Asia’s Trust Fund Babies
Watch out for a growing number of trust fund babies in Asia
The opportunities for private banks in Asia Pacific are big, and still growing. The region is home to more than a quarter of the world’s high net worth individuals (HNWIs) - the industry jargon for people with $1m of investable assets. Their wealth is growing by 8.5% a year. By 2011, their combined riches will total $12,700bn.
The difference between North America and Europe? The wealth management business in Asia is a lot more diverse than in Europe or north America - in terms of providers, legal jurisdictions and customers. Potential clients might be a Japanese aristocrat whose family has been rich for generations, or a Malaysian entrepreneur who grew up in a kampong (village) and now wants to invest the proceeds of an IPO according to Islamic shariah principles.
China continues to boom - there are estimated to be at least 300,000 Chinese HNWIs. Foreign private banks are setting up branches as quickly as they can. They are starting to move inland from the wealthy cities along the coast to service the growing number of entrepreneurs in China’s West. India is also showing enormous promise too. Asian HNWIs tend to be more mobile than their counterparts in Europe or north America. That diversity may mean opportunities in providing specialist tax services, for example.
Asian clients may have very different ideas about what private bankers should do for them. A western approach based solely on analysing risk tolerance in accordance with modern portfolio theory, and recommending appropriate products, may not sit well with a customer who is just looking for share tips. It takes time to build trust with such clients, and help them to understand that wealth preservation and growth is more complicated than betting on shares on China’s overheated stock market.
The need for private banking is likely to intensify as a big wave of wealth starts to flow down the generations. “In Asia people may not be as open with me as western clients about all of their investments, so I can’t always make appropriate recommendations,” says one private banker. The “rags-to-riches” ethnic Chinese entrepreneurs of south-east Asia are beginning to die off. Many left home to seek their fortunes as manual workers in the tin mines of Malaya, or fled China when the communists took over, to start small businesses that grew into family conglomerates. Such patriarchs learned about business the hard way. Many may not have been educated past primary school. But their grandsons - and granddaughters - may well have been to top international business schools, and have very different ideas about how the family business should be run. They may even consider whether the business should be sold off, and the cash invested instead. Watch out for a growing number of trust fund babies in Asia.
Research suggests that many rich families in Asia are ill-prepared for generational change. Only half of the 33 families surveyed in Hong Kong, India, Malaysia and Taiwan said they involved the next generation in managing the business. Many young graduates even felt that inheriting the family company would be a burden, as it constrained their career choices.
Asia, outside of Japan, and the Middle East would need 10,000 new private bankers by 2010. Private bankers need more than quantitative skills. They must watch the markets, in case the client asks their opinion. It also helps to speak a few languages, especially Chinese dialects. Such people are rare and no bank seems happy with the recruitment situation. Publicly, managers talk about providing staff with friendly environments and great career opportunities to win the battle for talent. 93% of customer relationship managers in private banks in Asia said they had been approached by rivals in the past year. One in seven private banks risked losing a third of its staff or more. It is not unusual for entire teams to follow a talented manager and take their clients with them.
The boom in private banking is sharpening traditional rivalries between the north and south-east Asian hubs of Hong Kong and Singapore. Both have trustworthy reputations as financial centres. Wealth managers have traditionally clustered in Hong Kong. But Singapore, which has the world’s fastest growing population of dollar millionaires, has been catching up.
