Hubbis' inaugural China Wealth Management Forum in November 2011 sought to foster open dialogue and debate on strategic and operational issues facing the development and growth of the industry.
Date: Nov 2011
Tags: China, Value proposition, Business model, Regulation, Estate planning
Hubbis' inaugural China Wealth Management Forum in November 2011 sought to foster open dialogue and debate on strategic and operational issues facing the development and growth of the industry.
More than 150 leading practitioners in China’s wealth management and private banking industry came together in Shanghai in November 2011 to hear the views of experienced market practitioners and product specialists on issues relating to people, processes, business models, regulation, product, platforms, and other opportunities and challenges.
Key issues covered included:
Further analysis of each panel is below, with more details about the event at this link: http://www.hubbis.com/forum/awmf2011_sh/
Panel 1: The outlook and future of China's wealth management industry
The biggest challenge confronting China’s wealth management and private banking industry is getting all market participants – clients, advisers and regulators – to focus on the long-term and sustainable growth of the market, rather than get caught up in short-term goals and targets.
Panel speakers agreed that such short-termism is fuelled by the rapid wealth creation which has taken place in the country in recent years, especially given that most of the wealth is held by entrepreneurs.
Said Helen Liao, financial planning director at independent financial advisory firm Gao Fu: “Chinese millionaires are comparatively young, with an average age of just 39 years old, which is unimaginable in other countries.”
As a result of there being so much new wealth, Liu Feng, chairman of the Financial Planning Standards Board (FPSB) in China, explained that when wealthy Chinese individuals approach private banks, their goal is to “become rich, not stay in rich”. In turn, the banks design their products and services accordingly.
"What is missing in China is the mechanism and service that enables wealth preservation,” said Liu.
Huang Chen, managing director, finance professionals & marketplaces for Thomson Reuters in China, added that there is a serious shortage of professional wealth management advice. Many banks simply focus on achieving their sales goals in search for commissions, instead of providing more thorough and client-centric asset allocation and product selection.
Increasingly, high-end clients in China are looking to global asset allocation and risk diversification, he added, for example in overseas real estate and financial products.
To take advantage of this, therefore, wealth management institutions must meet clients’ needs in terms of providing sufficient information, recommending appropriate products and improving their ability to manage risks for their clients.
Other challenges for the industry come from the current approach to how it is regulated, added Liu.
An example of this includes the fact that insurance, securities and funds products are each supervised separately. Further, only institutions themselves are regulated – not individual advisers, he said.
Part of the challenge in China relates to the situation where private bankers are developed from the premium banking segment, said Hsiao-Yun Lee, chief executive officer of Societe Generale Private Banking in China.
Yet, how can a wealthy client have faith in and trust a young and inexperienced private banker, she asked.
Lee said the most important characteristic for a private banker in China is integrity, based on the commitment and loyalty it entails.
William Xia, general manager of AOW Investment Consulting, called for China’s wealth management industry to send a clear message that it can provide long-term value to clients.
Panel 2: The evolution of product offerings and trends in China wealth management
Panel speakers were united in their views that the product offering in China needs to evolve towards recommending structured products linked to local equities.
James Yang, deputy head and managing director in the international business department at Everbright Securities, said the local market needs structured products with local underlyings, absolute-return product, and capital preservation offerings, especially with the A-shares as underlyings.
He explained that the domestic market is lacking in such products for two reasons: first, the supervisory model; and secondly, the high threshold for risk management requirements in relation to pricing and hedging.
Yet wealthy individuals prefer to invest domestic products, he said, so providing derivatives linked to local underlyings is key.
Percy Chan, general manager for wealth management at the Bank of East Asia in China, called for more local market players to try to develop the market for such products, to encourage greater support from the regulator.
At the same time, clients are looking for liquidity, said Albert Yuen, executive director and head of product marketing and investment advisory at Bank of China International.
