Challenges in the Pursuit of Growth for Independent Wealth Managers in Singapore

The Hubbis Independent Wealth Forum in Singapore on April 17 [2024] was a huge success, bringing together over 300 industry professionals and experts to analyse the evolving landscape of Independent Wealth Management (IWM) in Asia. The opening discussion saw a powerhouse panel dissect the significant challenges and remarkable opportunities facing independent wealth managers in Singapore and further afield. With a keen focus on the strategic growth and the intricate dynamics of External Asset Management (EAM), the discourse provided deep insights into how independents are continually shaping new standards and models to distinguish themselves from the larger private banking institutions and carve a profitable unique niche in what is an increasingly competitive market.

Chair

Andrew Hendry
CEO Singapore and Head of Distribution, Asia
Janus Henderson Investors

Panel Members

Shilpi Chowdhary
Chief Executive Officer, Managing Director
Lighthouse Canton

Mandeep Nalwa
Chief Executive Officer, Asia & Middle East
Taurus Wealth Advisors

Jolene Tan
Executive Director - Managing Partner
SingAlliance

At a Glance: Key Insights from the Discussion

Expansion of the Independent Wealth Management (IWM) market: Increasing numbers of independent wealth managers are helping to improve client understanding of the proposition and broaden the industry's appeal, positioning themselves as partners and collaborators with clients, banks, and other key parties rather than direct competitors in the wealth management landscape.

The Value of Independence: Emphasising diversification away from the banking relationships, the experts highlighted how independents provide a necessary counterpoint to traditional private banking structures and focus on more intensely client-centric strategies, also explaining that this approach mitigates risks for end-clients as well as broadening the appeal of these firms to the Relationship Managers (RMs) they need to hire and that so often come from the private banking institutions.

Holistic Wealth Management: The panel stressed the need for wealth managers to extend their expertise beyond investment management to include areas like estate and succession planning, ensuring a more comprehensive service offering that addresses all client needs and those of their families/next generations.

Regional Market Dynamics: The panel discussed the distinct characteristics of wealth management in Hong Kong and Singapore, noting that while both markets are growing, in their view, Singapore’s market tends to deliver a more holistic approach compared to what they characterised as more product-focused providers in Hong Kong.

Strategic Global Presence: Independents in Asia who also establish operations in key international financial hubs like Zurich and Geneva can thereby significantly enhance their firm’s global footprint and boost client reassurance around the firm's comprehensive and global capabilities.

Digital Transformation and Operational Adaptation: The experts pointed to the ongoing thrust to improve operations and capabilities via continuing digital transformation, thereby addressing client needs, boosting internal capabilities and productivity, helping them comply more rapidly and effectively with regulation, and boosting the overall proposition, differentiation and competitive edge.

Talent Management: The shifting landscape of talent recruitment and retention presents both challenges and opportunities for independent firms to attract professionals most adaptable to the independent model. A core focus is on finding seasoned talent who wishes to convert to the more entrepreneurial and client-centric cultures of smaller firms and move away from the big institutional-type approach of the bigger private banks.

The Discussion in More Detail

The Growth of the Independent Wealth Management Sector

The discussion began with a panellist highlighting the growing number of independent wealth managers entering the Singapore and broader Asian markets. This increase is seen as beneficial, as it helps spread the word further to more clients on the value proposition of independent management, thereby enhancing opportunities. Despite the relatively small market share of the independents compared to the total private banking market, there is optimism that a partnership-type approach to clients, to external custodians, investment platforms, and other product or service providers will help further expand the IWM footprint in Asia. The difficulties faced by major banks, as highlighted in the media in recent times, seem to offer some encouragement for EAMs, reinforcing the need for more participants to further boost the industry’s journey and growth.

