since 2012
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People Straight Talk: Bahren Shaari, Bank of Singapore
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Industry Hiring: What CEOs look for in a relationship manager
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Industry Q4 revenue results: Light at tunnel’s end?
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APB Mandate UBS to manage emotionally-driven redemptions with new DPM solution
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Technology In with the new (BPO)
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People Moves Movers & Shakers
CHIEF EXECUTIVE OFFICER Andrew Shale
MANAGING DIRECTOR Paris Shepherd
DIGITAL DIRECTOR Tristan Watkins
EDITOR Shruti Advani
OPERATIONS Benjamin Yang, Koye Sun
DESIGN Simon Kay
ASSOCIATE EDITOR Vince Chong
BUSINESS DEVELOPMENT Madhuri Chatterjee, Sonia Lam, Michael Chan, Sam Chan, Stacey Wong
PRODUCTION DG3
EDITORIAL Richard Otsuki, Priyanka Boghani, Tom Wan
ISSN NO. 2076-5320
PUBLISHED BY KEY POSITIONING LIMITED 1205 The Dominion Centre, 43-49 Queen’s Road East, Wanchai, Hong Kong Tel: +852 2529 5577 Fax: +852 3013 9984 Email: info@asianprivatebanker.com
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LETTER FROM THE EDITOR
The best and the rest... Yes, this is that issue. The one where we at Asian Private Banker rank Asia’s largest private banks by assets managed. And although assets under management (AUM) are by no means the only or the most sophisticated measure of a bank’s success, the league tables are unapologetically a ranking. This year, I was more interested in the overall picture that emerged from these rankings, rather than the individual vanity of the top five spots. For the first time since I have overseen the compiling of these tables, total AUM in Asia have shrunk. The natural instinct is to attribute the contraction to less than supportive markets, and this may well be the underlying cause. However, despite being subjected to the same market conditions, there are private banks who have bucked the trend and grown their AUM base. One by as much as 8.8% on a year-
on-year basis despite a healthy denominator. Two others grew by more, but from much smaller bases. Without giving away too much of the story, I will say that superimposing the growth/contraction in AUMs with the growth in headcount at each bank and the overarching trends in the industry is the single most powerful piece of commentary about Asia’s private banking industry you can read right now. For all those who have submitted feedback for the previous issue, I’d like to take this opportunity to extend my gratitude. For those of you who are picking up a copy of Asian Private Banker for the first time, I welcome you to join in on the conversation. Your feedback and comments are tremendously valuable and help us to create the very magazine that you hold in your hands. Join the dialogue by emailing editor@asianprivatebanker.com. I look forward to hearing from you... Until we meet again,
Shruti Advani Editor, Asian Private Banker
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EDITORIAL
Why good bankers leave good banks
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hank you for the comments on last month’s column, “A unicorn’s perspective”. Quite understandably, some of you expressed frustration at the pampered and pandered to class of clients that Asia’s hypercompetitive banking industry has produced. We have collectively contributed to “a system where the balance of power between bank and client is disproportionately skewed,” one of you wrote. I agree – though I must disclose that my perspective is more naturally inclined with the client than with the bank. Like all good feedback, yours has got me thinking. Even as we single out clients for dictating terms, are we ignoring other stakeholders that may have disproportionately high bargaining powers? Good bankers, for example, are at the very pinnacle of the value chain in our industry. Are they not as pandered to and pampered as good clients? Debating whether good bankers are revered because they lead to good clients is as fruitful a discussion as whether the chicken came before the egg; but the fact remains that in a client-driven culture like ours, the powerful client has given rise to an equally empowered banker. Indeed, one could venture as far as to say that the industry is gripped between accommodating the demands of its most sought after clients and its most sought after bankers whilst trying to reconcile its own burden of costs. Whilst I am cynical about whether or not this is a sustainable cycle, I am intrigued as to why there is this skewed distribution of power across the system. Is hypercompetitiveness – this time amongst banks wrestling for a limited pool of bankers – to blame? “Private banks and those who lead them are petrified of losing a star banker,” wrote back a friend who has been in the industry for over a decade when I posed the question to him via email. The example of a CEO who recently found himself out of a job when a team of MDs quit comes to mind. “Why does a banker leave?” I shot back. “Because he can,” my friend replied.
Not satisfied with the brevity of his answer, I asked three bankers at varying stages of their careers what it is that prompted them to leave their last job and what is keeping them at their current ones. The group included two Managing Directors (MD) and one Executive Director (ED) and I have identified their answers by their titles. SA: The last time you switched jobs, what prompted the move? MD1: I led the bank’s ultra high net worth (UHNW) practice and yet I spent most of my time managing internally. I left because, ultimately, I would rather focus on my clients than on my bosses. MD2: There were a variety of reasons but, in general, early in your career you switch jobs for better pay and later in your career you switch jobs for a better boss. ED: I was part of a team move that included our business head. It seemed the safer play at the time. SA: Are you happy in your current job? Why? MD1: Extremely. I’d say it’s a combination of freedom and empowerment. You are left alone to do the best job you can do and supported to the fullest extent of the platform. MD2: I have been blessed with a really good set of clients and the majority of them have stayed with me through my career. So yes, I am happy because my work is recognised and appreciated. ED: It’s too early to say. SA: Are the new, more protracted client onboarding procedures a deterrent for bankers thinking of changing jobs? MD1: In my business, not at all. The majority of UHNW clients are easy to onboard from a compliance perspective. The more significant challenge is if they are committed to complex, long-dated structures. MD2: In theory they should be but then how come you [Asian Private Banker] report so many people moves? Clearly when a banker
wants to move, he will move – even if he cannot take all his clients with him. A good banker will always have a healthy pipeline of prospects to convert once he is plugged into the new platform. ED: Yes, it becomes increasingly difficult to convert a book every time you move jobs. But that is not the only factor one considers when switching from one job to another. I think banks like to believe that the new norms are a deterrent [to moving jobs], but this is not strictly true. SA: Rank in order of importance the most compelling “push factors” at a private bank. MD1: 1. Lack of support from/ problems with immediate boss 2. Platform issues – limited product range, credit appetite, regional presence 3. Concerns regarding career advancement – is there enough headroom for me to grow? MD2: 1. Stagnating bank or business 2. Internal politics 3. Mismatch between what the bank can do and what clients need ED: 1. M&A activity/ uncertainty about the future 2. Frustration with title or pay 3. Changes in role, reporting order or location SA: Rank in order of importance the most compelling “pull factors” at a private bank. MD1: 1. Management 2. Platform 3. Role/ Remuneration MD2: 1. Bank brand 2. Platform strength 3. Title, pay, etc. ED: 1. Moving to a larger bank 2. Role 3. Remuneration
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EDITORIAL
A proverbial gold mine, but 2,000 shovelers short The ubiquitous story of Asia’s wealth explosion means that, on the surface, all that the region’s private bankers need to do is to hire more bankers. However, the issue of talent capacity to service the region’s wealthy and ultra wealthy reveals more questions than answers.
