What are the priorities for wealth managers in 2023?

Video transcript

1. This year was reasonably tough. What is your view on the opportunities and challenges for wealth management firms next year?

As you say, 2022 has been a tough year, and it looks like 2023 is also going to be a pretty difficult one. When we step back and look at what's on the minds of a lot of the wealth managers, particularly as they've been doing their budget planning and looking forward into 2023. In many ways we are lucky, we're sitting in AsiaPac. It's still one of the key growth markets for everybody. And from a top of the house view, wealth is still an industry where firms want to invest. Clearly its balance sheet light and it produces reoccurring revenue streams. However, I think we need to be mindful of the macroeconomic environment as well as the geopolitical tensions. How is that playing out? Well, clearly many of our conversations with wealth managers today have elements of cost. We know budgets are under pressure and we expect that to continue in the new year. So, there's a lot of conversations around cost. What does that mean for my operating model? How do I think about the whole cost to serve, particularly for those managers that are working across the whole wealth continuum? And equally, how can I transfer fixed cost and move it into a variable cost? So, we see conversations about potentially outsourcing certain services, and I think this will continue into New Year. So cost is clearly one element, but given the changes in the market, the other piece that is coming out a lot is the proposition. Over the last few years, we've seen a lot of focus in terms of building out private markets capability, building out ESG capability. Clearly in the meantime, rates have gone up considerably. I can now get four, 5% and a risk-free basis depending on the markets. This has implications in terms of what products I'm going to provide to my clients, and the relative interest in some of those other products that we've talked about before. So we do need to think through that proposition, and particularly in light of a rising and higher interest rate environment. And I think finally the other point is always front of mind at this time of year is a strategy. We know most clients are multi banked. We know there's always that pressure on increasing share of wallet. So how do you stand out? How do you differentiate? Where are you going to play? A few years ago, before COVID there was a big movement to move onshore. And suddenly some of those that did move onshore and had presence during COVID, and didn't have to rely on fly-in and fly-out did very well because of it. So as we move into 2023, I do think location strategy will be back on agenda for a number of firms. They will also be considering where they are investing. We have seen investment into China that was clearly a focus. But in parallel now we are starting to see people talking about building their presence up in India. Clearly are two big markets in the region. And of course, onshore and a number of other Asian, and particularly ASEAN markets. Indonesia, Thailand are countries that remain on scope. So, I think it's those three elements that really stand out. Yes, cost is there. How do we adapt our operating model? How do we work with that? What does our proposition look like, and where do we play strategically? What is our role in the ecosystem? What's our role in, ASEAN, in Asia and beyond? And what can we really bring to differentiate with our customers?

2. What are some of the trends we will see in the next few years?

When we talk to wealth managers, as we said, it looks like it's going to be a relatively tough year. But fundamentally, the customer is at the heart of everybody's business. So, we will continue to see investment in the customer experience and the omnichannel interaction with customers. Clearly, through COVID we have seen investment and many managers now have strong omnichannel solutions, including WhatsApp, WeChat. Not just for secure communication, but also for two-way sending of documents and the like to improve the experience and to make it simpler, when you may need to just provide an updated proof of address or the like. Again, we want to remove the friction from the relationships where possible. So digital towers will continue to see investment. And again, because we want to improve RM productivity, we will expect to see additional services being empowered through the digital towers to end customers. Whether that's brokerage for equity and fixed income, whether it's first generational structure products, the ability to actually transact through the digital channels. The holy grail remains insightful omnichannel communication, what do I mean by that? Well, clearly it's thinking through all the channels that the customer wants and leveraging those that they prefer to use, but actually thinking about their portfolio, the market moves, the CIO view. How do we pull that together to come back to insightful viewpoints for the client, so that they can make informed decisions, and hopefully more decisions, to improve the returns on their portfolio. So we do think the digital channels and CX element will continue to maintain their investment. We will also in parallel see that product proposition evolve. As we mentioned, interest rates are going to be higher and possibly high for longer, and that's going to impact the risk return profile and how portfolios are being put together. I think the other area that will continue to be a focus next year is the advisory space. Over the last five years, we've seen an increase push into DPM. And some of that money has flowed out given the market moves, but increasingly we've got to produce reoccurring revenue streams. It's obviously in the interest of the private banks, it's actually in the interest of the clients. But in most cases, because we don't have that churn. So again, I think the key here is we need to be able to differentiate our advisory propositions to customise in the APM and the upper end of the market, but also in DPM to explain the risk bets that clients are taking, to explain on a monthly or quarterly basis why they made or lost money. And to be able to engage more with customers, particularly as we think about growing interest in areas such as ESG.

3. What should private banks be doing to help their clients in more challenging markets?

In markets which are fast moving, volatile and unpredictable and clearly implicated by both macroeconomic and geopolitical side tensions, it's important to communicate with your clients. As we touched on earlier, the omnichannel approach is important. Understand their preferences, what channels they want to be communicated with and how frequently. But the key here is to be relevant. Given markets are moving, it is important to tie communication back to the house or CIO view. What does it mean? Where should they be overweight, underweight? As markets move, what's the impact on their portfolio? Increasingly we see wealth managers starting to provide stress testing tools. Whether they are for the RM or directly for the customer themselves to run out, to play through different scenarios and see what it means for their portfolios. These are difficult markets, but of course, as always, there are opportunities. So it's about getting information to your clients in a timely, actionable and digestible manner. So, we think, and we expect to see more interest in this space. We know a number of wealth managers are building out this capability, but it's really about tying this all together. It's not necessarily purely next best action, but it's about insightful, relevant communication which then provides the clients a reason to speak further with their RM about the opportunities, about changing the portfolio. And most importantly, this is a customer, a client-centric world. It is a highly tailored, this is their wealth. It is clearly very, very important to them. So we have that fiduciary duty to ensure that we are doing right by our customers and hopefully empowering them to make the right decisions by putting that information in their hands in a timely and relevant manner.