Asia’s Growth Path and the Evolving Role of the Private Bank

Kimmis Pun, Head of Private Banking for VP Bank in Singapore, told delegates at the Hubbis Vietnam Wealth Management Forum 2018 how the private banking and wealth management models must evolve in Asia in order to capture both the enormous growth potential and the evolving client expectations.

“This topic may be a little bit early for Vietnam because we are not entering the wealth management stage, nor are we at the high-net-worth banking stage,” she remarked on opening her talk. “But it is relevant and important to focus on what the other countries in the region are doing in the field of private banking, as that will no doubt be the direction in which Vietnam heads.”

Moreover, Pun observed that China is actually a role model for Vietnam. “This country is just like China 20 years ago,” she said, “as it is growing significantly and all the growth and diversification to come are immensely exciting. The wealth management industry will be able to help Vietnam’s HNWIs in numerous ways in the future, not just talking about investments, but in helping them with planning in accordance with their lifecycles, ensuring that relevant and optimal advice is given throughout.”

A competitive world

As this happens, it is essential for Vietnam’s private banking and wealth management industry to understand the trends and therefore the challenges ahead. “There is intense competition across Asia,” Pun observed, “with even the retail banks focusing on wealth management; they are not just talking to clients about investment, they are handling a lot of financial derivatives, and offering alternative investments, impact investing, whatever the client does and will require. Winning and keeping clients is therefore of the highest priority.”

She explained that nowadays private banking normally starts with clients depositing USD3 million or more. The roughly USD3 million or more related to private banking services could be in liquid cash, mainstream financial investments or insurance or financial derivatives.”

Zurich-listed VP Bank provides investment consulting, asset management, wealth planning, custodian banking, private label fund, e-banking and family office services to its clientele out of Europe. The bank has been operating in Asia for the past decade and is now keen to expand its Asian business on a more dynamic footing. 

VP builds its Asia private banking model

“We are enthusiastically building our private banking operations in Asia,” Pun explained, “and we are applying considerably more resources to that objective, as the region’s rapid economic and private wealth expansion continues.”

Explaining her role and more about VP Bank, she noted that the bank has no connection at all to Vietnam Prosperity Bank. “We are a European bank with more than 62 years of history,” she reported. “We are headquartered in Lichtenstein but listed in Zurich. I joined the bank from Standard Chartered and before that, I built a long track record in private banking in this region with global names. I was attracted to VP as it has the right culture and approach; for example, I believe it is the only bank in the whole world where some two-thirds of the shares are held by three charitable foundations.”

She explained that these shareholders not only espouse and practise important environment, social and governance (ESG) principles, but their presence helps the bank focus more on long-term client issues and business building rather than being putting team members under pressure to meet short-term revenue or profits targets. 

“So,” she elucidated, “I am here in Vietnam to build our relationships for the future, rather than worrying about the sale of my next product or achieving short-term goals that might be antithetical to optimising client investments or helping them with the best solutions.”

A world of growth ahead

Pun then focused more directly on the world of Asian private banking. She noted that, according to a report from Boston Consulting Group, global wealth grew 12% in 2017 but within that Asia registered the strongest growth region, at a remarkable 19%. “The world of private banking in Asia must be ready to serve this rapidly expanding pool of HNWIs and their even more rapidly growing wealth,” she said.

Broadening out the discussion, she observed that as wealth transitions from the founder generations in Asia to the younger generations, the banks must broaden the product base, change the dynamics of the relationship managers, change our platforms to a more fintech driven and also perform with up-to-date and timely advice.

Pun’s 4Ps: people, product, platform and performance

“I call this the ‘4P' model,” she explained. “People must be professional, the product must be diversified, the platform must be high tech and performance must be timely.”

Pun sees the emergence of new technologies as a part of the machinery of change. Fintech, robotic process automation, AI-driven portfolio management and interactive digital client services are all on the table. Big Data will dramatically change the relationship manager’s expertise and efficiency and the client experience, if properly incorporated into the private bank models of the future.

And as robo-advisory can handle more of the investment selection and advisory tasks of the bankers, they must evolve more into the realm of asset protection advisory and succession planning. “How,” she wondered, “can we help clients protect their wealth so that we minimise the tax globally or protect against some kind of unprecedented risk event in the future, either death or bankruptcy or whatever, so that wealth is protected, and estates correctly and efficiently transferred? This is vital for the private banker, as technology provides some of the solutions they have hitherto provided traditionally, and as client needs evolve.”

Personalised and tailor-made solutions

Another major trend is the developing client needs in terms of tailor-made solutions, holistic product offerings, and fee-based services. Younger clients below the age of 40, she noted, not only demand better digital capabilities but are more interested in ESG-compliant products, as well as impact investing.

Additionally, Pun highlighted the growing need for skilled frontline managers to provide financial and non-financial advice to clients with diverse needs and lifestyles. Relationship managers, she observed, must now be far more than investment advisers and knowledgeable on the capital markets, they must also be highly competent wealth, estate and succession planners. 

She also noted that stricter compliance and security requirements will inevitably lead to higher costs of doing business as the private banks must manage client accounts on a fully transparent and forensically detailed basis. At the same time, greater competition and the difficulty in differentiating in terms of products and services will likely translate to tighter profit margins for the banks. Adding further complication is the lack of talent in the industry, meaning that the cost of hiring the best people will likely rise, further squeezing margins.

On the other hand, there is the immense market growth that Pun noted earlier in her talk, as well as the transition of wealth to the younger generations. She pointed out that Asia’s HNWIs still have almost 45% of their wealth in cash and deposits, implying a huge potential for private banks to help them diversify their assets. As this happens, Pun anticipates the acceleration of responsible and ethical investing, as the younger wealthy build more ESG and SRI [socially responsible investing] into their portfolio formation.

She also anticipates the expansion into more alternative investments, including agribusiness, as well as into more infrastructure, especially related to China’s Silk Road Economic Belt and the 21st century Maritime Silk Road initiative. 

People matter…

Assembling teams that are relevant to the new world of Asian private banking is also a key factor in future success. “We are not only recruiting private bankers who are 40- to 50-years old with considerable experience,” Pun reported, “as we are also recruiting younger bankers in their 20s and 30s who can more easily communicate with the numerous millennials who are inheriting assets and business across the length and breadth of Asia.”

Pun is taking the longer-term view of the private banking business in the region, focusing primarily on the major markets, but also ensuring that VP Bank builds its connections and visibility in frontier markets such as Vietnam.