Traditionally, we think of a banker as the one who takes our deposits and in turn, gives us loans. Bankers act as the middlemen, take credit risks, and earn the difference between the interest made from loans and the interest paid to depositors.
The last few years have seen a dramatic shift of focus from traditional banking, as earlier described, to wealth management. This is also observed to be the fastest-growing business within consumer banking. This is not surprising as we see wealth and riches around us, and each year there are more and more new millionaires.
Traditionally, wealth management is something that is confined to high net-worth clients within the private-banking space – typically those individuals defined as having at least US$3mil.
Not anymore. Deregulation in the areas of investments and treasury products have progressively availed products to the mass market. Product innovations have also reduced the minimum size required for each purchase or placement to be within reach of investors. Such developing trends will further enhance wealth-management business opportunities for the average person on the street.
Areas Of Work In Wealth Management
Wealth management is typically broken down into the following areas:
This is protecting one’s wealth, and strictly speaking, it is protection of one’s lifestyle in the event of contingencies. The development of Bancassurance allowed bankers to act as independent advisors to clients on their protection needs. Typically, this is considered the foundation piece of overall wealth management. One must be adequately insured to provide a safety net first and foremost. Once this is achieved, the remaining wealth can be used for other purposes. To achieve this, a variety of insurance products or even low-risk investments products can be used.
This is simply making the money work harder within the risk-taking tolerance of the clients. True to the notion of no-risk-no-gains, in this area, it is about growing wealth over the longer term to meet needs such as children’s education and retirement. In some cases, it can also involve short-term trading in currencies, stocks and derivatives to make short-term gains. Typically, this would require a spectrum of products from investments to treasury to alternatives, and even some types of insurance products as well.
This typically refers to a period following the accumulation phase and it may be during one’s retirement. After building up a nest-egg, to have the peace of mind to enjoy the ‘golden days’, it is important that the risk is ratcheted down to conservative exposures only, and that the portfolio should be income-orientated so that it can provide regular payout to support one’s lifestyle and medical needs. A combination of low-risk fixed-income portfolio and insurance-based annuity and pure deposits
can be used.
We may wish to leave something of a legacy or inheritance behind for our loved ones. In some cases, it could be for other noble causes like establishing an education fund for the poor, or to ensure that one’s dependants are taken care of even after the client passes on. This may require some form of will writing, estate planning, and even establishment of special-purpose vehicles to hold assets under management.
The Win-Win-Win Situation
To the bank
This development is beneficial as more and more institutions develop their fee-income strategy to tap into this growing trend. In fact, looking at the private bank, it is conceivable that fee income from wealth management can be a significant contributor to overall profit. Some banks have also grown associated capabilities such as asset management, structuring capabilities, insurance subsidiaries, brokerage subsidiaries, and so forth, to support and avail the full suite of products needed for such a business. Therefore, the spinoff is wider than the act of providing wealth-management services and products.
To The Client
The benefits of a private bank are brought to the consumer bank. For most clients, they would still have needs in wealth protection, wealth accumulation, and wealth draw-down. By consolidating this under one advisory framework in a consumer bank, the client would derive greater synergy, instead of going to different institutions for different needs. Working with one institution also enables a more meaningful and longer term relationship to be built. Consumer banks have also in the last few years developed highly valuable affluent segments which target clients with US$150,000 investible assets and more. This is made possible with the trend of unitisation of products where the minimum entry amount is now as low as US$10,000. Such value, when delivered properly, matching the needs and the risk profile of the clients, creates a strong client value proposition.
To The Staff
A staff benefits with this development from the perspective of greater employment options, progressive training and development opportunities starting from a more basic level of advisory and product knowledge to more complex and sophisticated understanding. Good staff are naturally well-remunerated and given a well-defined career progression either upwards to more affluent client segments, or upwards to team/desk management roles, or upwards to areas of specialisation in wealth-planning advisory, investments, insurance, and treasury advisory. Lateral moves from wealth-management advisory to other areas such as product manufacturing, and wholesaling, among others, are also possible.
To The Market
Collectively, this has also sprouted centres of excellence within the Asia Pacific region. Singapore and Hong Kong have taken the lead in such services where they cater to local demands as well as attract offshore banking clients from other parts of Asia and from as far away as the Middle East, Europe, and even North and South America. Other emerging markets, such as Malaysia, have also gained a significant foothold in this business with rapid de-regulation, which has attracted the attention of global asset managers, investment bankers, and commercial banks to set up and grow their wealth-management services.