Wealth Management in the Philippines – the State of the Nation
Nov 29, 2022
A select panel of local Manila-based and also regional/international wealth management and digital solutions experts assembled for the virtual Hubbis Digital Dialogue of November 17 to consider how and where the Philippines’ wealth management market is developing, set against the backdrop of other peer group ASEAN countries. They analysed where there needs to be more progress and what building blocks need to be put into place in order to facilitate such progress, such as regulatory liberalisation, greater investment by the local and international players, more trendsetting by the new JV partnerships between onshore and offshore partners, enhanced digitisation, and so forth.
These are some of the questions the panel of experts addressed:
- What is the current state of the wealth management market in terms of the client base and the delivery of advice and investment solutions?
- How will the Philippines further develop its wealth management market?
- Is regulation evolving positively or does it still inhibit the wealth market’s potential? What can be done to encourage greater liberalisation?
- What are local private clients investing in these days, why and what is the outlook?
- Is legacy & succession planning high on the agenda, why or why not, and who is leading the way in terms of advisory expertise?
- What is the state of digital transformation, and where are the banks and other players focusing their main investment and effort?
- How do wealth managers enhance client centricity and personalisation?
- Are there wealth management talent wars in the Philippines?
- The crystal ball - what next for the Philippines?
- Lombard Odier
- Marcy Kohchet-Chua, Chief Client Relationship Officer, ATRAM
- Stella Cabalatungan, Executive Vice President, Head of Wealth Management Group, BDO Private Bank
- Rafael Ayuste, Senior Vice President / Group Head Trust & Investments Group, BDO Unibank
- Vanessa Raymundo, Executive Director, Strategic Alliances, Lombard Odier
- Dr. Robert Ramos, First Senior Vice President, Trust Officer, and Group Head of the RCBC Trust and Investments Group, RCBC
- Anurag Pandey, Head of Platform and Partnerships (APAC), additiv
Setting the Scene
Understanding the key drivers and current competitive environment is vital for the positioning of the local and international players as they jostle for prominence in what is certainly a market of huge potential, as the population keeps growing and as the economy and private wealth creation keep expanding, even amidst global uncertainties. Even amidst the global geopolitical, financial, markets and fiscal havoc that has exploded this year, the Philippine Statistics Authority (PSA) reported that GDP expanded at a cracking 7.4% pace in Q2 of 2022, the fifth consecutive quarterly increase after the first quarter of 2021.
The PSA also highlighted how GDP had expanded across all the major economic sectors, and the outlook remains very positive, especially with demand rising - household consumption grew by 8.6% in Q2. And the gross national income surged by 9.3%. Inflation and rates have both been rising, but according to most analysts within reasonable bounds, and not to levels that could stifle growth. Moreover, the demographics are very encouraging - the Philippines has both a huge and a very young and fast-expanding population, the third youngest in Asia.
Although the Philippines has always been one of those economies and markets that has perhaps promised more than it has delivered, there is therefore mounting optimism that the private sector, the regulators and the government are more aligned than ever in wanting to promote the financial sector and markets and the wealth management sector as the country’s population grows so rapidly, as the mass affluent are growing apace, as ‘financialisation’ of wealth expands, and as the government seeks to bring more of the massive offshore wealth of the rich and super-wealthy back onshore.
Expert Opinion - Stella Cabalatungan, Executive Vice President, Head of Wealth Management Group, BDO Private Bank: “Wealth management services in the Philippines should extend beyond product offerings to compete with offshore private banks. The effectively deliver wealth management service we must be equipped to deliver sound advice by address specific long-term objectives, understand the clients' profile, to optimise yields and minimise costs, through legacy and succession planning. This means ensuring having a team of wealth managers who are well-qualified to deliver the services.”
The result is a gradually more diversified range of products and solutions onshore and a broader range of private banks and independent wealth firms, some of the alliances between international names and powerful local financial institutions with their reach across the country’s vast lands and many thousands of islands.
Moreover, there is rising interest amongst the wealthy in private and alternative assets, in more robust and comprehensive estate and legacy planning, in globalising their investment portfolios and in generally enhancing both the risk management and also allocation strategies they adopt.
And of course, at the same time, digitisation across wealth management is ongoing and improving rapidly, which is especially important in a country as geographically spread out as the Philippines (there are more than 7600 islands), and where wealth is increasingly spread across the length and breadth of the country.
The Hubbis Post-Event Survey
How would you characterise your private clients’ appetite for mainstream financial investments currently?
Still incredibly confident 10%
Reasonably positive 27%
No noticeable change 18%
Steering away from new investments for this time 45%
Which regions are your clients are most interested in currently for their investments?
