Ultra-high net worth banking in APAC: Four key challenges and how to overcome them
Serving UHNWI is challenging for private banks, particularly when it comes to offering a suitable standard of customer service.
Ultra-high net worth individuals (UHNWI) are those with at least $30 million in assets. North America continues to be home to the world’s highest concentration of UHNWI, and the US government’s new tax regulations are likely to persuade more of them to move their money back onshore. Meanwhile, the number of UHNWI in Asia has significantly increased, particularly in China with its steadily rising wealthy population. Markets in countries such as Thailand, India, Indonesia and Malaysia have also attracted banks with their growing pools of UHNWI. As regulations expand and complexity increases, clear focus will be crucial to ensure banks benefit from these changing market conditions and the opportunities they present.
The increasing need for differentiation
Serving UHNWI is challenging for private banks, particularly when it comes to offering a suitable standard of customer service. The increasingly sophisticated UHNW customer base and their professional representatives, namely family offices and external asset managers, not only have stronger buying skills and negotiating power, they also expect more of the bank. They demand better value proposition, good service quality and appropriate offerings.
In order to differentiate themselves and meet clients’ increasing expectations, banks provide exclusive services to UHNWI, such as access to club deals, events or philanthropic opportunities. Private banks set up specialised entities across the globe, which offer international capabilities at a local level and enable UHNWI to receive consistent service. These desks are also able to focus on developing customised solutions that are in line with clients’ needs, such as wealth protection or customised investment advice.
Meanwhile, talent shortage is a growing issue for banks, making it more difficult to hire the right people. It is essential for banks to have teams with expertise in a diverse range of topics such as trusts or taxes, so that they’re able to deal with clients in different jurisdictions. Having employees with the right set of skills and abilities makes it easier for the banks to establish long-term relationships with clients and, ultimately, help them gain a competitive advantage. Better incentives help retain talented staff as well as strengthen employees’ relationships with both clients and the bank.
Pricing transparency and pressure on bank margins
As banks are increasingly required to disclose their fee structures, clients are becoming more aware of the costs associated with their investments and this, in turn, puts pressure on banks’ margins. Moreover, institutions around the globe have identified UHNWI as a very attractive client segment, which means banks are broadening their focus and considering entering the HNW segment again. The resulting competitive pressure further squeezes margins.
Nevertheless, when thinking about monetisation strategies, banks should take a holistic approach and move away from product-based pricing to relationship-based pricing for both segments. This allows both banks and clients to better plan their revenues and costs. Smart strategies consider the entire client relationship, including all assets and liabilities.
What wealth transition means to banks
Another potentially challenging area is wealth transition. Increasingly, we see wealth passed from one generation to another. The younger generation may be less willing to remain with their family bank and instead decide to pursue other non-traditional options, such as digital offerings. Banks need to think carefully about how they want to cater to UHNW millennials, whose wealth profiles, interests and philanthropy differ from those of previous generations. It’s clear that their number is growing, and they will become the core UHNWI pool in the future.
The rise of digitalisation and offshore limitations
With global digitalisation, online trading platforms and advisory services will be crucial in the future. One of the major benefits of these platforms is that they increase trading volume while reducing cost-to-serve. At the same time, they enable banks to get closer to clients through reporting, analytics and marketing, which improves interaction. Online services are crucial because clients expect the same degree of innovation from financial services firms as from tech giants, such as Google or WeChat.
Finally, private banks face tighter restrictions in growth markets. Rigid capital controls in countries such as India and China limit investment in foreign currencies and prevent money from moving out of the country. As such, banks have to design solutions that can overcome the limitations of offshore business, and at the same time improve their onshore business.
In conclusion, while banks may encounter numerous obstacles in UHNWI banking in APAC, it is possible to transform these challenges into opportunities. Ultimately, success requires considering the big picture and taking everything into account, from building strong, cross-generational relationships to acquiring the right people to build these relationships with.
Silvio Struebi is a Partner at Simon-Kucher's Hong Kong and Singapore Office. He is a member of the Global Banking Practice and heads the company's banking operations in APAC.
Institution: Google, WeChat