Digital Transformation and the Development of Onshore Wealth Management in Asia
Dec 11, 2020
As we all continue to endure the ebbs and flows of the Covid-19 pandemic, the vital role that technology and digital transformation have to play in the financial services industry has become ever more visible, and indeed more widely accepted, and nowhere more so than in Asia’s local wealth management markets, where the onshore proposition has been developing apace in recent years and where international and local players are jostling for position, and sometimes in new partnerships. The banks and other wealth management firms across the region are racing to boost their digital offerings and solutions, from the back-end through the middle and of course very importantly at the front-end where the revenues are garnered and where clients are serviced. Digital transformation is not only about the client experience, but also about significantly ameliorating the administrative teams’ workloads and satisfaction while reducing costs and improving efficiencies. So too at the relationship manager and advisor levels; they need to be freed up from an excessive burden of mundane but necessary jobs through enhanced software solutions and processes, allowing them more time to leverage the new and growing offering of analytics and insights, driven by AI and machine learning to attain products, insights and as a result, good advice that are all relevant to their clients and that will boost their productivity and their client loyalty. Hubbis partnered with our exclusive sponsor, Azqore SA Singapore Branch, for a mini survey to look at the drive towards the development and maturation of the onshore wealth proposition, and how digital solutions and outsourcing will boost and accelerate that, and what challenges and opportunities lie ahead.
A Hubbis Mini-Survey & Report - Sponsored by AZQORE
Key Findings in Brief
Legacy systems are impediments to evolution
87% of replies agreed that legacy systems are holding many banks and wealth management organisations back and that a faster, more efficient platform and digital transformation is required
The era of buy rather than build is upon us
But a new approach has emerged and is being adopted in Asia, emulating the evolution seen already in Europe, and that is why some 70% of our respondents to the survey agreed that a new reality has dawned, one in which the incumbents can buy solutions and outsource to technology partners, at manageable cost levels and at far accelerated timeframes.
Digital transformation via outsourced technology is needed from back to front
There are no stones to be left unturned by the incumbent banks and wealth managers in Asia. The back-end efficiencies and cost-savings possible will ultimately feed through to the client-facing bankers bringing in the revenues by enhanced productivity, relevance and personalisation. If the client is front and centre of mind throughout all digital transformation, the outcome should, especially in the dynamic Asian markets, be remarkably positive from all perspectives.
In seeking outsourced solutions, look for experience and a holistic suite of offerings
Our respondents were clear that there are a broad array of qualities required for outsourcing digital solutions and services, with the providers needing to offer a combination of experience, track record, deep knowledge of the industry needs, the ability to bring modular solutions to the table, to encompass the latest data and cloud approaches, to be open to connectivity with other providers and FinTechs and even potentially to offer digitised business process outsourcing.
Dynamic onshore is gradually eclipsing offshore in Asia
The offshore wealth management proposition is not a thing of the past, but the onshore offering will likely see the most dynamic growth in the years ahead in Asia, say some 67% of replies to our survey.
The Asian onshore markets offer great potential, especially ASEAN
Thailand, followed by Indonesia, and then Vietnam, offer the greatest growth potential for the onshore wealth management proposition, while less populous Malaysia and less dynamic Philippines will still offer robust growth ahead. Meanwhile, whilst everyone knows that the Chinese onshore market is truly vast in potential, a more manageable entry point might well be Taiwan.
International banks and WM firms can win plaudits onshore, especially if teamed with locals
49% of replies suggested that the offshore banks and other WM players can make significant inroads in the onshore WM markets of Asia, with 30% indicating that the best cocktail is the established offshore private bank alongside the well-known, brand name local financial institutions, auguring particularly well for the new JVs that have emerged in Thailand, Indonesia, Vietnam and the Philippines.
