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Top Story

Why now is the time in Asia for written statements of advice

May 24, 2016

If Hong Kong and Singapore would introduce regulation to require advice to be written down, then the days of relationship managers (RMs) simply giving their clients short-term, trade-by-trade recommendations would be a thing of the past - as would any reluctance from clients themselves to consider a longer term approach to financial planning.


In many wealth management institutions today, bankers continue to operate within a structure in which different specialists across investment, structuring, FX, credit and other solutions continue to exist in silos.

In many wealth management institutions today, bankers continue to operate within a structure in which different specialists across investment, structuring, FX, credit and other solutions continue to exist in silos.
This leads to a lack of needs-based conversations with clients that follow a structured, consistent and, even written, process. And as a result, clients don’t really know where they stand, nor have a reference point for future conversations or reviews.
The consequences of this look set to get ever-more severe in the face of increasing competition from newer wealth managers trying to woo HNW clients, plus the growing gap in what clients want and expect, and what they get. 
Further, in today’s uncertain and volatile market environment, those individuals and firms focused on transacting are likely to be doomed.
Surely we need to take a step back and focus on the framework and discipline for the conversation with the client?
It seems that one of the best ways to differentiate is by charging a proper fee for advice. And a written statement of advice is an effective vehicle for that. 
To help achieve this, regulation in the more developed markets like Hong Kong and Singapore, for example, would be a big step forward. This could be along the lines of what happens in markets like Australia, for instance, yielding a number of benefits for banks.
Isn’t this part and parcel of the fiduciary responsibility we are supposed to have?
Banks and regulators tend to stress the importance of this concept – but many bankers fail to act on it.
RMs need to think of themselves as offering a service akin to that of a general practitioner in the medical profession.
If they don’t understand the needs of their clients first, and then can direct them to the right specialist, then maybe banks need to think about employing individuals in a more general financial planning role to fulfil that role.
Instead, most bankers still sit there every morning at their daily investment meeting talking about products – with the relevant department operating in a silo, pitching their wares to eager bankers looking to meet short-term targets.
In practice, at most private banks, the different specialists don’t talk to each other anywhere near as much as they should. As a result, advice and product pushing happens without the knowledge of what the client is doing within the rest of their portfolio – and with no structured, needs-based plan.
This makes it impossible to have a long-term relationship with a client based on the reality of their situation. Human nature, after all, is to revert to a ‘comfort’ level. So most clients revert to a focus on equity trading – as do their RMs. 
Unsurprisingly, this reinforces the trading-oriented mentality of wealth management in Asia – where clients remain price conscious, not advice conscious. 
And in turn, the reliance is still on transaction revenues, at a time when fees will continue to get compressed, plus trading volumes in many markets are at an all-time low.
(Re)educating clients
To be fair to some RMs, their legitimate defense for maintaining the status quo is “that’s not what my client wants”. 
The key to success in really effecting change is getting the client on board by addressing their reluctance of clients. And to achieve this is more complex than just getting RMs to understand the right way to do things.
This can only be done through continued education and, more importantly (and in line with the recommendations in this article), not giving them a choice. For example, too many banking platforms are set up to give stock tips and recommendations on a daily or weekly basis. 
This further breeds a mind-set where banks are more focused on revenue for themselves, rather than fulfilling the long-term objectives for their clients. 
Instead, time and effort needs to be focused on driving more of a long-term asset allocation and portfolio approach. 
RMs also need more structured support and infrastructure around them. Today, the majority of discretionary portfolio management programmes, for instance, are nowhere near as well-thought out and professional as they should be.
Surely, forcing everyone – institutions, RMs and clients alike – to create and follow a written plan would help.
Best practice
The approach to advice more broadly, needs to reflect the more rigid, client-centric process that is followed in more developed markets, such as in Australia via a ‘Statement of Advice’ (SOA). 
This is mandated by Australia’s Corporations Act 2001. SOAs involved – written plans, which get reviewed at least annually, if not more frequently, designed to ensure clients are given enough information to understand the advice given to them and decide whether or not to rely on it.
Key is that the information in an SOA must be worded and presented in a ‘clear, concise and effective’ manner.
Most importantly, it gives the client a starting point from which a more relevant and specific discussion can take place with their adviser. Plus, there is recourse in the sense of a firm grounding of where the relationship is at.
Forcing change
In line with this, and in sync with the ambition of regulators in Asia’s more developed wealth hubs to become prominent and respected global centres, is now the time for there to be a similarly-mandated process as in Australia? 
And even if such change isn’t forced upon institutions, shouldn’t this be something that firms and individuals strive for in their efforts to deliver the best long-term advice for their clients, and to do the right thing by them?
Self-interest will quickly kill client relationships in an environment where there is already a gap between expectations and service delivery. It seems obvious that a proper approach to financial planning is in everyone’s best interest.
Benefits (to banks) of written advice
Driving a long-term approach to planning
Ensuring a stricter, more disciplined way
Providing clients with a document they can discuss and review prior to implementation, ensuring buy-in from the client
Reducing misinterpretation and misunderstanding, as it's written down
Helping compliance, as all parties know where they stand
Forcing RMs to review client portfolios – not fire-fight
Creating performance benchmarks that are measurable
Giving a tangible reference point on which to agree an appropriate fee structureIn many wealth management institutions today, bankers continue to operate within a structure in which different specialists across investment, structuring, FX, credit and other solutions continue to exist in silos.

