Kathryn Shih, chief executive officer for Asia Pacific, and group managing director, at UBS Wealth Management, talks exclusively to Hubbis about key issues for the industry in the region right now – including emerging opportunities for growth, how international private banks can stay relevant and profitable in today’s environment, and how UBS is positioning itself accordingly.
Date: Mar 14, 2012
What are some of the key trends you see in Asian wealth management today?
There are a few. First, we see an increasing number of European-based external asset managers (EAMs) wanting to come to Asia, based on the demands of their clients.
However, I don’t get the impression that many of them want to set up their own operations on the ground in the region. For example, I met with two groups a few months ago in Zurich and Geneva, and recently a group from Europe when they visited Asia, and they seem to be looking to use the platforms of existing banks like us to book remotely into Asia.
Secondly, within Asia Pacific, a lot of local and regional banks want to develop their wealth management businesses. But the costs of setting up are high and there is a big knowledge gap.
As a result, engaging the financial intermediaries business of larger private banks also seems to be the best way forward for many of these firms.
From our perspective, we look at how much long-term potential there is to partner with another wealth management organisation from the point of view of us giving them advice as well as investment content, because we cannot delegate the KYC process.
This is in line with what the regulators in Hong Kong and Singapore want – attracting money from emerging Asia, Europe and other parts of the world which is for the purposes of investment diversification.
As more and more high net worth (HNW) investors from Europe look to access investment opportunities in Asia, what can UBS do to help them?
We are embracing these trends. Having put in place more rigorous controls and process in response to the financial crisis, clients now want from us investment advice and investment performance.
As a result, we have hired a chief investment officer (CIO), Alex Friedman, who was formerly the chief financial officer of the Bill & Melinda Gates Foundation, to oversee the investment policy and strategy of our assets globally.
This is what we call a research-based advisory process. The CIO brings together our top professionals from wealth management, investment banking and asset management around the world and provides our client advisers and clients with a “house view”. These views are then communicated to the Asia Pacific regional advisory committee, which in turn translates the views into actionable investment ideas for our clients.
As a result, the content in this region will be more Asia focused for clients who are looking for Asian opportunities. For example, our Asian high dividend yield equity portfolio, invests primarily in Asian equities which we think will offer high dividend yields.
With all of the regulatory changes and pressures in recent years, is the concept of large international private banks still relevant? Or will a lot of wealth repatriate onshore over the next 10 years or so?
Having international investment content and processes are an essential part of wealth management.
Local players find it challenging to create global content and a robust and comprehensive process. Firms need scale to afford key components of these such as a CIO, a global process, a good product platform, and a large investment management team which scans the best-in-class in-house and third-party products.
While local players tend to have a very large client base, the question is whether they have the content, culture and even appetite to develop that business in a meaningful way, to offer equivalent benefits to a large international private bank.
Taking the best clients and giving them a better service and additional products like funds and insurance, for example, is a different proposition from going further up the wealth scale to be able to deliver a holistic offering. To do this requires an international platform and content.
As a simple example, the needs of HNW individuals in local markets are very international today, so this demands the product range to cater to that. More recently, for instance, some of our clients in Asia Pacific have increasingly been looking at things like distressed opportunities in Europe, or real estate in the US. Local wealth management players will find it difficult to meet these needs.
Further, in addition to the product platform, there is also an important networking aspect of being with an international private bank. For example, there is a lot of value in being able to put clients together from different locations to create new deals for them and us.
Most private banks have found it much harder to grow their platforms in Asia than they had initially hoped. How are strategies likely to change going forward?
We are witnessing more and more strategic alliances with local players. However, questions then get asked, such as: How long term are these ventures? What is in it for each firm in the long run? And who owns the client in the long run?
While we are interested in looking at some of these opportunities on a selective basis, especially in smaller markets, where we can do it on our own, we prefer to do so.
For example, we have three branches in each of Australia, Japan and Taiwan, and five branches in China.
How else will private banks look to do things differently going forward in terms of how they approach this business?
People is one of these areas. We are at a point where private bankers need to change their approach.
Rather than just being told by their clients that to buy or sell, the bankers have to be more bold, and have a view.
This is one of the reasons why we have invested so much into our research-based advice and training our client advisers to help guide clients to invest profitably and smartly. It is a more rational and professional approach.
How can the private banking industry tackle the profitability squeeze, as a result of higher costs, more passive and risk-averse clients, and minimal yields on cash?
A large part of the high costs within the wealth management industry arise from building teams, which place a further squeeze on profitability. We estimate that across wealth managers, there are currently around 4,000 client-facing private bankers in Hong Kong and Singapore. Over the next five years, there will be a talent shortage in the industry of about 2,500 private bankers.
Some firms have built up a high-cost base -- partly by building high-cost teams in a short time – which may not be sustainable. If the industry only goes for the experienced private bankers, it would not work out in the longer run. We would just see people moving around, there would still be fewer advisers than what is required for this growing industry.
At UBS, we have always been able to attract and retain the best talent as we offer an attractive place to conduct business. Staff who join UBS know they can build a career with us. We offer our employees a great platform, a brand that is strong, and a variety of training, internal career mobility and career development opportunities. The UBS Business University at the Command House in Singapore is a concrete example of our commitment to provide ongoing training in wealth management best practices.
Beyond staff costs, UBS enjoys economies of scale in addressing the increased costs for doing business that affect the entire industry. For example, our size gives us the capability to invest in IT solutions that are better capable of addressing additional regulatory requirements.
Another key focus will be the domestic markets. About 90% of the wealth in Asia Pacific resides in the domestic markets. This is why we will continue to build up our onshore operations across the region and invest for the long term.
Despite some of the ups and downs since 2008, what should the UBS brand mean to your staff in the region and your clients?
The brand should indicate a firm which specialises in wealth management and is dominant in this space. It is now our core business, with investment banking and asset management standing on their own to drive further growth and help expand our wealth management businesses.
Even in countries where initially our brand wasn’t well-known, we have been able to build it relatively quickly because wealthy individuals are generally international, so they tend to travel and talk to their business associates who are international.
As one of the most experienced female professionals in Asian private banking, what do you still enjoy about your role?
It’s a very exciting market. How can one not enjoy it when everybody sees the region as offering one of the biggest opportunities globally?
It is also interesting to see that some people think it’s so easy to be successful in this industry in Asia.
I am driven to continue to help UBS to create a much bigger lead in this region and build our domestic franchises into leading positions in onshore markets.