The wealth management industry in Asia still needs to find more effective and enticing ways to increase the take-up of discretionary portfolio management (DPM), with a ‘stickier’ engagement with clients a key goal.
There seem to be mixed views on the extent of the progress that has been made in Asia in increasing the amount of client assets in discretionary solutions.
While some of the more experienced bankers have a ‘sticky’ engagement with clients, most continue to focus on selling the next product, so are yet to gain much traction.
In some cases, there is a growing ratio of clients that have adapted to this offering – with a combination of a good-performing product and a challenging market for tradition advisory execution as tailwinds for more clients to embrace DPM.
In line with this, growing the share of DPM is still very much a focus for the majority of players. And some private banks have done better than others and are known for their focus on DPM. The key is to persevere but by adapting the offering and educating bankers and clients accordingly.
These were among the take-aways from speakers at the annual Hubbis investment-focused event in Hong Kong.
Making DPM work
For banks to really make discretionary offerings work and increase their share of client assets in DPM, speakers believe that more coordination is needed between relationship managers (RMs), investment counsellors and product specialists to align and position this type of offering to a more longer-term asset allocation approach.
This stems from having a good DPM core product – understanding that is at the centre of how it should be positioned in a portfolio.
This should be high on the priority list for the banks, given that clients in Asia continue to mature and grow in sophistication – bringing with it, say speakers, a better understanding of the benefits of asset allocation.
Further supporting this is the fact that HNW clients seek multiple relationships. They neither want nor trust the single relationship that the private banks want. Instead, the objective of clients is to make comparisons and accept the consensus advice.
What this means, believe some speakers, is that clients are ‘engaged’ with their advisers, and will therefore be more committed to whatever they choose to act on.
Also key for banks to get right, is to continuously adapt the content in terms of how they position, sell and update their clients’ mandates.
This is part of the evolution of technology and digitisation within the private banking industry.
Making more use of digital tools can also help move the needle in favour of DPM, add practitioners.
More specifically, digital can be used to design, build, monitor and track, and rebalance portfolios. For example, it will be useful for clients to see their portfolios on their mobile phone. Or, more generally, institutions can get more information to design a customised portfolio to clients’ needs, and to have more meaningful conversations.
At the same time, to be convincing, a DPM offering should not be limited to talking about good past performance. Instead, say speakers, it has to lie in a concept fully consistent with the discipline and the emotion-free process on which DPM is supposed to differentiate away from advisory or trading activity.
But while discretionary portfolios, should be dynamic, active and managed to take account of the myriad of changes every day in the world of investment, this is not nearly as true a statement as would be desirable.
The reality is that many discretionary portfolios slavishly follow agreed benchmarks and rarely take risks beyond those agreed at the start. As a result, the expectations of achieving spectacular returns, these days, have all but gone.
In-house or outsourced?
Although some banks might work with third-party partners to deliver some or all of their DPM capabilities, other institutions do it on their own.
Indeed, respondents in the audience to a poll were divided between what is the right approach.
Yet a big challenge to this is the fact that consensus within the industry is that bankers, not clients, need the most education to boost DPM in Asia.
Overall, there is significant opportunity for this offering to grow in terms of penetrating the traditional advisory brokerage business.
As Asia’s wealth continues to grow, so also will there be more demand for DPM, given that many wealthy individuals like to have their portfolios tailored to their individual needs.
Ultimately, speakers say the potential is always going to be based on the achievement of successful results for clients.
But it also works if banks and their advisers take a whole portfolio approach, rather than a product-sales one.
To date, many clients observe that a lot of banks tend to push their own products, even if there is a good argument to be made for creating a ‘core’ portfolio for the long term. Often times, clients have also observed that the product comes first, then it is retrofitted into a strategy.
When bankers take a whole portfolio approach to investments, however, they are more successful with clients.