From left: Mark Smallwood, Jessica Cutrera, Sascha Zehnter and Harmen Overdijk
Private banks recognise they must adapt to Asia’s growing independent asset manager (IAM) segment, but some players are lagging on this front, heard AsianInvestor’s Fund Selector Forum in Hong Kong this week.
The segment comprises mainly independent firms set up by former bankers to provide wealth management services. They work with private banks but also compete with them, as former bankers tend to take clients with them to their new shops.
It is therefore hard to see the segment as anything other than a major challenge to large incumbent wealth managers, especially in these times of tighter regulations and lower profit margins for banks.
As a result, private banks are working on how best to service IAMs, which are often also labelled multi-family offices.
However, some fall short in terms of the services they provided and only cover IAMs as an afterthought, said Jessica Cutrera, managing director at EXS Capital, a Hong Kong-based IAM. “Banks need teams of people who really understand our complex needs,” she added, speaking on a panel at the event.
Cutrera said her business uses two platforms – brokerage and banking. For her to use banks, they must provide additional service and support to make up the extra fees they charge compared to brokers.
Harmen Overdijk, co-founder of Caidao Wealth, another Hong Kong-based IAM, made a similar point: “If you don’t have the system and technology to support [the IAM segment], you’re not going to profit from independent asset managers, and you will only compete with these guys. And they can steal your management and advisory fee if you are not careful.”
Banks must adapt to servicing IAMs, agreed Mark Smallwood, Asia-Pacific head of franchise development and strategic initiatives at Deutsche Asset and Wealth Management. And he conceded that Deutsche’s technology still needed to be enhanced on this front, compared to that of certain rivals such as Credit Suisse.
In fact, Smallwood added, “a lot of banks have failed in getting technology in there fast to compress the cost” of providing trading and execution comparable to a brokerage firm.
While many private banks are trying to enter the market to cover IAMs and multi-family offices, “it is much more difficult than they think”, said Sascha Zehnter, Asia-Pacific head of external asset managers (EAMs) at Credit Suisse. “The requirements of external asset managers are different. You need to build a dedicated department to serve this segment.”
Credit Suisse has a well established IAM business, comprising about 450 people globally, that acocunts for more than 10% of its wealth management volume.
“It is not a niche business any more," said Zehnter. "When it comes to technology, the only way to make the business sustainable is to invest a huge amount every year to provide special services and products. It is a key factor in collaborating with external asset managers.”
Research shows that the number of IAMs and their market penetration in Asia is rising from a low base, driven by regulatory pressure, the rise of financial technology and growing demand for independent advice. A report from Swiss private bank Julius Baer in July last year forecast that IAM assets in Hong Kong and Singapore would double to $56 billion by 2020.
Overdijk pointed to the segment's potential growth, noting that just 2% of assets in Asia's wealth management industry were managed by IAMs, as against 25% in the US and 15% in Europe.
He said fintech was key to the success of IAMs: “Setting up an asset management operation is much easier today, because of technology, than it was 10 years ago.”
Whereas previously it cost millions of dollars to build a platform, EAMs can now buy much cheaper, cloud-based software packages for research, portfolio management, trading, reporting and compliance.
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