Strained wealth management industry looks to digital solutions
Private bankers looking to grow in Asia are investing heavily in innovation to stave off disruption, at the same time firms are also turning to technology to tackle more fundamental issues in the industry
Credit Suisse become the latest bank to try and woo Asia’s tech-savvy, high-net-worth individuals (HNWIs) in June with the launch of its private banking platform in Hong Kong via a new app. Swiss rival UBS launched its innovation center for wealth management in Singapore only a year earlier. More recently, Singapore’s DBS—which has seen its parent company funnel SGD200 million into digital innovation regionally—has been aggressively touting itself as the “world’s most innovative.”
The factors behind the push for digital solutions are numerous. Firstly, the industry has identified significant demand from the region’s growing client base. A recent report from Capgemini found that the majority of HNWIs surveyed said they would leave their wealth management firm if they could not offer integrated digital solutions. The demand was strongest in Asia where 82% of HNWIs surveyed predicting their future wealth management relationship to be entirely digitized, versus 64% for HNWIs globally.
The challenge for industry incumbents is that the ecosystem has expanded to include digital start-ups—such as robo-advisors—who are seeking to meet these new digital demands. Companies that fit this description include 8 Securities, a Hong Kong-based fintech firm that launched Asia’s first robo-advisor mobile app this month.
Mohit Mehrotra, global leader of the wealth management group and head of strategy consulting for Southeast Asia at Deloitte in Singapore, tells Global Finance that the industry is not only experiencing a rethink around how private banks’ existing capability can be digitized but is looking at developing new digital ecosystems.
“Clearly, this is where things are headed, but there is also a broader set of capabilities that need a fundamental rethink,” he says. “The big question here is whether private banks will develop their own digital capabilities, or rent out capabilities from third parties and build a play around that.”
The challenge the industry faces go deeper than dealing with digital disruption. Mehrotra notes how high cost-to-income ratios have put pressure on Asia’s private banks. He adds that many global private banks have been consolidating in past couple of years, while smaller players have been selling out to fast-growing regional lenders.
In April, UK-headquartered Coutts sold its international business to Union Bancair Privée as the Geneva-based bank sought to bolster its private banking business in Asia. Around the same time, JP Morgan trimmed backed the number relationship managers at its Asia private bank by 20% in a bid to focus on a smaller group of wealthier clients. The logic goes that many of these banks, as part of the drive for more efficiency, will increasingly turn to technology solutions to tackle issues that go beyond competition concerns created by digital entrants.
“Because of changing client behavior, changing demographics, wealth transfer due to aging Asia, pricing pressure, the rising cost of doing business, and regulatory issues, many are looking at how they can leverage digital ecosystems to address those issues,” says Mehrotra.