Asia's wealthy can look closer to home for service

Asian institutions are catching up with Swiss rivals in private banking

There could soon be one less Swiss private bank in Asia, according to recent reports from the country that suggest Julius Baer is interested in acquiring fellow Swiss private banking group EFG International.

Consolidation in the Swiss private banking industry might not be good for jobs and the supporting wealth services in Switzerland, but in Asia, the ranks of wealth managers continue to grow.  

The ongoing global clampdown on tax evasion coupled with more robust bank regulations have diluted Swiss bankers’ outdated modus operandi of allegedly aiding wealthy clients to shroud their assets.

Lower interest rates, the pervasive march of robo-advising and online wealth management solutions, along with a global generational transfer of assets to clients who don’t need their hands held, are also loosening the grip that Swiss private banks once held on the wealthy.

In Asia, their cost-income ratios are burdensome and fixed costs are weighty, while profit margins are being relentlessly eroded. So if the Swiss institutions are losing, who is on the other side of the deal?

Domestic Asian lenders were once looked down on for their lack of sophistication in dealing with the wealthiest clients. They were said to lack the right products and services, they were too parochial and didn’t have the essential software, meaning the private bankers themselves.

This line of reasoning is of course now obsolete as Asian banks can offer the same level of service and even better in many cases, where there is a natural cultural empathy. Wealthy clients want the best products and solutions, not just a friendly face, but there is little that their Swiss peers can offer that Asian banks cannot replicate or better.

Asian banks may have some catching up to do when it comes to producing slick and polished branding that the Swiss banks churn out on a regular basis, but it’s only a matter of time before this gap is closed.  

Across Asia, wealth is being created faster than any other region. Numerous reports back this up. Over the last decade, Asia ex Japan remains the growth champion, with average annual wealth growth of over 12% since 2008, as reported by Allianz in its 2019 Global Wealth report.

And while geopolitical headwinds may have tempered growth this year, Asia’s demographic dividend will make sure the region secures its place as the catalyst for continued wealth accumulation.

The major Swiss private banks have also benefitted from this accumulation of wealth, adding billions of dollars in assets from clients based in the region. With a global business to manage, that Asian dividend can often help to balance shortfalls created elsewhere. 

Aware of their limitations to permeate deeply into the seams of newly created wealth in places like Thailand, the Philippines, Indonesia and frontier markets such as Vietnam, Swiss private banks have scrambled to expand their reach by targeting partnerships with prominent local players.

Anxious about missing out, Credit Suisse, Julius Baer and Lombard Odier are among the lenders which have formed partnerships or entered into joint business ventures to tap into the boom of onshore Asian wealth.

While the relationships will work for both parties in the short term, how long will it take for the local partners to reverse-engineer the salient parts of the agreements and in time arm themselves with the knowledge and knowhow required to then go it alone?

In Singapore, the two largest lenders DBS and OCBC have grown their wealth management units substantially to the point where they are now key contributors to the bottom line of the organizations, and might even be seen as the driving force.

Private banking and mass affluent wealth bolstered both banks’ latest quarterly results. Their cost-income ratios are not a burden and they have embraced technology and robo-investing to augment their wealth offerings and extend their demographic reach.  

Sim S. Lim, group head of consumer banking and wealth management, DBS, is targeting an increase in his bank’s wealth assets under management to S$300 billion (US$220.51 billion), from the current S$234 billion, by 2023.

Much of this growth will come from the rise of prosperity in the region, and a lot will come from wealthy clients seeing the value of having their money managed by a trusted partner closer to their home markets.

Fellow Singaporean bank OCBC operates a dedicated private banking arm, Bank of Singapore. The bank was launched in 2010 following the acquisition of ING Asia Private Bank by OCBC Bank in 2009

That unit has grown quickly and like its near neighbour is now an intra-Asian bank with a strong footprint in the wealthy north Asian market. As of June 30 2019, Bank of Singapore’s assets under management was US$111 billion, 9% higher than a year ago.

The private banking divisions of the top two Singaporean banks now regularly attract seasoned private bankers from their Swiss competitors, a career move that a few years back would not be contemplated.

A dilemma for ambitious private bankers in Asia is do you see the future with your local Asian bank, one that knows the market, speaks the languages and is ubiquitous on the main streets?Or do you stick with an international institution where decisions are made thousands of kilometers away and will always be several time zones behind Asia?

With so many of Asia’s new wealthy coming from the ranks of the self-made, their relationships with local banks are tight.

And whereas previously when they had accumulated personal wealth they would have made a beeline for a shiny Swiss bank, they now stay with the lender who supported them when they were a startup or SME.