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s recent as a decade ago, it was not unheard of for private banks to hire hairdressers, bartenders and golf pros. Basically, anyone with a set of rich clientele to boost the amount of client assets managed by the bank. It was a time when being big firmly enhanced a firm’s reputation and helped pull in more clients. This no longer flies today, with private bankers required to have more in depth knowledge of technical products and macroeconomic trends, partly to cater to more technologically- and academically-qualified clients. Today, quality is more important that quantity, which is partly why the industry is struggling to produce enough talent to service the region’s rich. By one Boston Consulting Group (BCG) estimate, the Asia Pacific ex-Japan private wealth pool currently exceeds US$33 trillion. Of this, as at end-2014, over US$4.3 trillion were placed in the hands of private banks, or 13% of the entire region’s high net worth (HNW) wealth. By comparison, private banks in the mature wealth hub of Europe manage 30% of the region’s HNW assets. A HNW individual is typically defined as one with at least US$1 million in net investible assets. According to internal data, Asia – mainly in Hong Kong and Singapore – plays host to some 7,500 private bankers, of which roughly three quarters are employed by the top 20 private banks in terms of client assets under management (AUM). The two cities – which
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EDITORIAL
accounted for 15% of global offshore assets in 2014 – are expected to grow by 8% or more in offshore bookings over the next five years. They are also expected to be the fastest-growing offshore centres, followed by Dubai. Assuming that total wealth stays put and Asia’s HNW individuals begin to place more assets with private banks at European rates – and we are moving toward that, albeit gradually – Asia would easily need more than 9,700 private bankers to service an enlarged US$9.9 trillion in managed HNW wealth. Certainly, other conditions – like a further liberalising of capital accounts in Asia and mindset change to allow non-family third parties to execute discretionary trades – need to be satisfied also, but one gets the picture.
GROWTH NONETHELESS
And wealth creation in the region will persist. BCG forecasts that private wealth in Asia Pacific ex-Japan will hit US$55.2 trillion by 2019 at a compounded annual growth rate of 10.9%. Assuming the same 13% penetration rate and private banker efficiency, the industry would still need to produce more than 9,600 private bankers in the next three
years to service some managed wealth of US$7.2 trillion. Admittedly, this figure will be offset by: one, the fact that significant amounts of new managed money will come from existing clients; two, the growth in external asset manager (EAM) wealth penetration, which means there will be more EAMs to manage HNW wealth (EAMs focus solely on advisory services, while private banks have that, as well as lending and custodian services, etc.) and; three, a growth in discretionary assets, that is, assets on which investment decisions are managed predominantly by private bankers rather than individual clients, in which case fewer private bankers will be needed to meet clients and obtain instructions. On the other hand, the average workload of each private banker in the region – loosely speaking, each manages US$573 million – is seen to be unsustainably high, and more bankers are needed in order to better service Asia’s wealthy. Also, considering that it takes at least seven years for a private banker to truly gain the trust of his client (after which the latter will be more willing to invest with his banker), private banks here should have ramped up on hiring four years ago, focusing on existing clients, if they were to better meet the expected rise in wealth by 2019.
A HARD ASK
Private banks have been pumping resources towards creating tomorrow’s front line staff. Names like UBS, Credit Suisse, BNP Paribas and Citi have also launched internal programmes to better equip existing bankers with new technical and compliance knowledge, and train new ones. Training specialists, too, like Singapore’s Wealth Management Institute and Hong Kong’s Private Wealth Management Association are making similar efforts to raise the standard and build a pipeline of talent. Hires have also been made across the financial sector such as investment and retail banking units, among other talent pools. However, despite such efforts and the surfeit of data like BCG’s, veteran private bankers, including the heads of Asia’s biggest wealth houses, remain doubtful that the region’s industry can ever produce enough competent front-line staff. One such regional advisory head at a major European bank replied to this question with another question: “Where in the world are we going to find all these private bankers who know Asia while knowing their stuff?” “Without a real solution, I fear we might go back to hiring hairdressers and bartenders just to sustain the business.”
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Asian Private Banker’s 2015 AUM & RM League Tables: Industry posts first contractions since 2012 Assets under management (AUM) growth at Asia’s largest private banks has stalled for the first time since 2012, and the total number of relationship managers (RMs) servicing the region’s wealthy has declined marginally, according to Asian Private Banker’s 2015 AUM and RM Headcount League Tables.
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sia’s top 20 institutions in terms of AUM saw the total value of their client assets contract by 4.2% to US$1.47 trillion for the full year ending December 31, 2015. Half of the League Table recorded negative or flat year-on-year (YOY) growth, while only two private banks experienced growth in excess of 10%. This is in stark contrast to the heady days of 2014 when 19 out of 20 banks recorded rising AUM.
