Although Asia's private wealth business is forecast to grow, competition and margins are so intense that some Western banks are exiting the fray, as they seek to cut costs to improve profitability. Regional banks and boutiques are not only stepping forward to buy these private bank businesses, they are transforming the way they offer services. They are competing with analytics.
First, consider the landscape. In July, Japan's Sumitomo Mitsui Banking agreed to buy Societe Generale's Japanese private banking arm. The French bank follows Bank of America Merrill Lynch, ING Groep NV, as well as HSBC, which is refocusing on core markets.
Regional banks, such as Singapore's United Overseas Bank and DBS Group Holding, are consistently listed as potential bidders for private banks on the block, as they look to grow their businesses. Singapore's Oversea-Chinese Banking Corp. tripled its private-banking assets when it completed its acquisition of ING's Asian private-banking operations in 2010.
Swiss private bank Julius Bär, once considered a boutique, bought the Bank of America Merrill Lynch private banking business outside of the US in 2012, and is now integrating the businesses, building a franchise that may one day boast a majority of its clients from Asia.
These banks are betting on continued growth in Asia-Pacific, which is forecast to be the home of the world's largest population of high-net-worth individuals by 2014.
Clearly, the landscape of private bankers in Asia is changing. More important, the banks determined to succeed in Asia are also transforming how they do business.
How to make it work
Many Western institutions have approached private banking with a brokerage, transactional-services-oriented mentality. This may work for the mass-affluent, but it has little appeal to Asia's über-wealthy. Asian clients, who typically have multiple advisors and therefore receive an abundant amount of advice, seek bespoke offerings.
Furthermore, some banks have approached Asia with a somewhat lazy attitude, taking the view that it is a growth market, so all you have to do is be here, with a blue-chip name, and the business is yours. The quality of the individual RM has in many cases been an issue, as well.
Increasingly, the banks growing their Asia-Pacific private bank franchises are turning to analytics to create value-adding advice. Some banks are studying the investment strategies utilised by all of their clients, analysing the returns, and then selecting the best of these to generate new sets of ideas for relationship managers to take to their clients. In the best practices, this is achieved overnight, and for some areas, even in real time, and offered to select clients, which becomes a selling point for the banks.
They are also distributing the advice in a variety of manners — the digital world suits each client differently, with some keen to read advice immediately, on their phones, others via laptops, while others still prefer to talk to relationship managers directly. Many clients want and use all three approaches in parallel and the banks are struggling to fulfill that need.