Roundtable HOW TO MAKE THE MOST OF THE OPPORTUNITIES At a roundtable discussion in Hong Kong in March 2012, co-hosted by Hubbis and J.P. Morgan, some of the leading EAM / IAM companies in Hong Kong came together to discuss and debate the various opportunities and challenges they face as part of this evolving segment of the local wealth management landscape. This covered key aspects of how to ensure further growth and greater awareness of EAMs / IAMs, including the need for: more realisation by clients of the benefits of ever-important characteristics such as independent and transparent service; more advice relating to the next generation; more ways to address issues relating to the mindset of many Asian HNW clients in terms of paying fees, as well as to the relatively limited product range on many platforms; more understanding of the different banking and advisory offerings available; and more investor education. Participants Stefano Fiala Chief Executive Officer Veco Invest Philippe Legrand Chief Executive Officer London & Capital Asia Our co-host for this roundtable: Lemuel Lee Executive Director Customized Solutions Derivatives Marketing Asia Ex-Japan J.P. Morgan T 852 2800 7873 E Lemuel.hl.Lee@jpmorgan.com Joe Attrux Chief Executive Officer Harris Fraser Group Alison Lo Managing Director Target Capital Management Alex Walker Director, Wealth Management Financial Partners Sanam Ramchandani Deputy Chief Executive Officer & Founding Partner London & Capital Asia Marc Geary Head of Private Wealth Management Harris Fraser Group Alice Yim Director Target Capital Management Lemuel Lee Executive Director Customized Solutions Derivatives Marketing Asia Ex-Japan J.P. Morgan Peter Lee Managing Director Veco Invest Asia 1 HOW TO MAKE THE MOST OF THE OPPORTUNITIES WHY THE SWISS EAM / IAM MODEL HAS BEEN SUCCESSFUL Stefano Fiala: EAMs have been able to provide the kinds of tailormade services which banks cannot easily offer to their clients. We also have no hidden costs because transparency has been a big selling point to clients. The true open architecture style is another advantage of the EAM model. Philippe Legrand: It is also interesting to note that while the IAM industry has historically been marketed from Switzerland, the model has also grown strongly in the US and the UK. OPPORTUNITIES FOR EAMs / IAMs Stefano Fiala: However, growth in the EAM industry in Europe is very slow as a result of the large number of competitors which now exist in this space, plus the economic environment makes it difficult to find new clients. As a result, we have come to Asia – and specifically Hong Kong – to find what might be one of the few real growth areas where we can try to replicate our success in Switzerland. We are using a similar business model, although we need to adapt it to the needs of the local market’s investment culture and stage of development. Philippe Legrand: I think the IAM model is the best approach to service the consolidated needs of wealthy Further, at a time when investment banks are resource-constrained to look at some of the smaller corporate deals which Asian entrepreneurs are looking to pursue, this provides an opportunity for some IAMs, which are structured along these lines, to advise HNW clients. Veco Invest London & Capital Asia One of the problems private banks face today relates to the compliance requirements imposed on advisers when they are servicing their clients. Asian families. In addition to their liquid assets, these clients also have real estate and their businesses which need looking after. Stefano Fiala Philippe Legrand Alex Walker: As the market becomes more sophisticated, we are also seeing a trend where HNW and UHNW clients are seeking an “independent” alternative to managing some of their wealth, thereby diversifying their management risk, as opposed to just placing all their wealth with a few private banks. Marc Geary: While brand value remains important for a lot of Asian clients, which is why the larger or betterknown private banks have been able to be successful to date, their businesses are now under a lot of pressure. Alex Walker: If clients know they can turn to an experienced EAM adviser to 2 HOW TO MAKE THE MOST OF THE OPPORTUNITIES Sanam Ramchandani: One of the problems private banks face today relates to the compliance requirements imposed on advisers when they are servicing their clients. This means that conversations with clients are not only about their needs as so much time must be spent on suitability and internal administrative issues of the bank. Marc Geary Harris Fraser Group have a holistic discussion about their financial and personal affairs, they are more likely to trust their adviser and be more comfortable in relying on their advice over time. This is something we at Financial Partners have been working on over the past few years, focusing on the “trusted adviser” approach. Marc Geary: The value-add of an independent service is the high transparency as well as the service itself. I think clients will increasingly move away from the bank proposition that exists today. Alex Walker: It is also very important to highlight the areas of value-add to the client, especially in areas the client may not perceive initially when assessing the value proposition. They are becoming more cooperative, and this over time will also enable the EAM industry to develop. Alison Lo: I think there is a rewarding prospect for the EAM industry in Hong Kong given the growth of HNW individuals in Asia, especially in mainland China. To understand what investors need is a long process. In choosing their “right” investments out of many of the existing choices, they will work with This includes, for example, our ability to know what not