REVERSAL OF 2014 FORTUNES
Swiss giant UBS Wealth Management (WM) retains the top spot on the 2015 AUM League Table for the third consecutive year with US$274 billion managed, and LGTposted the highest YOY growth, increasing its Asia AUM by 13.9% to US$25.4 billion. Fortunes were different for Citi (including Gold, Private Client and Private Bank), however; the American lender experienced
the year’s biggest drop – its Asia AUM falling by 17.6%, primarily due to the sale of its Japan consumer operations last year. In all, the region’s RM numbers dipped by 0.8% from their 2014 peak of 5,253 to 5,213 end-2015. Once again, UBS WM leads Asian Private Banker’s 2015 RM Headcount League Table with 1,092 frontline bankers – almost double its nearest rival Credit Suisse (590) – although UBS’s frontline number is down nearly 8% on the previous year. By contrast, Credit Suisse posted a healthy 13.5% YOY increase in RM numbers. The year’s biggest hirers, however, were Hang Seng Private Banking and RBC Wealth Management. Both banks grew their RM headcounts by 25%, well above the top 20 average of 3.9%, although both are well down the Table in terms of total RM numbers. The aforementioned sale of Citi’s Japan operation had further ramifications for its front-line headcount – having boasted as many as 450 Asia RMs in 2014, that number dropped by 27.8% to 325 for the year ending 2015. This ostensive reversal of fortunes for many of Asia’s biggest private banks occurred in a year when wholesale restructuring and market exits were stock responses to tightening regulations, policy changes and global market volatility. Yet have client assets shrunk in line with a decrease in portfolio
values, or were fewer high net worth dollars put to work? On the talent side, are hiring budgets being scaled back, or is there a genuine talent shortage? As always, the answer appears to be “a little bit of both”.
BUY OR DIE. OR RESTRUCTURE.
The tandem decline in AUM and RM headcounts is, in broad terms, a natural consequence of the economic downturn in Asia, driven in large part by China’s slowdown, fluctuations in the Swiss franc hitting Swiss institutions, and climbing regulatory-related costs eating into private banks’ bottom lines. The “C-word” was never far from industry lips as management sought to benefit from economies of scale. Indeed, consolidation has become the strategy du jour over the past few years, with at least four such deals being posted in as many years. Naturally, consolidation takes its toll on AUM and RM numbers. Top front-line talent is usually retained while the rest move on, often leading to net stasis (or even a dip) both in terms of RM headcount and AUM. Another strategy, internal restructuring, is also gaining traction in Asia. Deutsche Bank has done precisely this. Last October,
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banking business by allocating more capital to a dedicated and integrated Asia Pacific division. J.P. Morgan Private Bank, unchanged at 9th on the 2015 AUM League Table, has also reorganised its private banking business in the region by merging its two arms (one servicing HNW clients with US$10 million to US$30 million in assets, the other servicing UHNW clients with over US$30 million in assets) into a single unit. Those familiar with restructuring will no doubt attest to the disruption it causes to internal processes, particularly if the institution has to rip out and replace or upgrade its legacy technology systems. When this happens, it is usually at the expense of AUM growth, according to one Asiabased private banking head at a global bank. “This year for us, it is all about restructuring, especially when it comes to compliance regulations,” he told Asian Private Banker in a recent discussion. “Without that in place, you cannot do business.”
TIME IS OF THE ESSENCE
Regulatory pressures have also taken their toll on AUM growth, and private bankers have been forced to reject more potential clients than ever before. “I have NOTES: been told by my immediate UBS Wealth Management – HNW clients with over CHF2 million in investible assets; Citi – Client assets of US$1 million ie. assets from Citigold Private Client, in addition to Citi Private Bank; supervisor that we don’t want Credit Suisse Private Banking – Assets from clients for which the group provides investment advisory and discretionary asset management services; clients whose kids are going to HSBC Private Bank – Client assets at the rate of exchange applicable, and includes funds under management and customer deposits; DBS – Assets from clients with US$1 million and above from DBS Treasures Private Clients and DBS Private Bank; college in the US, even if they are Morgan Stanley Private Wealth Management – Clients assets in Asia Pacific including Australia; Deutsche Bank Wealth Management – Wealth management unit only, post restructuring and split of the asset and wealth management businesses; not US citizens,” remarks a midJP Morgan Private Bank – Clients with US$10 million and above in assets; BNP Paribas Wealth Management – Total market value of all the financial assets which the bank manages on behalf of its clients; level banker to Asian Private Goldman Sachs Private Wealth Management – Clients with US$100 million and above in assets; Barclays – AUM includes deposits, credit and investments, including India; Banker. Of course, his chief conLGT – AUM includes loans. cern is the ever-looming menace All data represented in the League Tables are Asian Private Banker estimates and are subject to change as new information comes to hand - to keep abreast of updates, please visit apb.news/2015aumrm. The tables exclude institutions whose Asian bases are on mainland China or have that is the Foreign Account Tax expressedly asked to be omitted, among other considerations. Compliance Act (FATCA) and its the German lender reversed a decision it Wealth Management’s figure is considerably stringent disclosure requirements. Instead, had made just three years prior to integrate lower for the year ending 2015, although its ‘risky’ clients are being referred to independent advisers, given that the failure to its asset and wealth management units, and RM headcount increased marginally. Another industry heavy hitter, Credit ‘report’ can lead to severe ramifications for the result as evidenced by our League Tables is clear. In terms of AUM, Deutsche Bank Suisse, is banking big on its Asia private the bank: “Simple legal advice is expensive,
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as much as US$40,000-50,000,” adds another private banker. Client-facing bankers are also lamenting that unwieldy compliance requirements are taking up a disproportionate amount of time, hampering their capacity to generate new business. Another head of a Hong Kongbased global private bank has observed that “over 50%” of his staff ’s working hours are now spent on ensuring that all regulatory obligations are being met. A decade ago, “compliance would eat up no more than 20%-30% of one’s time,” he says. “This also explains why more private bankers are setting up external asset management (EAM) businesses that focus solely on advisory services as opposed to booking and custodian operations,” he continues. Recent studies note that Asia EAMs presently manage more than US$30 billion in client assets; more importantly, this figure is expected to double over the next five years.
