Smaller product menus appeal to Asian private banks

Stricter regulation may have made the sale of mutual funds a lengthy and complex process. But around 60 per cent of the total $1.14tn (€872bn) fund assets in Asia ex Japan have been sold through banks, according to Cerulli at the recent FundForum in Hong Kong.

In certain places, it is easier to get married than to buy a mutual fund, commented Lennie Lim, managing director Apac at Legg Mason.

Private banks are estimated to have distributed between only $40bn and $70bn of total fund assets in the region, a  figure that is likely to be underreported as a significant portion of assets are booked in Europe. But they are largely considered the most attractive channel: wealth in the region is growing rapidly, money is relatively “stickier” and revenue margins are higher than in retail banks.

Competition between asset managers has stepped up, as private banks have become extremely selective about the funds they recommend to clients.

According to Greenwich Associates, Asian private banks hold between 100 to 800 products on their platforms, but just 15 funds make up around 80 per cent of their sales. High concentration of flows makes private banks even more demanding on service levels and access to managers expected from fund providers.

At Citi Private Bank, around 75 per cent of fund flows go to a ‘top pick’ list of eight to nine funds, which are actively recommended to clients, explained Roger Bacon, head of managed investments Asia Pacific.

Developing complex products can be “self-serving for manufacturers”, who believe such solutions differentiate them from others. “Simplicity is really important. If you can’t explain a product in 60 seconds, you lose the attention span of the client,” he said. Traditional mutual funds are “largely commoditised” and it is only in the real estate/private equity solutions a bank can differentiate itself from the competition.

At Credit Suisse, cutting the number of funds on the master fund list from 300 to 40 was “well received by relationship managers”, according to Anne Ackerman, vice president at the bank. “Less is more,” she said. Clients like well-known brands, so a solution pursued by the Swiss bank to differentiate itself from the competition is to come up with “exclusive offerings”, at least for a specific period of time.

Fund penetration is increasing and there is room for growth, believes Olivier Pacton, head of private bank investment group, Asia-Pacific at HSBC. Thematic funds such as US real estate, Asian dividend equity, luxury brands or Brazilian equity are successful with wealthy clients.

“What does not work is a global equity or balanced European fund,” he said, speaking to PWM, noting that over the last few years interest has however grown for broader investment themes such as South-East Asia.

Banks are too fee-oriented, their trading mentality is hard to shake off and private institutions in particular should really adopt a more holistic approach, complained speakers at the forum.

Research from Scorpio Partnership suggests around 50 per cent of HNWs in Asia look at financial advisers for wealth management advice, but the key question remains whether they are willing to pay for it. What would work better in Asia, according to speakers, is not a European-style discretionary model but a wrap fee-based platform where clients approve every single transaction.

Exciting news in the Asian fund industry relates to the gradual opening of the wealth management market in China to new players, as well as to the growth opportunities offered by the China/Hong Kong mutual recognition of locally registered funds, still work in progress. And then there is the long-awaited dream for a pan-Asian Ucits-style passport, but fund managers at the forum believed they will still be waiting for it in five years’ time.