Asia Pacific 45%
Rest of the World 15%
What percentage of their investment portfolios are your HNW and UHNW clients allocating domestically?
Less than 30% 27%
Over 75% 9%
Looking ahead over the next 2-3 years, what percentage of your HNW and UHNW private clients’ investment portfolios will be invested in offshore/international financial assets?
Less than 15% 18%
More than 50% 18%
What percentage of their investment portfolios are your mass affluent clients allocating internationally?
Less than 15% 18%
More than 50% 18%
Looking ahead over the next 2-3 years, what percentage of your mass affluent clients’ investment portfolios will be invested in offshore/international financial assets?
Less than 15% 9%
More than 50% 27%
How would you characterise interest/demand for alternative/private assets amongst the HNW/UHNW investors?
Growing rapidly 27%
Evaluating the waters carefully 64%
Not great interest 9%
Do you think that local HNW and UHNW private clients are more interested now and in the foreseeable future in active or passive investment funds?
Combination of both 44%
How interested do you think local HNW+ private clients are today in DPM?
Rising interest 45%
No change 45%
Not very keen 10%
In general, how sophisticated, and organised are local HNW and UHNW clients in their wealth and succession planning?
Incredibly advanced 9%
Improving/becoming more focused 64%
No visible change 18%
Still only lacklustre interest 9%
As to regulation and liberalisation, how would you characterise the current environment?
Regulation still needs to improve dramatically 37%
Regulation has improved but key advances still needed 45%
Regulation is far behind the region and needs a major overhaul 18%
Selected Insights & Observations
Tougher global market conditions make for more handholding of the client base
A banker reported how the tougher global conditions demand more hands-on advice and support for clients. There is greater connectivity in person with clients, even though this bank and others have significantly improved and digitised their platforms, initiatives that were dramatically accelerated during the pandemic.
Another banker observed that many clients are international in outlook and potentially even family members. They explained this means that they as a bank locally need to work closely with high quality operators offshore, to meet demand and boost their proposition.
“It is important to also keep the eye focused on the longer-term, past the volatility and the near-term concerns,” they added. “Our priorities are high-quality partners, top talent, training, investment in our research capabilities and investment strategies, and some international expansion, such as the branch in Singapore.” And they added that they work closely with the next generations of clients to help educate them and build mutual confidence, with regular events to open and extend the dialogue.
Scaling up is vital and to do so, digital transformation is a must
An asset management expert highlighted the vital importance of scaling up through digital transformation to provide a top-flight investment offering. “My perspective is that putting the client at the centre of the equation has become even more pronounced, and it is important to put together solutions from all angles with different players in the industry, with players outside of the Philippines, with global asset managers, and so forth,” this expert explained.
“The idea of scaling, the idea of having full transparency, of having information 24/7 available to the clients is something that has become a necessity, and we have worked closely with additiv in truly understanding the market that we are trying to serve and forge a more collaborative design into the way that our services can be now expressed to the clients,” they added. “We have done a soft launch of the new system and we look ahead to full blown usage of it for our clients; scaling up is a very important pillar for our business.”
The additiv system to which she referred is based on the firm’s wealth-as-a-service model to embed and deliver wealth across any channel, opening up a host of opportunities across the various segments of private clients.
The quest for transparency
Elaborating on transparency, an expert explained that having 24/7 access to information about client portfolios is vital, and a dialogue with the clients. “We value clients and an open dialogue, but at the end of the day, what they want to see is where exactly they are, and that can no longer be on periodic basis, they want 24/7 information,” she reported. “That in turn connects to the advice and the kinds of decisions that are being made by the portfolio managers.”
Scalability, she explained, is vital. Citing a report, she said that clients with investible funds of USD250000 or more will grow three-fold by 2030 in the ASEAN region, so they as a bank need to be ready for this explosion of mass affluent demand.
She added that collaboration with partners in the market, both at home and abroad, will continue to help build out scalability, bring more products and ideas to the clients and enhance their overall proposition.
Identifying the key trends and positioning for the future
Another banker highlighted four key trends taking place across Asia and driving what she described as unparalleled change. One of the key trends of which is ‘onshorisation’, which has led them as an international private bank to open JVs and partnerships across the region. These strategic alliances in Thailand, Indonesia, Taiwan, Japan, and the Philippines are helping the bank position for a future in which the offshore model is less prominent for all categories of clients.
She explained that from a value proposition and from a product perspective, the clients have a truly global proposition through these alliances, and there is a mutual flow of dialogue and expertise, and the mutual trust of client sharing opens the doors both ways, to a more global offering for the clients and to an intimate connectivity with those local clients for the international bank. “This runs the gamut across the investment side, the people side, and then the value proposition, we add to each other’s proposition as our partners are always very strong domestically and in their local relationships, and we bring our global product and advisory expertise.”
