PRIVATE banks enjoyed robust net inflows in 2018, but risk appetite has turned cautious in the wake of the market downdraft and worries over the fallout from US-China trade tensions.
There is a silver lining to the market volatility, however. Bankers report healthy inflows into discretionary portfolio management (DPM) services where investment decisions are taken out of clients' hands.
A number of banks are also capitalising on expansion into Asia's burgeoning wealth markets. These include DBS Bank which completed the acquisition of ANZ's retail and wealth management business earlier this year. Bank of Singapore (BOS) partnered SMBC Trust Bank and expects to raise its profile in the Japanese high net worth and ultra wealthy segments.
PwC private banking leader Julia Leong notes that the resolve among private banks to pivot to a fee-based revenue model has strengthened - it is seen as a means to cushion fee compression and transaction volatility. "There is a greater sense of urgency at the private banks to differentiate themselves with unique client experiences and (tailored) solutions," she says.
She also believes that the biggest potential for growth lies in the high net worth and mass affluent segments, where the service level "tends to be patchy with no real differentiation in product and engagement touch points". Technology will be a key enabler to unlock those segments and gain scale.
The ultra-high net worth segment, however, "can be too crowded and it will be difficult for a bank to truly stand out", Ms Leong says.
The good news is that asset growth remains strong despite a more wobbly stock market in the second half. UBS Wealth Management, for instance, reports net new money flows of 16.6 billion Swiss franc (S$23 billion) in Asia-Pacific in the first nine months of the year. In the same period, Credit Suisse reported 16 billion Swiss francs in net new assets, leading to a record 207.5 billion Swiss franc in assets under management (AUM).
BOS reports an 11 per cent rise in AUM at end-September to US$105 billion and double-digit growth in DPM assets. About one-third of the growth in DPM assets came from existing clients, "an indication of their growing confidence in our capabilities to manage their portfolios and help them ride out the storm", says BOS chief executive Bahren Shaari.
DBS head of wealth management and consumer banking Tan Su Shan says the bank delivered a "strong report card" for 2018. AUM reached "new highs", thanks to strong growth in North Asia/Greater China and the Middle East. At end-September, wealth management AUM rose 13 per cent to S$220 billion - this includes the private bank and Treasures client segments.
DBS's DPM assets also surged by 50 per cent this year. Ms Tan says: "Tougher market conditions sparked stronger interest in DPM as clients seek more than just products - they also want expert advice, investment solutions and consistency in portfolio management."
Credit Suisse head of private banking South Asia and chief executive (Singapore) Benjamin Cavalli says the bank continues its focus on advisory and DPM penetration, and "aims to make our clients better investors with a fee-for-advice model that increases alignment of interest between the bank and the client". Assets in Credit Suisse Invest have tripled since its launch in mid-2017.
The platform is a digital-enabled advisory solution. Bespoke discretionary mandates, which account for over 80 per cent of its DPM business, have also grown by more than 20 per cent a year in the past few years. The minimum threshold for a bespoke discretionary mandate is US$10 million.
HSBC's head of private banking South-east Asia Philip Kunz says the bank has leveraged on its global businesses for growth. Such global collaborations have helped to generate more than half of HSBC's global private banking net new monies. DPM inflows also grew five-fold in 2017, "and by H2 2018, we'd already met 80 per cent of those flows". He adds: "Alternatives are increasingly seeing a greater uptake to diversify and hedge against market volatility."
HSBC recently unveiled an ambitious plan to expand in Asia-Pacific, which includes a doubling of headcount over the next five years and investment of US$100 million "to innovate and digitise how we support clients over the next two years".
Mr Kunz says: "Attraction of talent hasn't been an issue, with many of our external hires bringing an average 15 to 20 years of experience, along with a steady pipeline of talent from our corporate and retail banking partners."
Citi Private Bank global market manager Adam Proctor says 2018 has been "transformative". The retirement of former Asia-Pacific chief executive Bassam Salem sparked leadership changes and restructuring. "This gave us the opportunity to refocus and see how we could best scale up our business. It has been a strong year for our private banking business in Singapore," he says.
Meanwhile, sustainable and ESG investment themes have resonated with private clients. UBS head of wealth management (South-east Asia) August Hatecke says the bank has raised over US$3 billion globally for a sustainable cross-asset portfolio which implements ESG principles across all equity and bond strategies. Asian clients accounted for over US$350 million of funds raised since the launch in April. "(Clients) understand that global challenges bring unique investment opportunities and they can do well by doing good," he says.
DBS Bank has strengthened its suite of ESG offerings, including a "well-received" ESG outperformance structured products series, with four tranches of notes and five tranches of warrants since the launch in August.
Standard Chartered Bank (SCB) global head for private banking and wealth management Didier von Daeniken says the bank aims to further develop sustainable and impact investing "as a means to actively engage our existing and next generation of clients, who view this as an equally important space as conventional investing". SCB's private banking income rose 8 per cent in Q3, with net new money increasing by US$0.8 billion year-to-date.