Don’t delay, the future in Asia’s wealth management markets is both digital and rosy…and now
There has been a tendency towards either poorly judged and weakly executed efforts at digital transformation, or perhaps paralysis by analysis. But the time is here and now to embrace smart solutions, efficient allocation of capital and time. This is the time for a more nimble, modular, imaginative approach to digital transformation, both for more mundane cost savings and efficiencies and in order to retain today’s private clients and win tomorrow’s future generations of clients.
The Survey Report
Overcoming the obstacles of legacy systems
A major obstacle for the incumbent private banks and other leading WM organisations continues to be their legacy systems, with the banks struggling to make significant advances, front to back, at speed and both cost-efficient and effective.
Anecdotal evidence from industry insiders offers the same story time and again – when encumbered with legacy core systems that might date origins back 10 or 20 years, the customer might end up with a digital offering that seems to work, but behind the scenes, there is an incredible effort taking place to make the core and legacy system connect with any upgrade and add-ons to bring the digitised experience up to date. As one eminent private banker recently explained this to Hubbis, there are numerous bandages, plasters, and other mechanisms holding it all together, all of which is immensely time-consuming and increasingly costly.
Given the issues with legacy systems – is it likely that wealth managers will be looking to procure a dedicated wealth management platform to upgrade their digital capability?
The evidence from this short survey and from the body of work that Hubbis conducts continuously in Asia’s WM industry date bears out these views, and we can very fairly conclude that there is no doubt that legacy technology at the banks is an impediment to the rapid and effective evolution of a fit-for-purpose digital platform for the new world ahead, and the customer of today, let alone the client of tomorrow.
Getting ahead of the game
As legacy technology has become more and more complex and costly to maintain, so the banks in trying to upgrade and digitise their WM platforms for today’s world and tomorrow’s clients are faced with the challenge of working out which bolt-ons to their existing systems will actually work in practice. Having selected those, these then need to be integrated both to that legacy system and to external third-party systems. And that is not easy to achieve in a seamless fashion and at speed. In fact, it is incredibly difficult.
Understandably, those banks and other leading WM organisations that have been systematically upgrading their infrastructure in recent years, consistently investing in the modernisation of the technology stack most certainly have a greater ability to accelerate their digital transformation than any organisations starting late, or dragged back by creaking core system and legacy technology and software.
And that is also why some substantial independent wealth management firms, for example, is rapid growth India, report that a major competitive advantage for them is in not having legacy systems, allowing them to select a core platform that will easily and seamlessly the other FinTech solutions and APIs that they see their business, their teams or their clients will truly value and indeed need.
This is why a very emphatic 87% of our respondents stated in their replies to our short survey that the banks and IAMs/EAMs will increasingly need to or want to acquire a dedicated wealth management platform to upgrade their digital capabilities.
They have learned, either by a positive or a negative experience, that in order to achieve a significant upgrade of their digital platforms, their approach must be rooted in careful planning and strategy, based on what the bank or other organisation truly expects or desires to achieve over the foreseeable years ahead, using technology efficiently and effectively to solve an existing problem and a future set of challenges.
And most importantly, they need to ensure that the technology is then scalable, not only to the existing customer bases but the potential portfolio of customers in the future, and potentially also allowing for the expansion of the offering across other segments of wealth below the typical private banking HNW and UHNW categories, for example to the mass affluent market.
What this dreadful pandemic has done is to bring into far sharper focus the ‘new normal’ that was likely to have arrived in coming years, but which now needs to be achieved far more rapidly, accelerating what has already been taking place at the more prescient WM institutions from the transformational and technological perspective.
Adopting digitised and nimble mindsets
The banks and other WM organisations need to appreciate that such digital transformation does not happen overnight. The reality of the matter is that they often need to create API layers on top of legacy systems, in order to make it possible to get the required data and information moving in an efficient manner from one point to the other.
