The challenge for wealth managers in Asia Pacific (APAC) is very clear: how to tap the fast-growing wealth in the region.

 

According to the latest World Wealth Report (WWR) released by Capgemini, only one-third of high net worth individuals' (HNWI) wealth amounting to US$17.4 trillion in APAC with an HNWI population of 5.1 million, is currently managed by wealth managers. The report defines HNWIs as those that have more than US$1 million in investible assets excluding primary residence, collectibles, consumables, and consumer durables.

 

Considering that the wealth of Asian HNWIs has been growing rapidly since 2010, the low penetration by wealth managers is an indication that the private banks (PBs) and wealth managers are not moving fast enough to tap into the highly lucrative market.

 

The rapid growth in wealth in APAC has been quite evident in recent years. In 2015, this region surpassed North America, the traditional leader in wealth growth, which posted US$16.6 trillion in HNWI wealth from 4.8 million HNWIs. Global HNWI wealth reached US$58.7 trillion and the HNWI population grew at 4.9% to be 15.4 million in 2015.

 

Based on this data, there seems to be a lot of wasted  opportunities not only for the private banks and wealth managers but also for the HNWIs who are desperately seeking higher yields and more efficient servicing of their wealth.

 

The low HNWI penetration is puzzling considering that the private banks and wealth managers now have at their disposal highly sophisticated wealth management platforms, volumes of market data and information, and advance technology that they can use to push their HNWI penetration at a faster rate.

 

One possible explanation for the slow HNWI penetration is that the private banking and wealth management industry in APAC has been undergoing consolidation in the wake of regulatory issues and cost-saving pressures. In the past 36 months we have seen DBS acquire Societe Generale’s private banking business in Asia, OCBC bought Barclays Asia Wealth Division and ING Private Bank in Asia, Standard Chartered has bought Barclays Bank’s credit card business in India, and EFG acquired BSI, which has a substantial Asian presence.

 

While consolidation takes time to work itself out, it offers hope that sooner rather than later these private banks and wealth managers would be in a better position to fast-track development of their respective HNWI businesses.

 

The danger facing the private banks and traditional wealth managers is that they are now facing strong competition from financial technology companies or fintechs. With the advent of digital technology, fintechs are now quite capable of carving out a bigger slice of the HNWI business.

 

While there is merit for the role fintech companies have to play in the HNWI space (according to Capgemini fintechs can offer digitally-integrated customer experience that builds on high levels of trust and confidence and captures speed, flexibility and ease of use)  the fact that they are still little regulated in most markets in Asia can be a cause for concern in terms of investor protection for HNWIs.