Latest challenge for Asia's private bankers: Young, female, smarter clients

The private bankers who serve Asia’s very wealthy have a new challenge on their hands. It’s young, female and smarter than they are.

The old model of pushing IPOs or junk bonds to clients who spend more time golfing than behind a desk doesn’t cut it anymore. Venerable financial institutions including HSBC Holdings Plc and UBS Group AG are being forced to lift their game to serve customers who want sophisticated advice about everything from cross-border opportunities to impact investing.

A survey commissioned by RBC Wealth Management that canvassed 1,051 individuals globally with at least $1 million in assets found that 86 per cent of the younger generation in Asia believed they could tackle social issues through investing versus 67 per cent in the West. And in many cases, business nous is in their blood. A study by Bain & Co. found that in 2017, just 41 percent of high-net-worth individuals in China were first-generation business owners, down from 70 percent in 2009.

Asia’s super rich are also branching out. In 2011, those hailing from China had 19 percent of their investments overseas; by 2017, that had risen to 56 percent, according to Bain. Popular diversification plays include real estate in places such as Canada and Australia, while financial products in Hong Kong are popular with mainland Chinese.

Spreading It Around

Hong Kong was the most-favored investment destination outside of mainland China by Chinese investors last year

The ranking of women among the region’s wealthy is climbing, too. Some are so-called gold-collar professionals – highly skilled knowledge workers who have made their money from early business ventures – while others have turned a passion into a profit. Take Mobike co-founder Hu Weiwei. The 36-year-old combined environment worries with urban eco-mobility, creating a $3.4 billion startup in the process.

According to the UBS and PwC Billionaires Report 2017, Asia’s female billionaire population has grown by almost 13 times from 2005 to 2016 to represent 6 percent of the region’s total count. In addition, about 70 percent of Asia’s female billionaires are self-made, compared to a global average of 26 percent. Yet, most private banks still don’t cater adequately to women’s needs, despite counting plenty of females as employees, says Ian Woodhouse, an associate partner at financial services consultancy Orbium.

Follow the Money

Asia ex-Japan accounted for 23 percent of global wealth in 2016, and is set to reach almost one-third by 2021

That’s a concern, because serving high-net-worth clients can be expensive. Private bankers don’t come cheap and MiFID II rules that require asset managers to pay separately for research and trading add to the cost. According to Woodhouse, robo-advisers can charge as little as 0.2 percent of assets under management whereas private bankers need at least 80 basis points.

There’s also competition from family offices. London-based Campden Wealth Ltd. says an estimated 17 percent of the world’s 5,300 single-family offices are based in Asia.

For some, the solution has been to build scale – DBS Group Holdings Ltd. bought the Asian wealth operations of Australia & New Zealand Banking Group Ltd., while Swiss wealth manager Lombard Odier is forging local partnerships.

Bigger may be better, but I am perhaps not alone in knowing a few family offices that are helmed by progeny of the wealthy (children who have been educated at Harvard and hold MBAs and the like) and want a lot more from their private bankers than they’re currently getting.

There must be more of a pivot toward serving Asia’s young wealthy. That’s where the real riches lie.

Bloomberg