SILVER LINING, SILVER BULLET
The good news – and there is always good news – is that the wealth management industry’s growth prospects remains tethered to Asia. By 2020, the number of millionaires worldwide could rise by over 46.2% to almost 50 million persons, according to a Credit Suisse Research Institute report. Asia Pacific numbers, however, are set to grow by 66% – outpacing both North America (33%) and Europe (55%). Cost/income ratios at many banks have also dipped from 80% plus in 2013 and 2014 to close to 70% in 2015. More generally, Asian private banking units at many of the universal banks did well in 2015 when compared with wider group performances. For instance, Credit Suisse Private Banking posted an 11% YOY increase in pre-tax profit for 2015, although the institution as a whole recorded its first annual loss since 2008 due in large part to
goodwill and litigation charges. Similarly, HSBC Private Bank in Asia achieved a 20% YOY rise in pre-tax profit even though its group profit was flat. A further point of note is the fact that UBS WM, Credit Suisse Private Banking, BNP Paribas WM and Citi, have dedicated infrastructure in place for training and development in Asia. Such facilities will become important sources of organic growth in a region where talent is in hot demand. The region’s private bankers can also no longer afford to ignore behavioural changes in Asia’s increasingly tech-savvy clients. Technology budgets at private
banks are booming, with 50% of those surveyed by Asian Private Banker spending north of US$60 million on digital investments. Perhaps now more than ever it is clear that those banks that get their cards right – be it via consolidation or restructuring – will be the best positioned going forward (a truism if ever there was one!); and while size – whether in terms of AUM or RM headcount – is by no means the only criterion for assessing a private bank’s performance and potential, it is, nevertheless, one of the most compelling benchmarks we have.
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Straight Talk:
Bahren Shaari, chief executive officer, Bank of Singapore Bank of Singapore grew its assets under management (AUM) by almost 8% year-on-year in 2015 – one of just ten private banks to do so on the 2015 Asian Private Banker AUM League Table, which tracks Asia’s top 20 private banks by assets. Its CEO tells Asian Private Banker what the industry can expect in 2016 – and what his biggest fear is. Bank of Singapore grew its AUM to US$55 billion in 2015 while its earnings asset base, including loans, rose by 5% to US$68 billion. What will be the private bank’s key drivers in 2016? Bahren Shaari (BS): For 2016, we will continue to focus on growing net new money, which is the lifeline of any private bank. 2015 set a good foundation for us to continue to attract new wealth. It means we have performed up to our clients’ expectations and that is very important. With the current market volatility, we will aim to convince clients to consolidate and increase their share of wallet with us, on a discretionary portfolio basis. This way, we will continue to see a good flow in assets across the region, not just in specific markets where we have a stronger presence, like Indonesia, Hong Kong, China. Now is a good time for clients to rebalance their portfolios, in pursuit of their long-term goals and in line with their risk profiles. This is what we do with clients at the beginning of each year – we look at where they want to increase their investments and we do the same for new money that they send in. Any particular investment advice for clients? BS: Don’t increase leverage. Increase the quality of the portfolio instead, which means diversifying. There are still trading opportunities. For instance, we launched the Lion-Bank of Singapore Asian Income Fund because valuations were attractive – these were at 2008 levels – and we have been underweight in Asian equities for three years, after leaning more toward US equities for a long time. We moved that to neutral last year and now we’ve moved up Asian equities. And within three weeks of the launch, the Asian Income Fund attracted close to US$130 million. In terms of asset allocation, we are neutral on US (equities), overweight on Europe and Japan, and more on high yield bonds than investment grade bonds, because of the interest rate movements. We are also going to increase (our number of) hedge fund (offerings). Last December we launched a private equity hedge fund with Blackstone – the Blackstone Total Asset Solution fund, where Blackstone invests in four different strategies, namely private equity,
healthcare, distressed debt and real estate. This gives clients the best strategy since we are dealing with the top manager in private equity, while diversifying into different sectors as well. We raised about close to US$200 million for that one. You also need to see what your clients are doing and how you can help them further. In April 2015, for instance, we saw that some clients were invested in single security bonds, which was not how we thought you should invest in a bond. So we moved them to our high yield bond fund (the Lion-Bank of Singapore Emerging Market Bond Fund) and we raised over US$500 million for that. These instruments give us a stable income base in 2016, even with market volatility. The theme is risk-managed investing, so that means hedge funds, private equities, etc. What key developments will the market see in 2016? Also, you have been cited in separate media reports saying that private banks with less than US$20 billion in AUMs may find it hard to sustain its operations – to what extent is this true? BS: Consolidation is one key development, continuous regulatory change is another.
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While I did give the US$20 billion number, I stressed too that size, though important, is not the primary concern. It is more important to be the best, the leader, rather than chasing size. Consolidation depends on the model of the bank. You can have niche, boutique firms that focus on asset management, like independent asset managers. You see a lot more of them now in the market – these firms don’t run bookings or custodian services, and focus only on giving advice. But if you want to do many things, if you are a private bank with broad offerings, then you need to be of a certain size. Because then there will be technology, regulatory matters involved. We focus on making sure that the money that we have is actively managed. Our ROA (return on assets) is high, among the highest in the industry, so we benchmark against that. We also have other indicators like AUM per RM (relationship manager), revenue per RM and of course, client portfolio performance, and we also measure these against the (industry) benchmark. (Another key development) is the transfer of wealth between generations. While I see clients in Asia tending to hand-hold the second generation, there is no doubt that the second generation is getting involved in decision making. We need to focus on this as well. Recently we did a boot camp on startups for children of clients, and through such events, we make sure that the second generation understands the educational part of investing. What do you expect from your RMs? BS: What we expect is that they have to bring in new money of say US$20-30 million per RM. That is a reasonable expectation, from our 314 RMs (as at end-2015). We already have a sizeable number of bankers and what we need now is to increase their efficiency and output, rather than try to grow their absolute count. Plus you can’t get that many talented bankers in the current market. Is your parent group OCBC looking to buy and and further grow its private banking arm that is Bank of Singapore? BS: Bank of Singapore’s cost-income ratio is good, below the industry average range of the 70s, which gives us the opportunity to invest. We will not say no to the right opportunity but at the moment we are looking more to grow organically. [Since going to print, OCBC’s wealth management arm Bank of Singapore purchased Barclays’ Wealth and Investment Management business in Hong Kong and Singapore.] What are your views on the current regulatory environment, with more private bankers spending more time on compliance issues than before? Will this be a hindrance to growing business? BS: Private bankers need to be very focused on a specific market and from in-depth conversations with potential clients, bankers will need to understand who they are, who their competitors are (in their businesses) and from these processes, there’ll be a lot of market checks involved. This process has not changed. Good private bankers, 20 years ago or now, need to have such information but you can only do that if you specialise and spend time learning about a particular market and its rules and regulations.
