Swiss private bank Bordier & Cie is a relative newcomer in Asia, having entered the region via its base in Singapore about five years ago. Bryan Goh joined the bank last year as chief investment officer, before which he was head of alternative investments at Singapore's DBS Bank. He spoke to AsianInvestor about charging models in the wealth management industry.
Bryan Goh: The market [for fee-based services in Asia] is small in terms of clients and assets under management. But estimates about the size of Asia’s private banking market typically include brokerage AUM. I would argue that private banking AUM is not calculated correctly.
Moreover, some private banks don’t even look at this problem strategically. If you are running a brokerage business, why would you hire expensive private bankers? Why not hire a sales agent who gets paid solely on commission? I would argue that private banks are typically run very inefficiently, because they are running a brokerage but paying private banker salaries.
Have you increased your market share in Asia by offering fee-based services?
We are relatively new in Asia, although we are growing our market share. But do I think this [fee-based] market will expand? No. It will take a long time for Asian clients to embrace a fee-based proposition. Asian clients want to retain a lot of investment control.
We will never be of the scale of a universal bank because our model is pure wealth management. With a universal bank you have one account that is discretionary and another brokerage. Such clients may come to us for discretionary.
But with a universal bank there are conflict-of-interest issues. You may find that some of the discretionary portfolio heads at universal banks report to the same CIO, while some don’t as they have an independent CIO. Where there isn’t a single house view or CIO, there is the potential for strategy conflict.
Does it automatically follow that a brokerage model provides higher revenues for private banks?
It depends. Transaction volume is correlated to the direction of a particular market. If you are managing [a client portfolio] under a discretionary arrangement, the fees are an annuity and annuity income commands a higher multiple of your revenue.
If your revenues are generated from [brokerage] transactions and commissions, you will apply a lower multiple in valuing the business. So if you are running a business, you would try to increase annuity income and decrease the focus on commissions.
If you start a brokerage business, you need to grow AUM faster than margin compression, because if you open an account with an online fund distribution platform today you can transact for free and safe-keep for very low all-in fees.
The brokerage business is competitive. Each client typically uses three banks and will call each one to ask about its transaction fees and negotiate them down.