But it is not just about adopting technology, it is also about the cultures and mindsets of institutions, making sure that the banks and firms and those who work in them, understand what they are doing and that they are able to fully operate in the forthcoming environment, by constantly digitalising for the future. It is vital for the leaders to more clearly see the challenges in full focus for themselves, and more clearly realise the true value to be attained at the end of this process, and to even accept that it will at times be painful to reach that point, and to acknowledge that these types of digital journeys take years, and will need constant revision and adjustments.
To build or buy, that is the question…
A major question facing the banks and other WM institutions in recent years has been the major debate of whether it is better to build or buy in order to achieve the critical digital transformation ahead.
A resounding 70% of our respondents replied that they believe the outsourcing approach will be more effective for enhancing technology and capabilities. For the major global brand-name banks, the answer will more likely than not be to build in-house, but even they are adapting to the new world by constantly seeking new enhancements to their offerings from the world of FinTechs and outsourcing providers.
Will technology capability and upgrades be built in-house or outsourced?
Built in-house 30%
For the typical boutique international private banks, the nascent private banking arms of local and regional banks across Asia, there is a growing trend and school of thought that working in partnership with the FinTechs, with providers of outsourced solutions, with those who offer SaaS will be the most efficient in terms of speed to market and also cost.
A new reality dawns
The reality is today that the buyers of such technologies do not actually need to spend vast sums of money; they can spend at manageable levels to bring on board these new solutions, for example, via partnerships with the FinTechs, via SaaS, a cloud-based data management protocol, and by outsourcing some and perhaps most of their needs, front-end to back-end and in between.
But these banks and other WM organisations most definitely need the kind of understanding to get the best out of the critical part of the engagement from the FinTechs, SaaS and outsourcing solutions providers. They need to clearly identify what their key goals are, what their problems are, where the hurdles might be, they need to then select the right providers to work with, the optimal solutions, and then absorb and integrate the technology and solutions at speed and even enthusiastically.
Accelerating innovation means WM players increase agility and ensure faster time to market for new offerings. That is so important because there are many digitally native FinTechs and BigTech challengers in this market, trying to disrupt. The route to success is therefore increasingly a buy but avoid building approach, which allows speed and very flexible customisation, as well as rapid API-based orchestration.
Clearly, the pandemic has accelerated not only the need for digitisation, but the budgets required and the speed necessary for implementation. And this comes on top of substantial and ever-rising ongoing maintenance and constant integration costs on those existing systems, all at a time of an accelerating rate of technological change.
But to overcome these hurdles, the whole concept of multi-year projects with massive Capex spend is receding to the past, as players take a modular, step-by-step approach, and as the industry accepts more of the reality ahead that IT and selected software solutions will increasingly be as a service and even hardware for data storage and management will be outsourced as a service in the cloud.
Even the mighty should change
The evolution is also encompassing many or most of the larger financial organisations as well, as even some of the truly huge organisations do not have the luxury of time and never-ending budget increases to rebuild their systems and infrastructure from the ground up, so alternative methodologies to effect significant change and upgrades are required.
All in all, this is a remarkably important, fundamental shift of the wealth management industry that has been rolling in for some years, but which is suddenly accelerating under the current pressures imposed by the pandemic.
This also opens up a whole universe of far greater agility, enabling microservices-based SaaS solutions, which have been gradually coming into the Asian wealth management scene, as the more forward-sighted incumbents adapt their strategies to open APIs protocols and rapid access and rollout of innovation, all with minimal disruption and offering significant incremental advantages without major additional cost.
What are the priorities for outsourced solutions?
It is very clear from this mini survey and from the body of work that Hubbis conducts on digital transformation in Asia, that successful digital evolution and upgrade needs to take place across the full spectrum of back, middle and front office solutions and offerings amongst the wealth management incumbents, and indeed new entrants. That is evidently why our respondents report such a relatively even set of priorities for the digital transformation journey.
When banks and other wealth managers are looking to outsource technology services - which area is most important?