Have you turned a client away for suitability reasons? BS: I have my own ethical standards, and that’s really the first thing (to take note of). A working relationship has to be aligned to my values. Why would I want to work with someone who has not generated their wealth in the proper way? There was a case where the client’s business showed a lot of re-invoicing and I wasn’t comfortable with the source of the income, which came from inflating purchases, etc. Private bankers whom I work with need to share the same values. But surely there are RMs who might be swayed by the money at stake and approve the client anyway? BS: That will not be tolerated. That is actually my biggest fear. First, within the organisation, there must be a culture that says no matter how good you are, you must play with the same rules. No prima donnas, no exceptions. There’s always a tendency to leave a banker alone because he or she is doing well. There cannot be such a thing. Whether you’re doing well or not, I am not going to leave you alone! [laughs] I am a hands-on manager and I expect all managers to be like that. I conduct spot checks occasionally where I ask bankers to show me their best and worst accounts. Through such sampling, I know how a banker is doing, for instance, if he is still selling gold even though we have told clients to sell gold three, five years ago. There may be good reasons like the client insisting on it, but this is an important process so I know what my bankers are doing. As part of the OCBC group, how much of your business stems from referrals from other business units? BS: That is a very important KPI (key performance indicator) for me, from the board. It has been very successful, especially for long-time clients of OCBC. We have been doing this for the last five years and as a percentage of net new money, this has definitely been increasing (by about 50% in terms of new money in the last three years between 2013 and 2015). What are your strengths compared to the bigger global private banks? BS: Private banking is a relationship business. When you think about how big you can be, you risk diluting those relationships. I don’t have a direct answer to that question because the bigger you are, the more complex it is and it becomes more difficult managing internal issues. For instance, a big bank will have a boss in, say Hong Kong, then a regional boss, and don’t forget you will also have a functional boss to report to... We don’t have that. The problem with complexity is that you lose accountability. Everyone expects someone else to do it for them. For instance, a banker may blame a problem with investment on another team for not sending him or her the right product. At Bank of Singapore, we give bankers all the empowerment they need. Size really relates to efficiency. But what is the right size, I don’t know. It is the right size when you are competitive and can sustain relationships with clients.
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INDUSTRY
Hiring: What CEOs look for in a relationship manager Book size and the ability to leverage on existing and recurring business. Those are the key qualities that private banks look for in frontliners today, say experts that include three prominent wealth management players.
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at book sizes. With regulatory costs soaring and competition stronger than ever in the region, firms are looking for recurring businesses to stay strong. Case in point – Julius Baer and Bank of Singapore (BOS), two banks which have risen through the AUM ranks within the region over the past decade, mainly through acquisitions, share a similar view. “We tend to look for RMs who demonstrate consistency not only in their own careers such as decent tenures at their prior banks, but also in their views towards client servicing,” says Elton Apps, head of strategic recruitment for Southeast Asia at Julius Baer. Unsurprisingly, he adds, bankers have to also possess more than a fair dose of “drive, hunger and ethics” in today’s highly competitive sphere. “Private banking is a business built on bespoke relationships and services and a RM’s ability to demonstrate his dedication to this is a key factor... A RM’s track record in generating quality, repeat business, which is a hallmark of a satisfied client, is equally important.” While remuneration is “of course an area that receives a lot of attention”, Bahren Shaari, Bank of Singapore Apps adds, “competitive
he relationship manager (RM) talent pool seems to be a constant game of musical chairs, and each time an experienced banker moves to another bank, his basic salary goes up 20% on average, by some industry estimates. And while smaller banks struggle to lure bankers away, larger banks with stable revenue streams and established platforms are more than ever aiming to retain those who perform. For private banks, the hiring process is now more sophisticated than just looking
packages only make sense if we are able to set our new hires up for success.” Julius Baer, he says, reaches out to potential hires by showcasing its product and service platforms, as well as management vision for the bank in Asia.
We tend to look for RMs who demonstrate consistency not only in their own careers such as decent tenures at their prior banks, but also in their views towards client servicing
“If prospective hires feel confident that both their careers and clients will be well taken care of, remuneration is often just the icing on the cake,” he says. BOS chief executive Bahren Shaari notes too that bankers should show greater focus on a key portfolio of clients, simply because it is the best way to earn trust as well as recurring business. “In private banking, you really need to manage about 30 relationships well. To say that you can manage 60-70 relationships is not possible,” he says. “For successful bankers, a good relationship is developed over seven years, before you can say that you really know the client
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INDUSTRY
well… Rather than focusing just on trade, (a banker would need to diversify revenue) and this means building trust structures for clients, and providing financing tools like mortgages as well as multiple products and solutions.” RMs looking to move, he notes, should also know well what the industry expects of him or her in the next role. For instance, a RM with the rank of “director” should average a book size of US$250 million, Shaari says. This goes up to US$300-350 million for executive directors and US$350 million for managing directors. “When we hire and the person says he wants to be a director, he must know what the expectation is in the industry. The question to us then is how long does he need to build this business up (assuming of course that he cannot bring all of it over),” he adds. UBS Wealth Management, the largest private bank in Asia Pacific with CHF272 billion (US$281 billion) of assets under management (AUM) as of the fourth quarter of 2015, wants prospective recruits to maintain and expand upon the bank’s leading status.