The Holistic Wealth Management Approach

The vital importance of a comprehensive approach to wealth management was underscored, extending beyond truly independent investment management to include aspects such as succession planning and broader family connectivity. This holistic approach is crucial for building lasting relationships based on trust, thereby helping differentiate independent managers from larger institutional players. It ensures that relationship managers are not just investment managers but also advisors who look at the entire client or family's wealth and legacy, providing comprehensive solutions that address all aspects of a client's financial life and transitioning to the second and next generations as well.

The Importance of Diversification of Exposures

Another expert on the panel emphasised the importance of the independent firms not being reliant on a single private banking institution for custody and investment product support, which is deemed critical for reducing risk exposure for the end clients. The RMs themselves also prefer to work with independents who have a broad array of banking relationships to offer their clients. This independence is crucial for maintaining a healthy and competitive market environment where clients receive unbiased advice and more personalised service and where the pricing for custody and products can be negotiated amongst sufficient providers to provide health competition.

Clarifying the Taxonomy in the Market

One panellist sought to clarify the terminology used within the industry, particularly the distinction around what External Asset Managers (EAMs) are. They pointed out that the EAMs are indeed independent and should not be seen as merely external agents to the banks; they are fully independent entities that operate autonomously and offer independence of advice and the product suite. This distinction is crucial for the identity, operation and competitive edge of these firms.

The Nuances of Wealth Management in Hong Kong and Singapore

The discussion shifted focus to the wealth management markets in Hong Kong and Singapore. Panellists noted that while Hong Kong is experiencing growth in independent wealth management, it often remains predominantly product focused. In their view, this approach contrasts with Singapore's more integrated and holistic wealth management services, suggesting a more mature market in Singapore that aligns better with broader financial and estate planning and client-centric wealth management rather than predominantly focusing on financial products.

Strategic Presence in Global and International Financial Hubs

Panel members discussed the strategic reasons behind setting up operations in well-established financial hubs like Zurich and Geneva. For some, having a presence in these locations is about enhancing the firm's global credibility and facilitating asset management for international clients. For others, it is about leveraging personal and historical connections to these markets, which provides strategic advantages in serving specific client demographics. The panel also discussed the growing connectivity between Asia and the Middle East, with firms establishing operations in the UAE, especially Dubai, to extend their reach for existing clients and connect to new clients.

The Impact of the Regulatory Environment on Industry Practices

The panel debated the implications of stringent regulatory environments on the industry. There was a consensus that while regulation is necessary to maintain integrity and trust in the financial sector, overly restrictive barriers can stifle innovation and push out smaller players. This could lead to higher operational costs and compel even compliant firms to find workarounds to survive financially in ultra-expensive cities like Singapore.

Challenges and Strategies in Talent Management

The session also covered the ongoing challenges in talent acquisition and retention. Aligning recruitment strategies with the firm’s long-term goals is essential for sustaining growth and maintaining a competitive edge. The influx of talent due to redundancies in larger banks offers opportunities for independent firms, but converting this talent to adapt to the independent model remains challenging. Firms need to focus on creating clear business models and offering unbiased, client-centric advice to attract and retain the right talent in a competitive market.

The Role of Consolidation in the Industry's Future

The inevitability of industry consolidation was discussed, with panellists agreeing that smaller firms might struggle to sustain operations due to high and rising cost-income ratios. This points to consolidation as a necessary evolution within the industry to maintain efficiency and competitiveness. The discussion highlighted how consolidation could lead to a more robust and sustainable independent wealth industry landscape, where resources are optimised, and services are more client-focused.

The Last Word

The discussion illuminated the multifaceted challenges and opportunities within the independent wealth management sector in Asia. It is clear that as the industry matures, the evolution of business models, regulatory adaptation, and strategic positioning in key financial hubs will be pivotal. Moreover, the need for robust talent management and a holistic approach to client service remains more critical than ever. As independents continue to refine their offerings and enhance their operational frameworks, they not only contribute to the diversification and sophistication of wealth services but also reaffirm the essential value of trust and client-centricity. In a landscape marked by rapid change and increasing competition, the best independent firms are poised to lead the way in innovation and client satisfaction, setting new standards and guiding the way forward.