Front Office 20%
Back Office 19%
Portfolio Management 8%
End-to-end solutions 24%
RPA/AI solutions 10%
Digital solutions 19%
And successful solutions outsourcing relies on the provider having a full-service solution, a track record and the experience and commitment to overseeing implementation and integration from start to finish. This is why it is especially valuable to choose a partner to work with who has a truly deep understanding of private banking and wealth management, combining IT and banking expertise, and able to leverage its experience across the many facets of the internal and client-facing digital requirements to be able to compete in the world ahead.
And to achieve the goals for the WM clients, the partner and the customer need to be able to assess their needs and the approach based on a holistic understanding of the expectations, the needs, the challenges, the road to implementation and the set of solutions.
What are the qualities that Wealth Managers are looking for from an outsourced provider?
Proven track record with existing Private Banks & Wealth Managers as clients 15%
Integrated information system (Front to back core banking platform) 13%
Modular solutions (e.g.: CRM, Portfolio management, AML compliance) 14%
Business process outsourcing (Back office support) 10%
Customisation of services 12%
Open platform (Collaboration with FinTechs) 8%
AI/Robotics capabilities 7%
Cloud solutions 9%
Digital solutions 12%
This means not only targeting and attaining reduced IT and operational costs – and the pandemic has certainly exacerbated the need to improve productivity - but also bringing on board a wide range of applications and services to help the banks and other firms realise their growth strategies.
Therefore, it comes as little surprise that the replies to the survey highlight a broad range of expectations from the industry when dealing with their digital transformation journeys, and also with the partners who can help them achieve those goals.
Proven experience required
Hence it is not surprising that in order to take such a leap towards outsourcing solutions or business process outsourcing (BPO), the provider’s proven track record with existing private banks and wealth managers is very important. So too is the ability to take a modular approach across different areas, building block by block and rolling out, for example, a digitised AML protocol, a considerably better portfolio management services and information delivery capabilities, as well as potentially significant enhancement of the RM capabilities to boost client relevance, supported throughout the client relationship by what ends up as a far more robust CRM protocol.
But there are multiple digitisation missions, and our respondents identified key missions such as the need for an integrated information system, as well as AI/Robo-advisory capabilities, although these of course, roll into the solutions listed above and are all under the broadest heading and objective of customisation of services. Moreover, flexibility and adaptability must be built into the whole, with cloud-enabled data management and analytics helping to boost the open architecture proposition and the ability to constantly upgrade the platform via APIs and collaboration with FinTechs.
Do you BPO?
Interestingly, although only 10% of respondents indicated they are seeking BPO providers and solutions, more and more of the wealth management industry in Europe are seeking and adopting BPO.
So too in Asia, there is a gradual interest in and acceptance of the need for an alternative to the ever-rising costs, administrative tasks, time and distractions of regulations and operational quick-fixes. Indeed, for some of the smaller banks around the region, most of which have traditionally and culturally liked to keep everything in-house, are realising that this is both a necessary but also a wise choice to survive and prosper in the future, as the major local, regional and global financial institutions get ever more powerful.
Partnering moves ahead in Asia
And for the larger international but perhaps not global brand institutions, there is a growing realisation of the value of working with a digital solutions partner which can serve them across all the jurisdictions in which they operate, especially in a region as operationally, culturally and regulatory diverse as Asia.
Yet the concept is in reality still somewhat in its infancy in Asia. This is partly a symptom of market evolution, but also due to the economic realities of the business. With lower resource costs in Asia, for example, banks still rely more on their own staff for IT and back-office tasks. But the equation moves increasingly in favour of BPO each year as Asia’s economic momentum of the past decade has propelled salary, office and other costs so significantly higher, at least until the pandemic hit.
Aside from BPO solutions lowering the cost of putting the required back-office infrastructure and systems in place on their own, the banks and other players can also see that outsourcing enables them to focus on their preferred areas of specialisation. Having a core system, a full banking solution, suited to many different jurisdictions, and able to be completely integrated and including all functions needed for private banking, from order entry to reporting, and full mobile connectivity is incredibly valuable in today’s complex world.
