There is a new generation of rich Asian individuals who are markedly different from the highly affluent who live in other regions of the world. It means that private banks have to adjust their models if they want to attract and retain them as clients.
“Their expectations and outlook are different, hence they need different things from us,” said Shayne Nelson, CEO of Standard Chartered’s private bank and global head of high-value client coverage.
The number of rich people in Asia is growing rapidly, supported by the region’s high savings rate but also its greater consumption levels and by its young populations. There are now about 3.3 million high-net-worth individuals (HNWIs) in Asia, according to Capgemini and Merrill Lynch.
Standard Chartered has $50 billion of private banking assets under management, with 70% of those assets originating in Asia. And they are growing.
The private bank recorded revenue growth of 21% year-on-year to more than $500 million in 2011 and attracted 4,500 new client accounts, according to a statement on March 2. Significantly, assets under management were up 9% in Asia compared with 2% globally.
The main characteristic that distinguishes Asia’s rich is demographics. The region’s HNWIs — people with $1 million or more in investable assets — are younger than their Western counterparts. According to Capgemini and Merrill Lynch, 41% of Asia-Pacific’s HNWIs are 45 or under compared with a global average of 17%.
This means they are still creating and building their riches, rather than preserving them.
“It is often the case that [Asia’s rich] see growth as important and push for higher returns from investments,” Nelson told FinanceAsia. “This is particularly relevant when growth in many Asian economies makes business investment very attractive.”
Another important difference is that more Asian HNWIs (63% in the case of Standard Chartered’s private Banking clients) are first- or second-generation business owners.
“They have earned their money the hard way, and are more reluctant to let others manage it, meaning that the private banking model applied for decades in the West may not work for them,” he said.
In fact, many of them would rather take a more hands-on approach, speaking to their bankers more often and turning over their portfolios faster.
Nelson also said that the Asian wealthy tend to be more ambitious, and expect higher returns. These are characteristics they share with the region’s early-stage entrepreneurs. The 2012 Futurewealth survey, conducted by Standard Chartered with partners, indicated that Asian entrepreneurs set themselves much higher wealth objectives and expect to get there sooner than their counterparts in the West.
“Believing that what has worked for wealthy clients in Europe or the US in the past will work in Asia, too, would be a big mistake,” said Nelson.
The key lesson for private banks is that they must “get up-close and personal with Asian HNWIs, growing with them and rethinking the private banking model to meet their needs on every step of their journey”.
In practice, this means recognising that they need to add value to their clients’ personal portfolios beyond the risk-return profiles of the businesses they often run. Otherwise, what is the point? On the other hand, they might also need financing to expand those enterprises.
There is also a balance to be achieved between accommodating a client’s willingness to take higher risks with cautioning them about the importance of diversification and a balance between different asset classes. It may also mean encouraging them to broaden their horizons to investment opportunities outside Asia and away from a traditional focus on tangible assets such as property.
“As I see it, there is a real opportunity now for private banks to engage and evolve together with their clients in Asia, developing a new, differentiated business model that works for clients here, helping them to grow and protect their wealth,” said Nelson.
Investing in new technology is one step. Younger clients, for example, may prefer to interact with their bankers on social networks or trade through their smartphones; whereas a monthly statement can seem fusty and anachronistic.
Clearly, private banks have to adapt quickly. As Nelson points out, the industry in general is experiencing higher costs, lower revenues and a falling return on assets, as it battles with strong competition and regulatory changes.
