Private bankers in Asia crumbling as revenue pressures rise

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The region boasts more millionaires than any other and their wealth in growing rapidly every year. Global banks are fighting for a piece of the action and poaching talent from each other – life as a private banker in Asia should be a fairly easy ride.

Increasingly, however, relationship managers (RMs) in Hong Kong and Singapore are finding it harder than ever to hit their annual revenue targets as business costs rise and clients drive down fees. As we noted earlier this month, even industry giant UBS is struggling to attract new client assets in Asia.

This is not for lack of trying. Led by UBS (and more recently Credit Suisse), European private banks are trying to eke out more revenues from Asia as growth in the European high-net-worth segment remains subdued. “This forced attention on Asia has heightened competition among banks here and put the productivity of their frontline staff in focus,” says Pathik Gupta, head of Asia Pacific wealth management at consultancy McLagan in Singapore.

Fierce competition among banks is helping to reduce client fees, making it harder for bankers to meet revenue targets. The profit margin in Asia wealth management is about 20 basis points, compared with 25 in Europe, according to a McKinsey report. “Profit margins at some firms are even lower. All banks want to grab more client assets, so they’re offering lower charges as an enticement,” says Rahul Sen, a former private banker, now head of wealth management at search firm The Omerta Group in Singapore.

“Lending rates must also be lower to convince potential clients to break existing credit facilities, while RMs joining a new bank will try to reduce fees to keep hold of clients,” says Sen. “Plus compared with Europe, less wealth in Asia – under 10% of client assets – is managed under discretionary portfolios, which enjoy higher client charges.”

Clarence Law, a Singapore-based business advisor in private banking, says wealthy Asians tend to bank with more firms than their counterparts in Europe. “Clients here are getting more and more well-banked and cost-sensitive, so it’s easier for banks to get into a price war in Asia, which doesn’t help if you’re an RM trying to meet your targets.”

An important regulatory change is also making it harder for RMs based in Hong Kong and Singapore to make money from overseas clients, adds Law. The Automatic Exchange of Information global tax transparency standard, which comes into force in 2017 and initially applies to 50 countries, provides an incentive for wealthy people to invest their money at home rather than in private banking hub cities.

Rising costs

RMs in Hong Kong and Singapore don’t just have to worry about declining revenues – the cost of managing wealth in the region is also rising. As we reported in September, chronic talent shortages in the sector mean base salaries are on the up and poorly performing RMs are struggling to cover their own costs. “Banks have been able to sustain increasing costs in the past, but now with slowing economic growth in Asia their sticky cost base means profit margins will compress further,” says Gupta from McLagan.

Compliance costs are compounding this problem. “Regulators are demanding stricter monitoring of client assets, which translates into more staff and resources in areas like know-your-client, anti-money laundering, and surveillance,” says Josie Ling, head of private wealth management at search firm Eban in Singapore.

Where revenue pressure is worst

While there are many reasons why you’d want to work at a large private bank rather than a boutique, escaping revenue pressures shouldn’t be one of them. “Universal banks such as UBS, Credit Suisse and Standard Charted have particularly high revenue demands because of their recent resolute focus on growing private banking ahead of any other business segments,” says a private banking analyst who asked not to be named.

He adds: “At UBS, for example, there’s significant illiquidity in its Asian assets and a fragmented asset base across several geographies, which is hard to capture due to regulatory hurdles and lack of enough highly skilled salespeople. At Stan Chart the turbulence it’s going through is putting more pressure on private bankers to perform better.”

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