Speed to market
Speed of enablement is also a crucial factor. Having an outsourced solutions and BPO provider with the experience of many complex projects is therefore absolutely vital. On-time and within budget should not be a vague target, it should be a core mission; and for that to happen, experience truly counts. Moreover, these moves are best achieved with a dedicated integration team that follows a clearly laid out methodology, rather than relying on integration companies or consultants. And then after-integration service is essential to ensure that a response is easily at hand and glitches are quickly resolved.
Developing the Onshore Proposition in Asia
There are few surprises here form our survey, but plenty of reinforcement of views from the experts. The world of intensified regulation and compliance, aligned with the drive to boost domestic tax revenues (including tax amnesties driving repatriation of funds, such as witnessed in Indonesia), has to some considerable extent, stemmed the tide of money rolling offshore from countries in the region, reversing the trend prevalent for the past several decades since the Asian economic miracle began in earnest in the late 1980s.
Do you perceive that private wealth AUM in onshore markets growing faster than AUM in international centres?
And there is also little surprise that Thailand appears the most appealing market vis-à-vis the growth of its domestic WM market. Why? The economy and private wealth have both, at least until 2020, been performing well, it is a relatively easy market to access in English language, as the well-to-do business community are generally at ease in the language, the top echelons of the financial community there are at ease in a more globalised environment, and there is a positive backdrop from the regulators and the government regarding staggered liberalisation of the financial markets and an openness to the new world of digital.
In which onshore markets is the private wealth management proposition developing fastest?
Again, it is unsurprising that Indonesia also ranks highly, as the country boasts a vast and rapidly growing and urbanising population whose wealth is growing apace and where the economy is increasingly domestic consumption-driven. Although notoriously tough to penetrate, there is a long history of international bank and financial institution presence there, dating right back to the Dutch colonial times.
Vietnam is fast becoming ASEAN’s star performer, with an export-driven economy that has benefitted from global offshoring of manufacturing and also from the non-stop rise of China’s cost base as they move more and more production offshore. The rapidly expanding population is also producing ever more HNW and UHNW clients.
Within ASEAN, Malaysia has a relatively small population, a fairly sophisticated financial sector, and for those in need of a greater range of product, ideas and advice, Singapore is a flight or a drive across the border. Meanwhile, the Philippines remains the region’s great potential, both for growth and to disappoint. Outside the ASEAN countries, Taiwan boasts a wealthy population and growing ranks of wealthy private clients, as well as a people that given China’s latent antipathy to its existence, prefer an international type disbursement of their assets and their risk.
For private wealth management for HNW and UHNW clients, what type of firm will be most successful in onshore markets?
Digital platform from start-up 13%
Established local retail bank 17%
Securities firm 4%
Bespoke independent wealth managers 17%
Local entity of foreign private bank 19%
JV between a foreign private bank & established local retail bank 30%
It is notable that almost one-third of the respondents to this survey believe the international/local JVs that have been formed to develop the onshore proposition with a hefty offshore component are most likely to succeed in the HNW and UHNW segments. It would appear that the combination of domestic brand and reach alongside offshore credibility, history and range of product are a winning combination. In reality, time will tell how harmonious these ventures will prove and also whether the profitability for both parties will be sufficient to prevent the go-it-alone approach returning or arriving.
Our survey replies indicate that the local arms of established international private banks are the second most likely party to succeed onshore, followed by specialist IAMs/EAMs and the WM arms of local universal banks, ie those not entering JVs with offshore partners.
Plenty of growth ahead onshore
The reality is that the onshore WM markets of Asia are set in probability for a decade or two of significant growth, so establishing a major bridgehead into this world of onshore wealth management in Asia is the right course of action, while paying attention also to key developments in the offshore markets of Singapore and Hong Kong, where perhaps, in reality, there is more likely to be a consolidation amongst the international names as well as amongst the independent wealth community for the foreseeable future.