“We are looking for RMs capable of levering on UBS’s integrated banking model, product platform and investment capabilities to generate sustainable solutions,” says Jean-Claude Humair, the bank’s Hong Kong regional market manager. He adds that UBS is seeking bankers who have a “strong network among local entrepreneurs and professionals and extensive product and investment knowledge” to serve in the new Kowloon office.
RETENTION JUST AS IMPORTANT
For BOS’ Shaari, while a bank can go out and hire, “a lot more (bankers) will have to be developed internally.” “In BOS, we also make sure we give bankers access to senior management so that they know at any time what we are trying to do, what our priorities are. There’s a lot of mentorship, coaching, going on. We don’t just say ‘you’re doing well, so just report to me at the end of the year how you’ve performed’,” he adds. “As a manager, I always ask what impact can I make for those who work for me. We are a high performance organisation, numbers matter but we must also know how to support and engage our people.” Identifying and retaining talent is a challenge across the industry, notes UBS’ Humair. “However, wealth management is a core business for UBS and, the combination of offering competitive compensation and our status as one of the best-resourced banks has helped us attract and retain the best people,” he says. This is further boosted by providing bankers with “best-in-class training and development” to turn client advisers into Certified Private Wealth Professionals. Jean-Claude Humair, UBS
“Significant investment in training and development, which encompasses the UBS Business University, the UBS Associate Program and the Wealth Management Diploma, underscores our commitment to employ the highest calibre advisers in the wealth management business.”
The RMs’ potential to further grow their books is typically decided by their client network potential, the type of clients the RMs can reach, and also their sales drive, client relationship management skills, and investment product knowledge
Yannis Au, managing director at recruitment firm Atkinson Lambert, believes the main factors that private banks consider in potential hires are book sizes and revenue generated in the previous “one to two years.” “The RMs’ potential to further grow their books is typically decided by their client network potential, the type of clients the RMs can reach, and also their sales drive, client relationship management skills, and investment product knowledge,” she tells Asian Private Banker. Jonathan Hollands, managing director at Carraway Group, believes that private banks typically look for “transferrable businesses and clients”, with smaller firms also searching for discretionary portfolio specialists, given that bigger banks offer more complete service platforms, with better credit facilities.
RM’S MARKET
There is no doubt that current consolidation in the industry is further
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INDUSTRY
jonathan Hollands, Carraway Group
Yannis Au, Atkinson Lambert
the transfer) than smaller private compressing the number of availbanks”, she adds, because bankers able, and proven, private bankers, there will be given more time to recruitment specialists add. leverage on bigger servicing platNaturally, they say, smaller priforms. Smaller firms, meanwhile, vate banks are looking for bankers prefer to focus on hiring senior with large book sizes, and are more bankers to bulk up AUMs. willing than to pay for them today Hollands believes that the “fit” of in a bid to build up economies of the private bank is just as important, scale. Hence, with top bankers if not more, than the pay. He expects constantly pushed to achieve more the attrition rate of bankers in the in the bigger firms, and smaller region to be 12-16% this year, just banks offering bigger remunerawithin the average, while the private tive incentives for book, those who banking headhunter expects 200manage above US$250 million in 250 bankers to switch jobs in the client assets are finding themselves industry in 2016. in great demand. Au notes that in the past “four to five” years, banks Apart from attracting have typically used higher talent, to retain talent, “first year guarantee bonuses and higher salary increments” some banks even adjust to attract senior talent. their payout ratio for top “Apart from attracting talent, to retain talent, some performers, for example, banks even adjust their I see some top-tier private payout ratio for top performers, for example, I see some banks now paying 15% of top-tier private banks now revenue to top performers paying 15% of revenue to top performers to retain them, to retain them, and this and this used to be around used to be around 8-12% of 8-12% of revenue,” she notes, adding that RMs are expected revenue by some new employers to transfer over 80-100% of their previous book assets over Based on the latest Asian Private three years. Banker RM Headcount League Table, “Whether the banks would the number of RMs at the top 20 prireally manage these targets strictly vate banks in Asia fell slightly by 0.8% depends on how high the comyear-on-year to 5,213 in 2015. pensation package that the RMs “The most prevalent factor that are making as well as the financial determines a move is how private market environment,” Au says. bankers perceive the strategic position Another veteran private banking a bank’s private banking department headhunter, who declined to be holds,” Holland continues. named, narrows this down further. “The most important question On average, she says, executive that needs to be answered for a directors who move are “expected bank to attract talent in this region, to bring over US$100 million (for is ‘whether private banking is the the first year)” while directors core business of your bank’, not how should pull in “US$50-80 milmuch you can pay for a banker.” lion.” Bigger banks “expect less (of
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INDUSTRY
Q4 revenue results: Light at tunnel’s end? Mirroring the diverging global economic recovery, revenues of global private banks ended with bifurcating results in the final quarter of 2015.
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n the back of a turbulent Q2, and a less-than-pleasant Q3, European giants UBS Wealth Management and Credit Suisse both took further hits to revenue in the last quarter of 2015, while their nimbler cousins such as Deutsche Asset & Wealth Management (since restructured into separate entities) and BNP Paribas flourished. US giants Morgan Stanley, JP Morgan and Goldman Sachs, meanwhile, also rallied from the mid-2015 slump, with Morgan Stanley Private Wealth Management reclaiming the top spot from UBS Wealth Management in our quarterly revenue roundup.
Revenue (in US$m)
IN A NUTSHELL
Morgan Stanley Wealth Management Regaining the top spot on this table is Morgan Stanley Wealth Management, which reported a pre-tax profit of US$768 million, compared with US$736 million in the fourth quarter of 2014, on the back of a US$3.8 billion net topline that is up 3% from 3Q 2015. This was largely due to the net interest income of US$779 million, up from US$625 million a year ago on higher deposit and loan balances. Concurrently, transactional revenues of US$861 million dipped from US$976 million a year ago, representing some of the 1.4% year-on-year decrease in revenue. This reflected lower commission revenues and lower levels of new issue activity.
