MERRILL’S TOP MAN LOOKS AT THE ‘MACRO PICTURE’

When Antony Hung, the Hong Kong-based head of Asia Pacific Global Wealth Management at Merrill Lynch (ML) and a 17 year ML veteran, was appointed to his current role in July 2008, he could not know that one of the most dramatic days in recent financial history was yet to come. On that Black Monday of mid-September, the world woke to the shocking news that Merrill Lynch had agreed to sell itself on to Bank of America Corporation (BAC) for roughly $50bn while Lehman Brothers had filed for bankruptcy protection and gone into liquidation. BAC had set its sights on Merrill Lynch’s lucrative wealth management business, as well as its corporate and investment banking, which would complement its consumer and commercial banking capabilities. But the uncertainties of the merger led a number of private bankers to jump ship, concerned about the challenges of mixing ML’s wealth management traditions with BAC’s retail brand, according to consultants in the industry. The management shake-up at Bank of America has culminated recently with the appointment of former Citigroup executive Sallie Krawcheck to run the bank’s global wealth management unit. WELL POSITIONED Speaking from ML’s offices in Singapore on Raffles Link, overlooking the fast-developing Marina Bayfront, Mr Hung – who has just landed in the Lion City from Hong Kong in one of his weekly trips to oversee the region – is keen to give his views on the developments of global finance. “The financial markets will be dominated by three major categories of services; consumer retail, investment banking and wealth management,” says Mr Hung. “Our firm is so well positioned, as we are world class in each of these categories,” he says. The strong deposit base of the group’s consumer banking gives private investors confidence and safety, especially after the financial crisis, claims Mr Hung and the investment banking opens up to wealth managers a universe of innovative products and expertise. “The combination of these two businesses allows us to have a much wider scope in terms of wealth management in this region,” he says. Indeed, one of the main objectives of Mr Hung, who was previously head of fixed income, currencies and commodities for the Pacific Rim at ML, is to improve synergies between the global wealth management division and global markets and investment banking. “In the wealth space there are three different stages, the first is wealth creation, the second is wealth management and the third stage is wealth succession. In Asia we are somewhere between the first and second stage,” he says. Time to diversify In the 20-30 years of economic growth in Asia, the region’s rich, mainly entrepreneurs, have accumulated a lot of expertise in their own business, and now they will need to diversify into other lines of business or raise capital, as well as diversify into financial assets. “As the process of wealth management continues, the link with the institutional side is extremely important,” believes Mr Hung. High net worth individuals, who have been taking considerable risk in their wealth creation process, think they can take the same risk when investing in financial products, says Mr Hung. “But it is our role to advise them to do the right thing, to analyse their business exposure, understand their overall portfolios and investment objectives, their financial and family situation.” He states that ML is seeing “significant” amount of net new money in wealth management in Asia – where the firm set up private banking operations more than 40 years ago – and this is testament to the group’s portfolio management ability. “We have been able to weather the storm of the financial crisis much better than wealth management firms who are transaction oriented,” he claims. Indeed, according to the Global Private Banking KPI Benchmark 2009 from consultancy firm Scorpio Partnership, BAC overtook UBS in 2008 to become the world’s largest wealth manager. The firm currently has $1,100bn in assets under management and around 16,000 financial advisers. “We have to distinguish between confidence and trust,” continues Mr Hung. “Investors’ confidence in financial markets dropped during the credit crisis, but the trust between us and our clients has increased.” While the absolute return of different portfolios will vary depending on risk profile, what is important is that “the portfolio return is consistent with the initial objectives and risk profile of the high net worth individual,” says Mr Hung. “Wealth management is not about pushing popular ideas, nor is it just about agreeing to sell what the clients want. If anyone wants to take a risk, it has to be some risk that they understand, that they know how to analyse, how to control and monitor.” A lack of experience In a very transaction-oriented region like Asia, where advisers are money-driven, often astute product pushers, “there is a shortage of experienced wealth managers with the right mind-set,” says Mr Hung, who nevertheless has aggressive growth plans for its team of 700 advisers. “We are looking to expand, and the major growth opportunities are offered by China, Japan, India, Australia, Hong Kong and Singapore,” he says. ML wealth management operates from the hubs of Hong Kong for North Asia and Singapore for South East Asia. It has an onshore presence in Japan, India and Australia. “We are covering China from an offshore basis from HK for the time being, but China is definitely a strategic market for us where the company is going to invest a lot of resources,” he says. Mr Hung states that he will be hiring people that are “already experienced and with the right mindset,” through a number of sources. They are also training new people to come into the industry, and the firm has developed a programme which aims at identifying those attributes that make advisers successful in the long term. This forms the base of the in-house training programme. “We always look at how to maximise our customers’ wealth and by maximising customers’ objectives we maximise our own objectives,” he says. Mr Hung states that financial advisers at Merrill Lynch do not have yearly financial targets, which encourage short-term goals. “Financial advisers need to make sure that they manage the clients’ wealth well all the time,” he says. “We have comprehensive data for every client and regular account review and profiling, through which we can make sure that the right products are sold to the right customers, according to their risk tolerance and objectives.” Mr Hung is a strong supporter of the commission-based remuneration model used at Merrill, where advisers are paid a percentage of the revenue they make to the firm. He believes this right compensation structure encourages the right behaviour, unlike the one based on basic salary plus bonus. “The calculation of advisers’ commission is based on the transactions they make, but this model develops a mindset for the longer term because they make money based on a very transparent formula and they are not subject to any discretion or pressure from the management, like when they get a bonus,” states Mr Hung. There is an obvious objection that advisers could be encouraged to sell more products to make more money. He admits that, based on market changes and in-house views, they will recommend to clients to adjust their portfolio, which will generate transactions, but the ultimate objective is the management of their wealth. Mr Hung has targets to meet, but these depend on the growth strategy. “My own target is not based on the individual financial advisers’ targets,” he says, “but on the macro picture.” According to the latest ML Global wealth report, by 2013 the Asia Pacific region will overtake North America in terms of high net worth wealth. “We are fortunate to be in this part of the world. My objective is not a yearly objective, but it is related to how I am going to take advantage of this growing wealth. Maybe during this process I will need 1500 financial advisers from 700 now, and this is the kind of strategy that I need to implement as leader,” he says. “If the overall strategies work well in the countries that we have identified, the increase at macro level will more than offset the individual quarterly variations of profitability for each financial adviser,” he says. Mr Hung believes that as the domestic financial markets continue to grow and there is more variety of financial instruments, investors will be encouraged to diversify their assets, which currently lie mainly in deposits. Then, perhaps sending a veiled message to competitors in Asia, he says: “There will always be people focusing on the short-term targets, but I am Asian, I will be here forever and I will be growing together with this region in the long-term.”