HSBC’s outsourcing to SEI is a model move

The global wealth management business model has definitively assumed a new characteristic with the announcement of a global partnership between SEI Investments and HSBC Republic.

The deal signals a willingness by a major global private bank to outsource, at this stage partially, a core component of asset management to an institution which in the past could easily have been viewed as a competitor. The process of outsourcing asset management to third parties is already very much in play in the fund supermarket concept, but it is still a novel concept as a dedicated asset management suite. This deal demonstrates early signs that the wealth management business is starting to recognise the critical economic dividing line between the practices and the processes of wealth management. Practice and process In the future, private banks will continue to earn the bulk of the relationship fee through the provision of wealth planning with a critical focus on strategic asset allocation – the practice. At the same time, as the concept of best of breed becomes fully embraced, banks should consider utilising third party expertise for the lower margin, higher volume asset management business – the process. HSBC Republic is not adverse to being the trailblazer in the wealth management industry. In 1998, HSBC Group signed a landmark deal purchasing Republic New York Corporation and Safra Republic Holdings for $9.85bn (E8.9bn). At that point, the deal vaulted HSBC into the major league of global wealth management, jostling for position with the big houses of UBS, Credit Suisse, Morgan Stanley, Goldman Sachs and Merrill Lynch. The deal with SEI effectively suggests that HSBC Republic may now be viewing the next stage of its business building strategy in private client business. The use of outsourced asset management can enable scalability in non-core areas while focusing on core strengths. Struggle to reconcile It is likely other private banks may look closely at the deal. This year’s management consultant surveys say private banks continue to struggle with reconciling their business models with the current market climate. Shifting away from offering asset management in-house is a major change of tack. It could explain why the SEI-HSBC deal was made with little fanfare. Yet the importance of the deal is no less significant. Sebastian Dovey is managing partner at wealth management strategy think-tank, Scorpio Partnership.

‘Other private banks may look closely at the deal’

Sebastian Dovey, Scorpio