Rank
3Q Rank
1
Growth
Private Bank
4Q15
3Q15
4Q14
YoY
QoQ
2
Morgan Stanley Private Wealth Management
3,751
3,640
3,804
-1.39%
3.05%
2
1
UBS Wealth Management (including Americas)
3,717
3,910
3,840
-3.20%
-4.94%
3
3
Credit Suisse Private Banking*
1,986
2,968
2,365
-16.03%
-31.65%
4
6
Deutsche Asset & Wealth Management**
1,558
1,308
1,364
14.22%
19.11%
5
4
Goldman Sachs Private Wealth Management***
1,552
1,422
1,567
-0.96%
9.14%
6
5
J.P. Morgan Global Wealth Management
1,430
1,411
1,460
-2.05%
1.35%
7
7
BNP Paribas Wealth Management****
869
813
784
10.84%
6.89%
8
8
Citi Private Bank
691
715
668
3.44%
-3.36%
9
9
DBS*****
661
622
544
21.51%
6.27%
10
10
HSBC Private Bank
487
504
557
-12.57%
-3.37%
11
11
ABN AMRO Private Banking
350
345
331
5.74%
1.45%
12
12
Standard Chartered Private Bank
122
131
153
-20.26%
-6.87%
CHF 1.01 = USD 1 Euro 1= USD 1.1 *
Private banking revenue only; before 4Q2015, this comprised the firm’s Wealth Management Clients, Corporate & Institutional Clients and Asset Management businesses ** Deutsche Asset & Wealth Management has been restructured in January 2016 into separate Deutsche Asset Management and Deutsche Bank Wealth Management businesses *** Goldman Sachs Investment Management Division, which includes the firm’s asset management and private wealth management businesses **** Includes BNP Paribas’ asset management business ***** DBS Consumer Banking/ Wealth Management, which includes the bank’s consumer banking and wealth management businesses
DBS The Singapore lender grew its consumer banking/ wealth management topline by over 20% year-on-year in 4Q 2015 – the most of the banks on the list. Compared to the previous quarter, DBS saw its revenue grow to S$903 million (US$661 million), due mainly to higher net interest income that rose 8% quarter-on-quarter and 28% year-on-year. Profit before tax increased 19% year-on-year, with total revenue rising 21%. For the full year, the Singapore lender’s profit before tax in this segment was S$1.17 billion, 34% higher than a year ago. Non-interest income for 2015 rose 17% as well, to S$1.39 billion from “higher investment and insurance product sales, and card fees.”
BNP Paribas Wealth & Asset Management The French lender’s wealth management business grew against global headwinds in 2015 due to “good asset inflows in all the business units”, particularly in Asia. In this quarter alone, BNP Paribas wealth & asset management’s revenue rose almost 7% from Q3 to US$869 million. As at 31 December 2015, the bank’s global assets under management in the wealth management unit alone totalled €327 billion (US$359.7 billion), which was 10.9% (€35.7 billion) higher than in the previous year. The combined revenue of wealth and asset management rose to €3.02 billion, which was a rise of over 10% year-on-year. asian private banker 19
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APB MANDATE
UBS to manage emotionally-driven redemptions with new DPM solution Rather than merely hammering home the academics of long-term investing, UBS has launched a discretionary portfolio management (DPM) solution designed to aggressively minimise downside participation when risks arise.
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riven excessively by emotional swings and a general lack of investment discipline, high net worth individuals (HNWIs) in the region remain averse to staying invested and reaping the benefits of long-term active management. “We’ve noticed that in more traditional portfolio strategies, our clients can sometimes struggle with the time horizon required for success and if clients do not see more frequent portfolio adjustments, this can sometimes lead to early, performance-destroying, redemptions,” says Sean Cochrane, UBS Wealth Management’s head of portfolio specialists, APAC. “The problem is not that the house view and traditional portfolio construction are not effective but rather that clients often don’t stay invested to see the benefits.”
TRACKING RISK SHIFTS
Launched two months ago, UBS’s DPM Systematic Allocation Portfolio (SAP) is a quantitative strategy that utilises what the bank calls its World Equity Indicator which measures momentum used to assess market trends. Such indicators are already used in various trend-following hedge funds in the market but UBS’ strategy uses simple instruments with various risk profiles for private wealth clients, Cochrane explains. The bank has used this as an input in its overall house view in the past four years, though it has only now decided to build the signal into a dedicated strategy as a means of unemotional investing. In addition to minimising sentiment-driven action, the portfolio also attempts to align its tactical shifts to “the typical emotional response” of clients. The strategy currently employs a high degree of passive instruments to better suit portfolio needs to effectively make such large tactical swings. This is mainly because investors can drastically shift their risk profiles when markets tank, Cochrane adds.. “Most clients find that downside feels worse than upside feels good,” he explains. “We have asymmetry in our risk profiles as human beings. The [SAP] takes this into account and when we identify positive market trends, we go overweight equity risk, but when we identify negative market trends our resulting underweight to equity is larger.” “Our portfolio will move away from what appears to be a high risk environment very aggressively to take into account this loss aversion.”
In its moderate profile SAP, there are three potential weightings to equity. When the World Equity Indicator produces a balanced or positive signal, the portfolio will systematically allocate 40% or 55%, respectively, to equities. But in the event the signal turns negative, the portfolio will aggressively and asymmetrically shift equity allocations to 10%. “So in essence, the portfolio picks up on trends and makes meaningful allocation shifts according to perceived trends but with a bias toward moving meaningfully out of risk in the event that higher risk environment is identified,” Cochrane continues. “The SAP will make larger tactical moves that you would [not] normally see in a traditional portfolio and many clients who struggle with the emotional ride afforded by products that tend to make smaller tactical adjustments may find this strategy more reassuring and they may be less likely to redeem at inopportune timing.” Even clients of UBS’ Ultra Investment Solution (UIS), a recently launched bespoke ultra HNW DPM offering, are making requests to implement SAP’s quantitative approach, he reveals. UBS is continuing to bolster its drive to grow its DPM business in a region where average penetration rates still remains in the high single-digit range. In addition to its SAP and UIS DPM offering, UBS also in December last year launched its flagship global investment mandate, PM Classic, in Japan, which is a multi-asset portfolio aligned to the house view on a delegated basis. The PM Classic mandate is also expected to launch in Taiwan this month.
