Wealth management challenges and opportunities in Asia
This may become the Asian century but the wealth management sectors of each Asian country behave differently and have varying products, processes and problems that require a nuanced response, writes Michael Farrell.
This may become the Asian century but the wealth management sectors of each Asian country behave differently and use varying products, processes and problems that require a nuanced response, writes Michael Farrell.
In 2012, the then Federal Government released a white paper on Australia in the Asian Century, saying “The scale and pace of Asia’s transformation is unprecedented and the implications for Australia are profound”.
So as Australia repositions itself within the Asian region, advisers will need to carefully consider the implications for the financial advice industry and how they can best adapt to extract value for their own businesses.
A better understanding of the region, its nuances and opportunities is vital.
Having spent two years in Singapore and an additional period in Hong Kong, I was fortunate to be exposed to a variety of wealth management offers in a number of countries across the region as well as cross-border securities execution, clearing and supporting technology.
The first thing to acknowledge is Asia is not Asia – it consists of more than 50 countries, each quite unique in nature, with divergent cultures and varying levels of commercial maturity and infrastructure.
With a combined population of over four billion people and the two largest countries (China and India) accounting for over 2.5 billion of that total, and Indonesia the third largest by population at close to 250 million, the region remains fertile ground for many industries including financial services.
As hubs Singapore and Hong Kong are global cities, quite different in nature, yet both pursuing excellence and dominance as centres for financial services in the region.
The regulators in both centres continue to work towards advanced structures to ensure that retail client interests are protected, driven largely by the post-GFC mis-selling experiences of many.
The wealth management industries are vibrant in both countries; however Singapore is fast becoming the Private Banking hub of the region.
Throughout the region banks and insurance companies largely control wealth management and advice; however Singapore is fast growing an IFA channel concentrating on advice with open architecture. Irrespective, banks and insurance companies will continue to dominate until the IFA’s are able to create traction.
Whilst based in Singapore, what was enlightening was observing the wealth management industries in each of the geographical markets, how advice was provided, what advice entailed, who sought advice, the types of products utilised, how they were utilised, where the problems lay and the relative importance of the wealth management divisions in the various banks/institutions throughout the region.
Also interesting was dealing with the regulators requirements in each of those jurisdictions and the varying levels of knowledge and expertise observed. Each of these markets had clear and unique characteristics and each one must be treated independently when determining opportunities.
The products and services across the region are varied and include investment products in multi-currency, FX, margin FX, offshore trusts, and insurance wrappers providing access to many of the mutual funds available.
Many of these products and services can be readily accessed at the retail banks. The nature of many of these products differs in nature to those in Australia and the means of client’s accessing them is clearly less restrictive.
Language and culture play a critical role in each market, so players working on a regional basis need to understand and appreciate that what works in one country may not work in another and what may seem sensible to you may well be nonsense to someone else.
Developing relationships and building trust takes time and are important in most commercial dealings.
Often what you might hear might not be what you are being told. Continual confirmation and affirmation is often critical to ensuring desired outcomes are achieved.
There are two distinct client segments in the key geographical markets:
- The local market, and
- The expatriate market.
Each of these can be further segmented and some cross- over does exist.
The first is longer term for obvious reasons, needs to be treated as a domestic market and provided with products and services that meet the local needs.
Serving the different segments requires careful analysis and needs to meet the ever increasing demands and affluence of the local investor.
Much of the investment by the wealthier individual and families is off-shore – Australia is an obvious beneficiary of these opportunities.
The expatriate market is more mobile, short/medium term in general and is looking for advice that crosses from the local environment whilst they live in the local market; however it also needs to address their homecoming and needs when this occurs.
The complexities of tax residency, retirement funding and offshore investments all require specific expertise. In general the expatriates utilise their home banks, financial advisers from their home market, local IFA’s specialising in ex-pat advice (who are often ex-pats themselves) and global banks that provide more tailored advice.
Whilst the advice industry is maturing at different rates in the numerous Asian countries, much of the activity is still focussed on products sales over the counter or by dedicated wealth managers in bank branches at the mass market level.
The international private client businesses offer services to the wealthier clients and provide a more global offering; however they are still focussed on product solutions rather than sophisticated structured advice.
Tied life insurance agents remain a major source of business for life companies, whilst the banks employ wealth managers to sell financial products. There are moves to improve the advice component within many life companies but it will take time to be successful.
At the other extreme the private banks cater for the HNW and UHNW and there is also the emergence of some family offices to meet the needs of this segment.
However the mass market segment is dominated by banks and insurance companies. IFAs do exist; however not in large numbers and often many specifically serving the ex-pat market.
Ethics and product sales incentives remain a significant concern in a number of the less developed markets throughout the region.
Whilst the Australian advice industry has been built around compulsory superannuation and the complexity of the Australian taxation system, some markets in Asia have their local advice industry built primarily around asset allocation and products.
Returning to Australia a number of things were quite obvious:
- regulation is significant and overwhelming at times;
- the industry structure has led to the prominence of complex regulated platforms;
- advice concentrates on retirement planning and incomes and minimising tax liabilities;
- research has a heavy qualitative overlay compared with Asia where quantitative measures are still prominent;
- the Australian market is relatively insular and rarely looks beyond its borders;
- banks dominate the advice industry and the Top 6 players are all locally owned; and
- global banks and insurance companies are minor players in the advice market.
In many ways these characteristics are similar to Asia: Indonesia for example is largely dominated by local players, and whilst some large local banks do have significant presence in Singapore and Hong Kong, the banks are building out their wealth management franchises.
Regulation in many countries is increasingly burdensome, yet perhaps Australia has developed an even more complex web of requirements.
Despite the complexities and continually changing regulations, Australia compares favourably in terms of governance, compliance, advice quality, disclosure, access to product and services and platforms.
Training and education is robust and is developing a more professional and quality industry. Australia’s financial advisers are focussed on providing quality financial advice as a prime objective and thereafter using appropriate products and services that support that advice.
The Asian region continues to develop and there are certainly opportunities for Australian businesses to provide guidance in the development of these markets in years to come.
Sensitivity to culture, humility, respect and patience are all virtues required to achieve success.
From an adviser’s perspective, access to the large and growing sector is coming via the Significant Investor Visa (SIV). The SIV was introduced in November 2012 to attract potential migrants with a demonstrated history of success in business and investment.
It allows foreign high net worth investors to invest $5 million into investments that meet the SIV guidelines for a minimum of four years before being eligible to apply for permanent residency in Australia.
By June 30, there were 305 applications being processed by immigration, with the majority coming from Chinese nationals, and the opportunity is there for many more.
To take advantage of this growth opportunity, developing relationships and/or a referral arrangement with an Asian counterpart, be it an adviser, an accountant or a potential client is important.
For Australian advisers seeking to access opportunities in Asia, the challenge lies in developing a clearly defined focussed strategy that is well researched, considered and with patience a core virtue.
Michael Farrell is group general manager, advice division at IOOF.
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