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Tackling Asia's private banking challenges

Charles Mak of Morgan Stanley Private Wealth Management discusses the various challenges facing the industry in Asia, and talks about what it must do to position itself to tackle them.

Date: June 2010

Tags: Hiring, Training, Talent development, Costs

  • Although the biggest challenge for private banks at the moment in Asia is the business cycle, they should prepare for the expected growth in wealth in the region by building up platforms, training people and expanding footprints
  • To meet the increasing demand for high-quality service, the industry needs more patience to focus on developing people internally rather than relying on hiring from competitors
  • To tackle rising cost bases in an environment of low fees, wealth management firms need to look at where they can control costs and make savings
  • Resources need to be allocated to building onshore wealth management businesses in Asia now, even though these are unlikely to be profitable in the near term as offshore platforms remain dominant

Key challenges for private banks in Asia

According to Charles Mak in an interview, the biggest challenge for private banks at the moment in Asia is the business cycle.

This requires the trust and faith of senior management, as they need to be patient and willing to go through difficult phases.

But in this environment, Mak said banks have an opportunity to prepare for the expected growth in wealth in Asia going forward by building up platforms, training people and expanding footprints.

The economic growth and wealth creation in the region offers tremendous potential, he said.

Improving the quality of advice

As Asia develops, Mak said clients are increasingly demanding high-quality service from truly trusted advisers – especially in the wake of the financial crisis.

So as an industry, there is a need to prepare for this improvement in terms of better explanations, better training and better disclosure, he explained, adding that this is essential to regain the trust of clients.

However, given that good quality salespeople are not easy to come by, one of the biggest challenges the private banking industry faces is the lack of training and talent management.

More patience is needed, rather than hiring from competitors, said Mak, explaining that this means a greater focus on training and developing people internally by putting in the required resources.

Tackling rising cost bases despite lower fees

According to Mak, cost bases in Asia have been rising over the past 10 to 20 years.

But at the same time he said the wealth creation and related opportunities have enabled firms to offset these costs.

Yet in the current difficult environment, firms need to look at where they can control costs and make savings, and should realise they need to prioritise how they expand their businesses.

Industry outlook

In terms of economic growth, Mak said Asia is second to none compared with the other regions of the world. The last 10 years in particular have seen great wealth creation in China, India and other parts of Asia.

With regulatory changes in the US and Europe, he predicted that a lot of hedge funds and private equity firms will move to Asia, which will in turn enhance the region’s development.

Banks with the proper scale, products and people will therefore be profitable and enjoy growth, said Mak.

In terms of the potential for building onshore wealth management businesses in Asia, Mak said he doesn’t expect the bank’s ever-widening footprint across the region to be profitable in the short term. As a result, offshore platforms will remain the way to go over the near term.

Instead, these onshore moves are long term, strategic investments based on the future expected growth in various markets, which require resources to be put in now.

 
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