There are many hurdles to overcome when offshore players target the onshore markets of Asia. Our survey replies, highlighted issues such as regulations and licenses, the need to build reputation and brand awareness, language and social and business cultural nuances, a deep understanding of the interaction of the older Asian and younger Asian generations, the general preference for local talent to stay with local names unless the foreign operator is well-known globally, the difficulty in accessing and converting local clients, again unless the offshore brand is very well established, and the difficulty in selecting the right technology or other partners with which to work, other than the local arms of the established international consulting, IT or FinTech names.
And in terms of what is required for the onshore private wealth management proposition to develop further in Asia, we received some valuable comments from respondents.
Greater knowledge of the international financial markets and products was highlighted, vital of course in fulfilling the needs and expectations of a local client base that want more access to international assets without necessarily going offshore themselves.
Better quality and more broad-based research and insights on macro trends, geopolitics, and on international markets and individual funds were all pooled as a vital development, as well as more education of client-facing bankers around regulation, compliance, as well as products and markets. Moreover, continuing and ongoing education of the clients themselves is seen as a crucial effort to be conducted by the industry to spread the word.
A reply indicated that local onshore clients tend to be overbanked, with most new wealth managers setting up new operations looking at selling exotic products to gain an entry point, but sometimes there is not the level of necessary sophistication locally to appreciate whether those products are either appropriate for them or relevant.
This is partly why the replies had indicated that the winners are logically likely to be the partnership firms or JVs between strong local brands and international names with strong platforms. A local presence and reach to clients combined with the breadth of offshore advisory and open architecture offered onshore and all allied to a digital and mobile offering that promotes relevance and customisation is a powerful combination.
The replies we received also indicated that it is important to work harder to convey to onshore clients the services, culture and value proposition of the private banking or IAM/EAM models compared to the typical offering locally through the universal banks, the wide array of local brokerages and securities firms that typify the financial landscape in the Asian, especially the ASEAN financial markets, where the type of consolidation seen in Europe and the US is still a long way off.
The broadening of the proposition to include more relevant, empathetic and profession wealth planning and structuring is advised, in order to boost client appreciation of the longer-term nature of the private banking model, and of course, succession and legacy planning to help the older generations focus their attention and to appeal to more of the second and younger generations to the private wealth concept.
Many of the respondents also, again understandably and logically, pointed to the need to develop sophisticated digital solutions that are to the end client easy to access, understand and use, offering a customised and personalised experience and access to remote onboarding, then execution, advisory, research, ideas, and portfolio updates on a real-time basis. To achieve these goals, the digital solutions must be aligned to local regulations and business practices, they cannot simply be imported from the international arena without tweaking them to the needs and expectations of the local onshore market.
The final word
There is little or no time for prevarication anymore, as the speed at which digital evolution is required is such that those who dither and delay will find themselves out-competed by their more far-sighted peers and also by the new entrants that are crowding into each nook and cranny of the growing wealth management markets of Asia. But for those incumbents, whether larger domestic banks expanding their onshore private banking proposition or the independents building their client base from the core up, they can advance positively into the future by adopting the right strategy for digital transformation. That will surely optimally include the modular, buy-not-build approach, as well embracing outsourced partnerships for solutions as well potentially as BPO, and then layering on top of this the SaaS and microservices that will see them deftly address evolving client needs and expectations as they emerge, or even in anticipation of such trends evolving, by keeping a close eye on developments in more mature markets in Europe or the US.
The immense opportunities await, especially as the world hopefully emerges from the grip of this pandemic and resumes its growth trajectory. But also significant failures and dismay await those who fail to see these changes and embrace the new realities ahead, and this would be especially disappointing for those established incumbents today who have the resources, the talent and the clients that should, if they evolve correctly, see them continue on a bright path ahead.