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TECHNOLOGY
In with the new (BPO)
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Gone are the days of desks stacked with young teleoperators, speaking politely to banking customers sitting kilometers away. Private banks are considering hanging up on the traditional business process outsourcing centres (BPOs) set up in the likes of Philippines and India, in favour of a more modern, technologically-advanced outfit closer to base. Asian Private Banker steps foot in one such centre in Singapore, and asks its first private bank user how it is all going. What happens if we need to reverse the entire operation?” Venkatesh Narasiah, Deutsche Bank Wealth Management’s (WM) global head of wealth management operating model, remembers mulling in the initial stage of the operation. He was, of course, referring to anxieties – both from the bank and regulators – about the German lender upgrading to a newer BPO model. The latter industry, by the way, is growing by leaps and bounds, and pegged to hit nearly US$700 million by 2020 in Singapore alone. In November 2015, Deutsche Bank WM’s Asia unit went live with the project, outsourcing its back office operations to Avaloq Sourcing Asia Pacific’s (ASAP) BPO centre. This effectively means the gritty and granular activities of the bank which are largely “repeatable” and have no customer touch-points such as the settling of transactions and reconciliation; the entire life cycle management of securities, know-your-client (KYC) procedures and market prices; and data, have moved outside the bank.
Venkatesh Narasiah, Deutsche Bank Wealth Management
It took 14 months from the time the contract was inked for the parties to launch the revolutionary project – the first of its kind in Singapore and with a private bank. And as with all groundbreaking projects, the minutiae that lay behind it was mind-boggling, recounts Narasiah and ASAP CEO Anantha Ayer.
FLIGHTS AND FEARS
Managing the fears and expectations of Deutsche Bank WM staff and regulators was a key constraint, Narasiah recalls. Regulators worried about the flexibility of the project from a risk management perspective while he was concerned about what his staff thought. “It’s a large leap forward for us and the biggest concern for both the bank and regulators was that in the event of reversing the entire operation, while the technology systems are easy to handle, managing the staff move was a major concern,” he says. The main fear for his staff was data accuracy in a straight through processing (STP) system – generally speaking a process that conducts capital transactions electronically without the need for manual input – meaning extra training sessions were required, Narasiah explains. Losing their jobs was not as key a concern as might have been expected, Asian Private Banker understands, since the staff would still be part of the bank, while working out of ASAP premises. Roughly 65 staff have started moving from the bank into ASAP’s centre in late 2014, bringing the centre’s total manpower to 150 by June 2016. Unlike traditional BPOs in Asia, the place is fitted with high levels of security, including various facial recognition tools, a control room and a data centre. But the movement also involves a mindset shift, Ayer says. He explains that while the utility is new to Asia, changing the infrastructure – both structural and technological – will help banks concentrate on its front office and client engagement channels, effectively helping private banks reallocate budgets to enable its relationship managers (RMs). “By changing the infrastructure, private banks can focus on investing its change-the-bank budgets where innovation largely takes place,” he says.
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TECHNOLOGY
Deutsche Bank WM’s decision to migrate completely to ASAP’s centre dovetails with this rationale, Ayer confirms, and allows the bank to “generate significant operational cost savings.” Based on an Avaloq survey, private banks that use its modern BPO model in Switzerland can save 10% in operating costs and decrease its cost-to-income ratio to 60%, compared to the global average of 69%.
TOP LINE
Anantha Ayer, ASAP
“For example, they can elect to invest in digital solutions, hire more or better quality RMs, increase expenditure on marketing activity or client acquisition or increase their presence in new regions and territories.”
THE GREAT MIGRATION
An arduous part of the process, Narasiah recalls, was the successful migration of data from the bank’s outdated systems. “Migration was a complex task, since it was being done from several archaic and legacy systems,” he says. “The data being migrated across had to be in a digitalised form. Given the importance of this task and the quantum of work involved, the migration was a separate workstream within the overall project.” This migration workstream took several trial runs and close to a year to complete, but it was a prerequisite to going live, which was why the final launch of the project was delayed. In addition, an integration expert tells this publication that a one-off integration cost can account for roughly 20% of the overall project cost for the private bank. Before Deutsche Bank WM signed with Avaloq’s ASAP, it was running on some “sixto-seven” internal legacy systems. Globally, the German lender has announced that it would overhaul its IT and internal processes by sieving through third party vendors; 9,000 full-time staff and 6,000 external contractor jobs would be axed. As co-CEO John Cryan pointed out, a “multitude of vendors, design was basically done in silos and joint standards [were] either hardly used or not used at all. The result is that our systems do not work together, they are cumbersome and often incompatible.”
The real concern for private banks looking at such radical technological change is return on investment, in addition to operating cost savings, experts say. Revenues can increase by more than 10%, Ayer adds, based on the Avaloq study on its Swiss client base. “The system allows banks to create and distribute new products faster, thereby allowing them to gain higher market share by increasing their range and distributing more effectively. Banks are also able to redeploy the capital previously used for operations, which were ‘non-differentiating’ and redirect this expenditure to other areas which do provide them with a competitive advantage,” he explains. In addition, Narasiah says that freeing the bank from heavy, backend architecture will allow it to widen its threshold of clients and target different segments in the market. “We have been constrained in our growth due to high operation costs, largely from running legacy systems. We also were more focused on larger clients but now we can lower the threshold and look at clients with investable assets of US$5 million plus,” he continues. The bottom line? Outsourcing has the potential to boost top lines, they say. While Deutsche Bank WM’s ASAP tie-up remains the litmus test for outsourcing to a modern BPO, the numbers for now support this particular technological promise.
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PE O PL E MO V ES
MOVERS & SHAKERS
Movers & Shakers is a monthly compilation of the private banking industry’s key talent moves. For the full version of Movers & Shakers, login or register at:
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