As part of efforts to enhance and evolve the product offering in Indonesia, wealth management firms and their advisers must educate their clients on how to view and structure their portfolios.
Panel members
- Darmadi Sutanto, Managing Director, Consumer & Retail Banking, Bank Negara Indonesia
- Oemin Handajanto, President Director, Zurich Topas Life
- Anita Abdulkadir, Chief Marketing Officer, Eastspring Investments Indonesia
- Ron Lee, Head of Investment Advisory, Private Banking, Asia, Union Bancaire Privee
- Sunny Ng, Director of Fund Research, Asia, Morningstar
Panel highlights
A challenge for the Indonesian wealth management industry as the market grows is to keep pace with fast-changing product trends and growing client appetite, while ensuring wealth managers are giving suitable and trusted advice, said speakers at Hubbis’ Indonesian Wealth Management Forum 2012 in Jakarta.
In particular, they said, the advisory process is vital to ensure clients receive the highest levels of service and advice.Yet this requires equipping financial advisers with the tools and knowledge to better educate clients.
For Ron Lee, head of investment advisory, private banking at Union Bancaire Privee in Asia, the industry in Indonesia is driven too much at the moment by products, rather than what clients really need or what is more appropriate for particular groups of clients.
“It’s a process that needs a lot of education [for an adviser] to grow from simply being a product person into a more overall portfolio adviser,” said Lee.
Darmadi Sutanto, managing director of consumer & retail banking at Bank Negara Indonesia, and also chairman of the Certified Wealth Managers’ Association, agreed that the advisory process at many banks in Indonesia is too centred on product.
This is typically a result ofthe key performance indicators (KPIs) for relationship managers (RMs) which Sutanto said can encourage them to adopt a product-driven approach for the commission.
However, he added, one of the things holding back the advisory process is the lack of talented RMs in Indonesia. To try to overcome this, he said he will look to recruit many people from universities. “Due of the pressures and targets, we put them into the market very quickly,” he explained,“but of course, we cannot expect them to provide quality wealth management advisory services that soon.”
Anita Abdulkabir, chief marketing officer forEastspring Investment Indonesia, added that education should not only be limited to RMs, but also extended to both customers and distributors.
“This will put a stop to the product push and minimise the commission-driven approach,” she said.
While the flaws in the incentive structure may be worrying, they are not unique to Indonesia, but exist in many other developed markets as well. However, as Sunny Ng, director of fund research for Morningstar in Asia said, the financial sector cannot solve the problem on its own.
“I don’t think that will change unless there’s government regulation enforcing that change,” said Ng. He also recommended advisers to consider themselves as more than just investment specialists. By widening the scope of expertise where advisers can help their clients, this provides them with a means of adding value to the overall client experience.
Providing a perspective from the insurance industry, Oemin Handajanto, president director of Zurich Topas Life,Said that due to the low penetration of insurance in Indonesia, and the fact that most insurance agents only work on part-time basis, commission-led advice still plays a big role.
However, he added: “I believe that over time, when customers become more educated and the penetration of the insurance industry grows significantly, we will start to think in the same way that Sunny [Ng of Morningstar] explained.”
Emerging approaches to asset allocation
The Indonesian market has also seen an evolution in terms of asset allocation and product appetite.Recent events and volatility have made people realise that the traditional model has not worked well,so it is being challenged bya change in product appetite and clients seeking an alternative means of asset allocation.
“One of the traditional assumptions that is being challenged is modern portfolio theory, the 60:40 allocation,” says Ng. Beyond that, he said the problem of the current model is that much of it is based around forecasting, which he said is “notoriously inaccurate”.
Despite the perceived flaws of the current asset allocation model, Ng said there are new ways to look at asset allocation which include more dynamic and common sense approaches. “It’s not just about focusing on a model but looking at things such as the client’s exposure and human capital. That what more advance advisers are looking at these days.”
Lee at Union Bancaire Privee said it is critical to be aware that asset allocation in today’s world is probably the most important factor in anyone’s portfolio. However, having covered the Indonesian market for over 20 years, one of Lee’s challenges is trying to convince local clients to commit to a more diversified portfolio since most of them are driven by other forms of investments, such as commodities.
“The reluctance continues to be there,” he said. “To them, asset allocation is something that is devised in Europe and America, and it doesn’t serve the purpose of ultimately what the [Asian] client wants.”
In short, Lee recommended clients to not be so averse to asset allocation but rather to understand it and apply its fundamentals to their portfolios. There is still room for capital products, he explained, but at a time of uncertainty, balancing and maintaining one’s portfolio should be the key priority, said Lee.
Click these links for more details about the Indonesian Wealth Management Forum 2012:
Video highlights: http://www.hubbis.com/video.php?vid=1352439422
Agenda: http://www.hubbis.com/forum/wmf2012_id/agenda.php
Photos: http://www.hubbis.com/forum/wmf2012_id/photos.php
Presentations: http://www.hubbis.com/forum/wmf2012_id/presentations.php
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