Marc Van de Walle of Bank of Singapore discusses how private banks can tackle the revenue challenge they face in today’s environment through the way they approach, structure and review client portfolios.
Date: July 2010
Tags: Portfolio construction, Asset allocation, Portfolio management, Education, Risk, Rebalancing
The financial crisis has driven clients to a state of fear and in turn fewer transactions – which is in contrast to the transactional model of Asian private banking, said Marc Van de Walle in an interview.
Private banks therefore need to move towards a more annuity-type style of business and discretionary portfolio management, he said.
Fee-based advisory portfolio management is another option, according to Van de Walle, through selling more products such as funds. Plus, there is potential to build loan books following the deleveraging during the crisis, and the potential going forward to take loans against property, not just securities.
Yet these are quite tactical measures for private banks, he added. In general, the industry needs to realise that making money over the long term means doing what is right for clients.
Although clients now want transparent, liquid and listed securities, where margins are smaller than in structured investment products, Van de Walle said private banks need to accept this will be the case for a while. As a result, if they help clients with this strategy then clients are more likely to stay loyal and later bring more of their own assets as well as refer others.
Advising against a transactional approach
According to Van de Walle, a big challenge in Asia is to deal with the transactional approach that so many clients take towards their portfolios. This happens, he said, because people tend to invest money in the same way as they made it – which in Asia means taking big and concentrated bets.
Changing this mindset comes down to education about the value of preserving wealth. Relationship managers (RMs) therefore need to spend a lot more time helping clients define their portfolio goals, he explained.
For example, he said, rather than answer specific questions from clients about where to invest their money, RMs should look instead at the risk profile of the client to determine what is best.
A scientific approach to asset allocation
Since diversification wasn’t seen during the crisis to work as well as people expected, Van de Walle said there is a move away from asset allocation in terms of asset classes in favour of getting exposure to different types of risks.
People are therefore trying to decompose stocks and bonds, for example, into different risk buckets to do their allocation accordingly, he explained.
Van de Walle said he prefers to stick to a more traditional asset allocation strategy, using models as a basis to calculate ideal weightings of assets initially, but then using judgement by reviewing risk factors.
Opportunities via market volatility
According to Van de Walle, recent volatility has been a good opportunity to build long-term portfolios, because it increases the period of time when there is an obvious mis-pricing of assets.
For clients willing to adopt a long-term approach, therefore, he said now is a good time to build a portfolio of stocks through dollar-cost averaging.
Restructuring portfolios
At Bank of Singapore, Van de Walle said the investment advisory team produces various publications to support RMs and enable them to get information on investment outlooks across different asset classes.
On a daily basis, the bank comes up with various ideas which RMs can exploit, he explained, as long as they fit within the broad asset allocation according to individual clients.
He said the bank has three broad risk profiles, with model portfolios for each, against which RMs can compare a client’s portfolios to enable meaningful discussions about any deviations. This helps RMs explain their recommendations and the consequences of existing client portfolios against the models.
He said the daily ideas generated internally then provide opportunities for RMs to rebalance client portfolios if appropriate.