This leads to a lack of needs-based conversations with clients that follow a structured, consistent and, even written, process. And as a result, clients don’t really know where they stand, nor have a reference point for future conversations or reviews.

The consequences of this look set to get ever-more severe in the face of increasing competition from newer wealth managers trying to woo HNW clients, plus the growing gap in what clients want and expect, and what they get. 

Further, in today’s uncertain and volatile market environment, those individuals and firms focused on transacting are likely to be doomed.

Surely we need to take a step back and focus on the framework and discipline for the conversation with the client?

It seems that one of the best ways to differentiate is by charging a proper fee for advice. And a written statement of advice is an effective vehicle for that. 

To help achieve this, regulation in the more developed markets like Hong Kong and Singapore, for example, would be a big step forward. This could be along the lines of what happens in markets like Australia, for instance, yielding a number of benefits for banks.

Isn’t this part and parcel of the fiduciary responsibility we are supposed to have?

Banks and regulators tend to stress the importance of this concept – but many bankers fail to act on it.

RMs need to think of themselves as offering a service akin to that of a general practitioner in the medical profession.

If they don’t understand the needs of their clients first, and then can direct them to the right specialist, then maybe banks need to think about employing individuals in a more general financial planning role to fulfil that role.

Instead, most bankers still sit there every morning at their daily investment meeting talking about products – with the relevant department operating in a silo, pitching their wares to eager bankers looking to meet short-term targets.

In practice, at most private banks, the different specialists don’t talk to each other anywhere near as much as they should. As a result, advice and product pushing happens without the knowledge of what the client is doing within the rest of their portfolio – and with no structured, needs-based plan.

This makes it impossible to have a long-term relationship with a client based on the reality of their situation. Human nature, after all, is to revert to a ‘comfort’ level. So most clients revert to a focus on equity trading – as do their RMs. 

Unsurprisingly, this reinforces the trading-oriented mentality of wealth management in Asia – where clients remain price conscious, not advice conscious. 

And in turn, the reliance is still on transaction revenues, at a time when fees will continue to get compressed, plus trading volumes in many markets are at an all-time low.

(Re)educating clients

To be fair to some RMs, their legitimate defense for maintaining the status quo is “that’s not what my client wants”. 

The key to success in really effecting change is getting the client on board by addressing their reluctance of clients. And to achieve this is more complex than just getting RMs to understand the right way to do things.

This can only be done through continued education and, more importantly (and in line with the recommendations in this article), not giving them a choice. For example, too many banking platforms are set up to give stock tips and recommendations on a daily or weekly basis. 

This further breeds a mind-set where banks are more focused on revenue for themselves, rather than fulfilling the long-term objectives for their clients. 

Instead, time and effort needs to be focused on driving more of a long-term asset allocation and portfolio approach. 

RMs also need more structured support and infrastructure around them. Today, the majority of discretionary portfolio management programmes, for instance, are nowhere near as well-thought out and professional as they should be.

Surely, forcing everyone – institutions, RMs and clients alike – to create and follow a written plan would help.

Best practice

The approach to advice more broadly, needs to reflect the more rigid, client-centric process that is followed in more developed markets, such as in Australia via a ‘Statement of Advice’ (SOA). 

This is mandated by Australia’s Corporations Act 2001. SOAs involved – written plans, which get reviewed at least annually, if not more frequently, designed to ensure clients are given enough information to understand the advice given to them and decide whether or not to rely on it.

Key is that the information in an SOA must be worded and presented in a ‘clear, concise and effective’ manner.

Most importantly, it gives the client a starting point from which a more relevant and specific discussion can take place with their adviser.

Plus, there is recourse in the sense of a firm grounding of where the relationship is at.

Forcing change

In line with this, and in sync with the ambition of regulators in Asia’s more developed wealth hubs to become prominent and respected global centres, is now the time for there to be a similarly-mandated process as in Australia? 

And even if such change isn’t forced upon institutions, shouldn’t this be something that firms and individuals strive for in their efforts to deliver the best long-term advice for their clients, and to do the right thing by them?

Self-interest will quickly kill client relationships in an environment where there is already a gap between expectations and service delivery. It seems obvious that a proper approach to financial planning is in everyone’s best interest.

Benefits (to banks) of written advice

  • Driving a long-term approach to planning
  • Ensuring a stricter, more disciplined way
  • Providing clients with a document they can discuss and review prior to implementation, ensuring buy-in from the client
  • Reducing misinterpretation and misunderstanding, as it's written down
  • Helping compliance, as all parties know where they stand
  • Forcing RMs to review client portfolios – not fire-fight
  • Creating performance benchmarks that are measurable
  • Giving a tangible reference point on which to agree an appropriate fee structure

Latest Event Highlights

Philippines Wealth Management Forum 2016 - Highlights

May 2016

Thank you to the 250 senior market practitioners who attended. And also to our partners.

  • "This is one of the only events I have been to where both private banking and wealth planning practitioners can come together and talk about the issues."


    Marcus Hinkley
    Group Partner, Head of Singapore Office
    Collas Crill
  • "The big challenge for the industry is going to be training and getting the expertise to cope with all this new regulation."


    Peter Brigham
    Managing Partner
    Rosemont
  • "I am very impressed with this year's turnout; it was in fact better than last year. There are a lot more people and it seems like the interest [among delegates] is a lot more diverse as well."


    Carolyn Leng
    Head of Private Banking
    CIMB Private Banking

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