Across Southeast Asia new wealth is being created. And the competition to onboard the growing ranks of families and individuals in the mass-affluent market in the region is getting even more intense.
The prize is huge, and the winners will be those who fully understand their customers’ needs.
A large tranche of the new wealth in the region comes through small and medium enterprises (SMEs). As such, banks will have to build an empathetic and supportive relationship with these businesses, helping their owners in managing their wealth, providing liquidity solutions, and guiding them in crafting and facilitating their business succession plans.
The Asset spoke with McKinsey & Company’s partner Fumiaki Katsuki and associate partner Vishal Kaushik to discuss the growing wealth management business in the region.
Hanoi-based Katsuki leads the firm’s wealth and asset management work in Asia-Pacific, and co-leads the financial services practice in Vietnam, Japan, and Asia-Pacific, while Singapore-based Kaushik is the wealth and asset management lead for Southeast Asia and Singapore.
TA: The largest global wealth managers have indicated they are keen to enter the mass-affluent customer segment in Asia, but doesn’t this chase for the lower thresholds of assets risk diluting their reputation as wealth managers to ultra-high-net-worth (UHNW) clients?
FK-VK: These segments have been underserved and now the banks/wealth managers are redefining their operating models while leveraging digital channels to ensure the model is cost-effective.
It’s not brand dilution but institutionalizing the private banking capabilities and expanding it to the lower segments while ensuring advice for all with a new operating model.
Separately, digital propositions built for mass and mass-affluent customers are increasingly becoming relevant for UHNW customers as customers warm to remote and digital service. So, building a capability here is actually helping serve their UNHW customers as well.
TA: Do Asian retail banks who work closely with self-employed/ SMEs/ family business customers have the best chance of success in winning affluent customers because of their enduring relationship?
FK-VK: The majority of wealth in the region is driven by SMEs/ business owners/ entrepreneurs and the operating model to serve these customers is unique with a “one bank” approach where you get the business/ corporate banking/ wealth management under a single proposition for clients.
SMEs are increasingly becoming open to having their banking needs met by the same bank, relationship manager (RM) versus traditionally having separate banking relationships and RMs.
On the other hand, mass individual customers will require a different service including simplified products, digital engagement with a heavy focus on data and analytics, and ecosystem partnerships with access to mass-affluent customer segments.
TA: In recent years a number of Swiss private banks have forged partnerships with local banks in Southeast Asia. Is the next step in this evolution pure domestic private banking, offered by the local players themselves?
FK-VK: Over the last few years, the collaboration with global wealth managers has been more to bring access to offshore solutions and markets in line with demand from customers for global diversification. In addition, these global wealth managers have helped the onshore banks with competencies of the RMs and product excellence capabilities.
Local banks and securities firms will still dominate the industry given the local nuances and regulations and are expected to strengthen their wealth management business while expanding to affluent and mass-affluent propositions.
The need for onshore private banking will increase further due to “keeping the money closer” mindset, together with increasingly tighter offshore regulations. We believe that foreign players will increase more capability transfer to local banks to ensure onshore opportunities are captured.
TA: Robo-advisers and most recently digital-only banks are rolling out in Asia. How do you see these businesses competing with local retail banks that have significantly digitized their own offerings?
FK-VK: We don’t believe that robo-advisers are in competition with the retail banks. They can be considered as complementary to existing offerings by the banks given robo-advisers are looking at creating a new market space while serving mass-affluent customers with low-cost offerings which have historically not been a core focus area for the retail banks.
The challenge with robo-advisers is the capital commitment to scale and expansion of the customer base.
Few digital banks have really succeeded yet and this is because of the challenge mainly on creating revenue and acquiring a customer base. As such, if incumbent banks are to create an offering that is compelling at low cost like digital banks, there are opportunities there.
TA: The number of financial advisers/professionals in Asia is not keeping pace with the wealth growth. Is this a potential long-term problem?
FK-VK: It’s not a hidden fact that attracting talent is a challenge in the wealth management industry. One solution is to drive the productivity of the RMs, which also helps in retaining and attracting talent.
We believe that data and analytics can help solve the talent problem, making the RMs more relevant to the customers.
You will not be surprised to know that 60-70% of the RM’s time is currently spent on admin services versus the core focus area of client servicing.