to do and who not to deal with. This is especially important in a market like Asia, given that it is not very transparent and also it is often fragmented. professionals like us who are truly independent. During such a relationship-building process, we build trust and at the same time add value to them – all these are positive for the development of the industry. This market intelligence applies not only to EAMs assessing other advisers, but also trustees, tax specialists and accountants, for example. Alex Walker: At the same time, with the trend in inter-generational wealth transfer underway in Asia, I see there being more and more opportunities for independent firms in advising the next generation. For clients to see the value in EAM services will take more education by all EAMs and multi-family offices. Peter Lee: More and more banks are putting in the resources to developing Alison Lo dedicated EAM desks, with a larger range of products and more efficient execution. The younger generations who are inheriting the wealth typically don’t want to work 7 days a week like their parent(s) did originally to build the If IAMs can prove their differentiation in terms of the quality and independence of advice, then we will increasingly start to receive fees for this. Target Capital Management 3 HOW TO MAKE THE MOST OF THE OPPORTUNITIES lot of decisions themselves and being in control. Philippe Legrand: When I first moved to Hong Kong in 1995, in the early days of private banking in Asia, we charged clients advisory fees. This changed as markets matured and interest rates fell. But a big contributor to the difficulty in continuing to charge clients fees has been that they increasingly have perceived less value in the advice they have been given. Lemuel Lee J.P. Morgan wealth. Instead, they want to enjoy a more balanced lifestyle and therefore are more inclined to outsource the management and administration of their wealth to reputable EAMs and multi-family offices. Alison Lo: Apart from wealth generation, people in China also see the importance of wealth protection. In addition to a relatively new concept of EAMs in Asia and their urge for a better understanding of investments, there is a wide scope of potential for providing investors with investment education and a better understanding on what wealth management really means to them. Lemuel Lee: This is also a result of the fact that for many years client have shopped around the various brokerages in search of the best prices, so they now apply this approach to all aspects of their investing and wealth management. Philippe Legrand: If IAMs can prove their differentiation in terms of the quality and independence of advice, then we will increasingly start to receive fees for this. For other types of services that IAMs might offer, however, Asian clients are willing to pay a retainer fee. For example, for our corporate advisory ser- Peter Lee: In terms of product offering, I would like to see more of the private banks starting to better understand what EAMs want and need from them as custodians – specifically in relation to the fact that we operate a true open-architecture model. When we trade on their platforms, it doesn’t mean we want to only trade their products. Instead, their platforms should enable us to trade a range of products. A few banks are starting to understand and respond to this, which is a positive step, but we need to see more of this across the market. COMPETING WITH BANKING OFFERINGS Peter Lee: Although many private banks are now trying to take the relationships with clients out of the hands of just one individual, to implement more of a team approach, not all clients are happy with this. This is because it means there are then multiple individuals serving them and they don’t feel they are getting the personal touch they want. KEY GROWTH CHALLENGES Sanam Ramchandani: In addition, for those banks which take a productcentric approach, it is like walking into a client meeting pushing a trolley full of dim-sum and offering the client one or another of the various dishes. Lemuel Lee: One of the things that I see EAMs find challenging is dealing with the mindset of the typical Asian HNW client. For example, a lot of clients don’t want to pay a flat-fee for services, as the individuals are used to making a vices, clients perceive value in being able to pick up the phone or meet with us and discuss their corporate advisory needs. Peter Lee Veco Invest Asia And regardless of whether the client is a vegetarian, or can only eat gluttonfree foods, the adviser is trying to sell 4 HOW TO MAKE THE MOST OF THE OPPORTUNITIES like us, they would get the additional services we will offer them. Alex Walker: We can offer the same level of custody plus the additional level of services and personalised attention for clients; something that many private banks now struggle with and will find it difficult to recover going forward. Philippe Legrand: It is also a question of providing a service that clients are looking for. Sanam Ramchandani London & Capital Asia a certain amount of dim-sum, so continues to keep pushing it to them. Philippe Legrand: The entry points to a relationship with a client are very important. IAMs have the ability to create more than business or investment focus points with each client, which gives us, as a firm, more points to develop and retain the relationship. Alex Walker: For individuals with a quantum of wealth, the dilemma is what to do with it and how to manage it. There is either a lack of alternatives, or too many options, and only a seasoned professional can wade their way through the fog. This is where the biggest opportunity for EAMs exists – offering genuine value-add to clients. Marc