The first question that clients now ask in the wake of the financial crisis in 2008 is about the worst-case scenario in relation to liquidity, he said, explaining that as a result, clients prefer simple structured products with clear underlyings: “They will not buy anything they don’t know”.
"Our underlyings are mostly from Greater China, such as real estate and RMB bonds,” added Yuen.
Lawrence Lin, director of South China and international business at NOAH Private Wealth Management, said it is important for product providers to be in line with the trend of global deleveraging and provide safer and more liquid product.
According to Charles Zhao, head of investment consulting for Mercer in China, qualitative assessment is key in relation to the decision-making process for investors, and outlined three main criteria.
First is the investment concept; secondly is portfolio construction; and thirdly is trading cost.
Panel 3: Getting the value proposition and client experience right
Creating a unique firm culture in order to provide an effective client experience is key to standing out and being successful in China’s wealth management and private banking market, said panel speakers.
According to a report jointly released by Bain and China Merchants Bank, clients choose their private bank based on professionalism, brand and service (in order of importance).
Said Chen Yunnan, deputy general manager of retail banking at China Merchants Bank: “We listen to the clients of what they want, and try to satisfy them.”
Maranda Wong, managing director, Greater China structured solutions sales at RBS, also pointed to the importance of tailored service in a private bank’s value proposition, rather than them simply providing a broadly similar service as retail banks, just with higher product, investment and deposit thresholds.
Banks need to properly understand their clients through the KYC process, and then customise products and services accordingly, she explained.
Building trust is a long-term process, said Helen Liao, financial planning director at independent financial advisory firm Gao Fu, explaining that in some cases, clients might even test their relationship mangers (RMs) by revealing a small amount of information about themselves to see how they respond.
If firms act in the best interests of the clients from the outset, clients will gradually start to trust the firm and individual adviser, and consequently divulge more and more information about themselves, she added.
A way that banks can learn about how to provide the right client experience is to look at other industries, suggested Fiona Liu, managing director at Bain in China.
She pointed to Procter & Gamble as an example, where the company’s salespeople get paid as a result of the client experience – with their salaries linked to the sales performance of their clients which are selling Procter & Gamble products.
Ultimately, talent is critical to the process of providing client service and communication. Yet Chen at China Merchants Bank said the average age of the RMs in his bank is 31. “It’s too costly to employ overseas talent and it’s not a good idea to poach from other local banks, because these people may not fit in with our culture,” he said, explaining that the solution is to train their own staff.
However, poaching still seems the preferred route for many firms as a way to shortcut the process of talent development, said the panel.
On the other hand, however, Chen said that it’s not realistic to expect to be able to satisfy every client.
For example, he explained, clients who come to the bank in search of high returns will often leave for the same reason. This highlights the importance of client education and managing their expectations as part of the overall experience.
According to Chen, clients who stay with the bank over the long term are those who are aligned with the culture and the bank’s concept of wealth management.
Panel 4: The potential and future of wealth planning in China
Despite the relative youth of China’s wealth management industry, panel speakers said they expect to see an explosion in opportunities around estate planning.
Linda Ma, managing director, OCBC private banking head in China, said that although most wealthy Chinese individuals prefer to manage their own wealth and investments, they are increasingly realising the need for professional and institutionalised advice to ensure wealth preservation and to mitigate risks such as enterprise management risk, political risk and other issues relating to children’s education, tax and estate planning.
Further, as the first generation enters their twilight years, the issue of retirement planning has become more prominent.
At the moment, however, trusts in China are used mainly for commercial purposes, explained Ma, providing services such as financing and investment, rather than how they are used elsewhere in the world in terms of helping clients plan tax and estate transfer.
Another issues in relation to wealth transfer is around risk assessment, said Peter Lee, managing director of Veco Invest (Asia).
In China, he explained, many people believe that high risk means high return, so they need discipline to transfer wealth to the next generation.
Yet Hong Rong, chairman of Shanghai Stockstar Wealth Management said many clients lack the required financial knowledge at this stage, putting education on the agenda.
