HSBC wealth management has been consolidating its relationships with external asset managers, ruling out working with specialist firms in favour of those with broader capabilities.
Vineet Vohra, Asia-Pacific head of wealth development, retail banking and wealth management (for clients with up to $5 million with HSBC), says the bank has retrenched in recognition of a need to service clients more effectively and not allow them to be driven by momentum.
“At this point we are not looking for specialised managers,” he says from the corner office that his predecessor, Bruno Lee, inhabited until late last year. “That will come perhaps as our strategy evolves a bit more to the next level.”
The understanding is that HSBC, which has been undergoing a structural reorganisation within wealth management, has gone back to basics in what it terms a “needs-based approach” in response to global markets, which Vohra notes won’t be getting friendlier anytime soon.
There are four pillars in HSBC’s wealth solutions business covering financial planning, trading and retirement: direct investment in securities; cash and FX; asset management; and insurance.
“It is a journey and in many ways we are trying to go against the grain of what an investor might want to do on his or her own,” states Vohra. “We are conscious of not letting product proliferation drive the client engagement.
“What we are looking for is [managers] with a broader array of capabilities, because by doing so we can ensure a relationship has depth and diversity to be able to withstand market cycles.”
He notes that a relationship with a manager specialised in one asset class will at some point run on tired legs. “So we would like to have an array and diversity,” he explains.
When asked what that means for providing best-in-breed on the asset management side, Vohra describes best-in-breed as a concept that was popular in the past. “As it stands today, [best-in-breed] requires either a very intense level of portfolio management or a very small base of clients. Neither of these are appropriate in this stage of the market,” he says.
From a mutual fund perspective, he argues that the market requires dexterity and that to succeed houses have tended to adopt a multi-asset, multi-manager approach.
“Our preference is to stay diversified in our asset selection and manager selection," he says. "If you have best-of-breed you end up being very concentrated in that asset class with that manager.”
However, on the question of whether HSBC has been rationalising the list of external managers it works with, Vohra repeats the mantra “there is an ongoing review”.
“What we are trying to do is consolidate our views on houses and not have each operation in our business run its own set of views,” he says.
In fact, a number of bank distributors have been cutting their list of manufacturers back, with Citi a notable exception.
Sources have indicated that HSBC has taken to re-emphasising its own products over third-party options, but Vohra insists the bank wants to be provider agnostic “to the extent possible”.
“However, we are not a supermarket,” he adds. “In many ways we have to affirm the quality of what we offer to our clients. Our job is not to provide the best solution in the world, but solutions that satisfy client needs. These can come from providers we have a good understanding of and confidence in, and can be in-house or from around the world.”
He says the bank prefers guided architecture to provide “choice, diversification and quality assurance at the same time”. But he stresses his door is always open to any asset manager for a conversation on ideas.
In terms of the external managers it likes to work with, Vohra points to those whose risk management processes and franchise strength it feels comfortable with. He says HSBC wants to work with firms with a stake in, and desire to change, the markets and a commonality of views.
“We are talking about changing the way people invest and the way they engage with clients,” Vohra stresses. “You need to have a commonality of purpose and perhaps similarity in scale.”
His point is that broad capabilities are essential in managers that HSBC can build sustainable relationships with. But he adds there needs to be a focus on risk and on doing right by the client.
“It has to be manifested in the way a firm is organised, in its culture, reputation and how it has performed over years,” says Vohra. “There is a growing realisation across the marketplace not to be overly diversified and spread out in terms of managers.
“The focus on wealth management is shifting towards making sure the selection of what you have got and its application to client needs is made better, rather than making sure you have something nobody else has.”
In terms of the next step for HSBC, Vohra points to two “frontiers” as an interesting challenge: how to provide discretionary portfolio management to clients between affluent and high-net-worth, and also those at the lower end of the wealth spectrum.
“At this stage we are not distinguishing so much by segment,” Vohra says. “We would like to make a fresh effort at using needs to inform all our client engagements.”
When it comes to the markets, Vohra says bond funds have had a great ride but questions whether this will continue or whether there will be a move into equity income, diversified income or even equities. “That is an interesting play-off that is happening,” he says.