Geary: One of the things which I find resonates with clients is when we sit down with them to analyse their various bank accounts, and we strip out the fees they are really paying on their private banking products and services. They can then see what they are really being charged compared with what we would charge them. Plus with an EAM Private banks tend to include everything in one packaged platform: custody, advice and execution. Whether this package offers open architecture is open to debate as this isn’t always the case with every firm anymore. But offering only this package doesn’t give IAMs as many options as we want. I think there will be more and more banks entering this space which will be willing to offer just access to either their custody or execution platforms. If they can deliver on this, and clients are comfortable with those names acting as custodian, then the market will change completely and become much more efficient. Alex Walker: There is also a need for education to be supported through regulation, and to a certain extent, the responsibilities for investor education also fall on the regulators. For example, in markets like the US, Australia, the UK and Canada, the regulators’ websites act as education centres and conduits where individual investors can find details of advisory firms and individual advisers, and can understand the right questions to ask. Hong Kong is evolving three-times as fast as when compared with the more developed markets, when they were at the equivalent part of their own financial services cycles. It is with this in mind that the evolution of regulations and the implementation of these in relation to the EAM industry needs to be considered. In particular, they need to be given more attention as the EAM business concept is still quite new in Asia. The EAMs themselves also play a part in working with the respective regulators and helping to develop the industry as a whole. WISH-LIST FOR EAM / IAM GROWTH Sanam Ramchandani: To enable the industry to develop more quickly, and widely, there needs to be better awareness and understanding among clients of the IAM model. This includes why they need this type of service and the benefits that they can get from it. Alex Walker Financial Partners 5 Contact details and company profiles of participants Stefano Fiala Chief Executive Officer Veco Invest Philippe Legrand Chief Executive Officer London & Capital Asia Joe Attrux Chief Executive Officer Harris Fraser Group Peter Lee Managing Director Veco Invest Asia Sanam Ramchandani Deputy Chief Executive Officer London & Capital Asia Marc Geary Head of Private Wealth Management Harris Fraser Group VECO INVEST is an independent asset management firm founded in 1988 and is a member of VECO Group SA (est. 1973), serving clients in Asia, Europe and Latin America. We provide independent asset management and investment services in Hong Kong, Lugano and Zurich. Our Group has a presence in over 10 countries worldwide offering services in asset management, trust and foundations, multi-family offices with the highest level of independence and discretion. We aim to provide personalised and tailored 360-degree solutions to meet our clients’ needs. London & Capital Asia is an Independent private wealth manager / investment banking boutique that aims to provide tailor-made services to answer the financial needs of private families and institutions. Harris Fraser Group is a boutique provider of wealth management solutions for high net worth individuals, their families and charities. Harris Fraser assists clients to build and preserve their financial wealth by delivering superior strategic (goals-based) advice and risk-adjusted returns to investors. With offices in London and Hong Kong, the Group has over US$3 billion of funds under Management; it is 100% employee owned and is SFC (HK), SEC (US), and FSA (UK) regulated. Contact details: E joe.attrux@harris-fraser.com Contact details: E Philippe.Legrand@londonandcapital.asia Contact details: E stefano.fiala@vecoinvest.ch Contact details: E marc.geary@harris-fraser.com Contact details: E Sanam.Ramchandani@londonandcapital.asia Contact details: E peter.lee@vecoinvest.h 6 Contact details and company profiles of participants Alison Lo Managing Director Target Capital Management Alice Yim Director Target Capital Management Target Capital Management Limited was established in Hong Kong in 2006 as an external asset manager to provide comprehensive financial services and solutions to private clients with focus in Asia. Our philosophy is professionalism and long-term commitment in the private banking industry. Contact details: E alison.lo@targetcm.com Contact details: E aliceyim@targetcm.com Alex Walker Director, Wealth Management Financial Partners Financial Partners Ltd was established in 1988 and is Asia’s oldest independent wealth management firm providing advice to individual and corporate clients based in Asia, Australasia and Europe. Ownership of the business is retained by staff to ensure interests are aligned with that of the client and Equities & Freeholds Ltd (EQF), a listed company on the ASX. Financial Partners remains at the forefront of the independent wealth management industry by offering an open architecture platform that provides clients access to over 260 different products and services. Financial Partners also prides itself on being able to offer tailored, transparent fee and service levels to match each client’s needs. The firm is committed to being market leading and is constantly looking at new ways to add value to the management of a client’s financial and personal affairs, whether this be on a retail level or with our business partners. Contact details: E alex.walker@f-p.hk 7