Indonesia’s huge population is growing fast, and so too is the country’s private wealth. Money has flowed back onshore following the government’s tax amnesty, and the regulators are keen to keep that onshore and boost the onshore proposition. A panel of experts met at the Hubbis Indonesia Wealth Management Forum to give their views on the evolution of the industry and what needs to be done for it to develop more robustly. Greater regulatory creativity is needed, with the regulators working more closely with the private sector. There is a huge conservatism amongst those with money, with deposits the preferred option for more than 90% of the investible money, so market education surrounding investment products must expand rapidly. The same applies to the insurance market, where there are enormous protection gaps throughout the entire population. There is a dramatic shortage of talent to cope with the wealth management industry’s growth, but digital can help incumbent banks and other players boost their proposition.
The Key Takeaways
Insurance offers huge growth potential
While some markets in the region, Thailand for example, are seeing a slower take-up of life insurance and associated solutions, Indonesia’s growth path is assured for the foreseeable future, so life and other insurers are keenly encouraging the regulators to open up the market, while at the same time boosting their product and distribution capabilities.
Digital enhancement of the agency forces
Digital technologies are being employed to help insurers boost their distribution capabilities, as well as the skills of their agents and the clients' experiences.
Self-regulation vital
The insurance and general wealth management markets should also self-regulate more effectively, rather than simply relying on new rules and guidance from the authorities. Better offerings, better transparency result in more customers and greater satisfaction, then, in turn, more business.
Education and communication
The industry and regulators must do more to boost client education, and to do so, communication is essential. It must be a two-way, collaborative process for private banking in particular.
Elevating the offerings
Looking at the reality of fee compression globally, an expert explained that to combat the commoditisation of fees, a greater emphasis on expert advice and high-end portfolio management will help boost fees. High levels of service, and a better client interface and regular dialogues all help.
Be client-centric rather than product or producer centric
There is a major trend towards boosting the product offerings, but banks and other wealth management firms must remember to be client-centric and to boost the expertise and quality of the relationship managers.
Understanding the client
It is vital to promote higher education amongst the clients, but the industry must also focus on obtaining a deeper sense of the client needs and then tailoring the financial product to help them achieve their goals.
The Discussion
“There is great opportunity here,” began an insurance market expert. “From an overall industry point of view, Thailand today, for example, has higher product penetration of insurance and a larger number of local and foreign players for a very long time, so it is somewhat more mature. But Thailand’s new business premium has either been static or weaker, while the Indonesia opportunity is huge, and the unit-linked market here is already a lot more successful than in markets like Thailand. There are regulatory challenges here, but we believe those hurdles will be overcome, for example in Thailand they have liberalised what they call the new capital regime, so accredited investors with a certain AUM size can easily invest overseas, and that is a trigger for expansion. My message is to open the market up, if the regulator tries to put a lid on it, the money will flow through Singapore and Hong Kong. You cannot artificially control these things.”
Another insurance expert highlighted the growth of protection insurance, for example, health insurance and Islamic insurance, both rapidly growing segments for his firm. “Investment-linked remains our lead product,” he reported, “and we are also linking our conventional way of offering insurance to the increasing opportunities with digital players. There are generally big opportunities as financial awareness rises, as greater inclusion arrives, and newer ways to access insurance are vital.”
He pointed to the past three or so years as having created a huge digital transformation, noting that his firm had invested substantially to offer customers and agents the latest tools to fulfil their sales. “We have now have most of our policies delivered electronically, so it is already a great advantage in a country as huge and diverse as Indonesia. But more work is needed to ensure our numerous agents give the right advice and that we comply properly, for example we need to make sure that we as an industry are a little bit more harmonised in how to portray returns, so it is up to us to make sure we do the right thing.”
Looking at the broader picture, an expert observed that Indonesians are still very deposit centric. “But,” he opined, “I think longer-term savings and protections are the products we have to sell, and that requires more education, and offer more meaningful solutions to our clients, especially in our life insurance segment,” he said.
A guest highlighted the ongoing and regular discussions between the insurance industry and the regulators as a positive step to help develop professionalism and the right standard and products flow. However, he also called for greater self-regulation. He said the industry must be in control of itself and is already lagging some years behind. The pitfalls relate to the customer, partly there is a shortfall in knowledge of the investment world. Secondly, there needs to be more emphasis on monitoring the investments and the overall market conditions, while additionally digital needs to be embraced as a means of adjusting portfolios actively.”
Another panellist turned the discussion to the multiple challenges facing the ageing of the HNWIs and the concerns over succession and transmission of wealth, a problem endemic to the whole of emerging Asia as well of course to Indonesia. He pointed to the need to engage these key decision-makers in discussions that they might be reluctant about, as well as the issue that many of the second and third generations do not want to manage their family businesses or money, while those who do want to, often are less than capable of handling the challenges. “We try to solve this by bringing in our family office services or high-end private banking services to these people, these families, looking at everything from trusts, insurance solutions, the setting up of wills, of foundations, even immigration solutions to figure out the solutions for a particular family.”
A fellow attendee added that client education is also about client relationships, working with the client to ensure that the dialogue is open and there is a positive two-way flow of ideas and understanding. “For me,” he said, “it is a collaborative process in high-end private banking.”
Looking at fee compression globally, an expert explained that to combat the commoditisation of fees, expert advice and high-end portfolio management allows for reasonable fee levels to be achieved. “It is all about high levels of service,” he said, “and elevated touchpoints with the client, offering the best advice and solutions and charging appropriately for that. Where we, for example, are trying to differentiate ourselves from the private banks is in the non-commoditised areas, which will include some of the family office services, including alternative investments where, for example, we believe that we can add value by clubbing together other UHNWI clients to access good deals.”
Another expert explained that in terms of asset management, their business is growing apace in the Asia region.” Simply,” he related, “we see great potential in a lot of Southeast and South Asian countries, where private wealth is rising so fast, and with our brand, we have a strongly growing client base in Indonesia, where we consider the market is developing very positively.”
A leading local wealth manager explained that the market is trending towards higher-end advisory, following the lead of Singapore and other more advanced markets. “Indonesia has lacked a true focus on expert advisory,” they observed. “so we see great potential for bridging this gap, bringing in high-level advisory and portfolio management, offering a global desk and perspective, being kind of the think tank for our clients.”
“We are more client-centric rather than product or producer centric,” this expert added. “And we are offering high-end clients a more global experience in many ways. To help the market here develop, we must improve standards, we must be more client-focused, we must have greater expertise, we must find people who believe in the relationship so the characteristics of the RMs must improve, that is very important. We must also emphasise and expand our external relationships with the global wealth management community for the benefit of our clients.”
The same expert observed that the regulator in Indonesia has been more proactive in encouraging wealth management and financial advisory, for example, helping boost the number and expertise of external asset managers.
The final word went to a panellist who reiterated the need for higher education and standards. “The financial needs analysis is essential,” he said, “whether the agents, the bancassurance advisors, the wealth managers are doing that. The financial literacy of the client needs to improve, and advisers need to obtain a deeper sense of his needs and then how a financial product can help him achieve his goals. I believe that there is a huge effort every player in the industry has to make to get this right.”
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