She added that they also have their eyes firmly on the younger generations, working to engage them with events on investments, wealth and estate planning, communication with older generations, and so forth.
“In terms of succession planning, how do you get your ideas across in terms of how you can invest for the long term, how you can be a steward of your family?” she pondered. “Our guests are highly engaged in these subjects, at these events because they know, they know that they are stewards of their family businesses, and they need to be better educated and more aware of the issues, the challenges and some of the solutions.”
She said this is where the role of the wealth manager, private banks, can expand to as they strive to continuously highlight the benefit of addressing these subjects, and handhold the clients. “And as the younger generations represent the future, we want to be with them on that journey, participating for older and younger clients and future clients in this great intergenerational wealth transfer across the region,” she explained.
This same banker added that they also collaborate with partners on building RM and advisor capabilities and expertise, including sending bankers from the region to Switzerland each year to boost their knowledge and skills. This is all working well, she reported, and their bank even has an alliance in Mexico now. She said the benefits to both parties are there from day one and increase as the relationships and trust build.
Growth aplenty to capture, and across all categories of wealth
A banker explained that their wealth management operation has actually grown substantially in the past five years, growing from 850 billion pesos to 1.2 trillion in that span. “We continue to be the largest player in terms of assets under management, and the only operator overseeing more than one trillion of assets,” he reported. “We are still seeing more accounts being opened, more clients participating, particularly in this space where interest rates are so high, with the best asset class actually money market investments.”
Another banker agreed, noting that the ability to understand and communicate across the different generations is core to their private banking proposition. “You have to have that empathy and flexibility in handling different types of people or different types of profile within one family,” she explained. “You must have the patience and the skills to explain as simply but as accurately as possible, so that everyone understands the advice.”
Digitisation has much further to go to achieve genuine personalisation in wealth management
Another banker explained that although digital transformation had moved ahead markedly in recent years, the impact on the banking sector and wealth industry was less than for other industries. He explained that the true personalisation of the wealth management offering still lags other markets, as there is not yet the ecosystem of digital exchange of data and preferences that will allow for the truly relevant, goals-based, individually tailored offering.
“What we see now is still clients in the digital space delivering information in a very generic manner, but it should be an intimate relationship built on providing for the needs of the client, even before they need it, or even before they know that they need it,” he explained.
Another guest agreed, adding that the wealth industry needs to be that much more ‘intimate’ with client to understand who they are and their needs, and then appropriately advise them so they are able to meet these life and lifestyle goals.
Talent wars and the hunt for the multi-faceted RMs of the future
A banker explained that the market is changing, clients are changing, with a new generation of clients coming in and a rapidly expanding mass affluent market. “They do not have such experience as their parents, perhaps, and they have a different skill set, so you need the right RMs who can relate to them,” he reported. “They have information at their disposal, but we need to be better informed than the clients, we have to be able to understand specifically what the products are, we have to understand their life goals and their idiosyncrasies, and then relate the products and services to them with relevance.”
He said RMs have to be able to scan products quickly, understand how these relate to the clients and then apply that to what would be the best fit for them. “That is not an easy, it is a tough skill to develop,” he said. “ And then the even harder skill is to explain the product in the simplest and most basic terms and for the client to get that quickly and invest with you or decide not to invest with you. We have to make sure our RMs understand financial markets, and that they understand client psychology, how to profile a particular client, and that they have the broad skills set to manage clients successfully.”
The ‘financialisation’ of savings
A speaker highlighted the backdrop for the evolution of the retail and mass affluent wealth segments, pointing to the democratisation and financialisation of wealth. “Years back, banks offered savings accounts from zero or minimal balances, just to get people focused on savings and then build with them over the years as their incomes and needs expanded,” he reported. “In the same manner, when you talk about wealth management, you need to be able to start from that generation, before they earn serious money or inherit wealth. Your future is being able to capture a substantial portion of the wealth of that future private client.”
Digitisation and democratisation of wealth
In light of the demographics and trends across the region, an expert highlighted the expansion of their digital solutions for the retail and mass affluent segments, where he said clients have immense untapped potential, and where digital solutions and connectivity are particularly crucial. He said this was a market of up to USD1 trillion in potential AUM across the region, excluding the three vast markets of China, India, and Japan.
The ASEAN markets will benefit from their wealth-as-a-service model or a platform model, and the firm is actively expanding in this segment, and most certainly so in the Philippines, including working to enhance digital connectivity between different providers. “From a market perspective, from a consistency of message perspective, we do see quite consistent themes across different markets in Southeast Asia and Asia-Pacific in general
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