Ball now in boutiques’ court for Asian recruitment game

A shortage of experienced private bankers has always been the key challenge to wealth managers’ expansion plans in Asia, but while large, global brands have generally had the upper hand on smaller boutiques in attracting seasoned relationship managers, the wheel has now turned. 

Private bankers at global firms are increasingly interested in joining “more boutique private banks, the likes of Pictet, Lombard Odier or Rothschild”, as they allow them to be more flexible with clients, observes Simeon Fowler, CEO of Fowler Fox & Co, a private banking headhunter with offices in Hong Kong and Singapore.

 “Big firms such as UBS, Credit Suisse, Citi or Standard Chartered have been burnt so much because of regulatory issues and have become extremely cautious,” he says. As a result, they are tightening up on their own business and offloading client assets. This in turn leads to a migration of bankers. 

“If you have been working for a bank for 10 years and somebody walks into your office one Monday morning and says ‘we are going to get rid of 10 of your clients you spent the last five years trying to cultivate’, you are going to be pretty miffed about that,” explains Mr Fowler, who started his career as a private banker at Coutts in the UK. 

Large banks are currently under the regulatory radar much more than smaller banks and are closing client accounts not necessarily because they are suspicious, but because they no longer fit their corporate model. “The regulator isn’t running after the smaller players so aggressively, although of course they still have to adhere to regulation. But they have got five or 10 years on UBS, because no one looks at them in such detail,” says Mr Fowler.

Many of the bigger banks have now got “superb systems” and are much more sophisticated in their ‘know your client’ (KYC) assessment, and accounts that have been sitting with these banks for years are scrutinised much more deeply. 

Checks needed to open an account with a big bank in Asia are far more stringent than those required 10 years ago. Some of the American banks, in particular, can find it very difficult to onboard new clients. 

Politically exposed clients are now carefully avoided, as banks have re-assessed the threat to their brands from being linked to corrupt politicians, as happened in Malaysia.

Smaller boutiques do not have the inherent brand image to protect, and may decide it is worth taking slightly more risk when vetting customers. Moreover, they can lure private bankers by offering them inflated job titles and higher salaries. 

“It is very good time for small private banks to hire, whereas in 2007, when we got here, it was the wrong time, as everybody was fighting for the same market,” states Mr Fowler. 

Smaller private banks, such as Bank of Singapore, can be more agile when chasing customers, as they don’t need to go through all the bureaucracy and red tape of bigger organisations, so it could be an opportunity for them “to sweep up” the right account, he says. 

Employing the right leader is key to expansion. The Asian wealth management market is very much driven by leaders moving, so much so that recruiters have dubbed this the ‘pied piper syndrome’.

“You never ever move bankers on a stand-alone basis, everybody moves en masse with their leader, believing he or she will protect them,” says Mr Fowler. 

Even Barclays, whose brand has been severely dented by recent regulatory fines, has enjoyed “phenomenal success” attracting talent, because of recruiting the right leaders to run North Asia. 

However, for some private bankers it may be more difficult than others to move to a competitor. “In Hong Kong, nobody really wants to hire HSBC private bankers, because clients love the brand,” says Katie Brunt, a Fowler Fox director specialising in greater China and Southeast Asia. With more than 70 per cent of HSBC’s profits coming from Asia, and most private clients having an account there, mass defections are extremely unlikely. At Citi, client assets are also very sticky, thanks to its brand.

It is becoming increasingly difficult for bankers joining a new institution to move a large tranche of assets with them, as was once expected. Private bankers at JP Morgan, for instance, do not “own the client” like in other banks. Clients are institutionalised, looked after by both bankers and investment professionals in a
team approach, which is “quite unique” in the sector, according to Fowler Fox. 

Although many other banks profess to follow this model, the American bank “is at the forefront, because they can commit the resources to it, as this approach is extremely expensive”. This model protects the bank from the “huge client attrition” of domestic Asian private banks.

JP Morgan has traditionally focused on the ultra-high net worth space in Asia, but in the past five years it has also been building its high net worth business. During 2015, its two previously separate arms, one servicing high net worth clients with $5m to $30m in assets, and the other servicing ultra-high net worth clients with more than $30m, merged into a single unit.

“If you are only playing in at the top level, you are missing that entire growth of wealth at the level below that,” states Rahul Malhotra, head of Southeast Asia, JP Morgan Private Bank.

While the ultra-high segment continues to be the dominant one for the private bank in terms of both revenue and assets, the high net worth bracket is growing much faster, he claims.

Solutions need to be much more bespoke to meet the needs of the ultra-wealthy families and more standardised for high net worth clients, but the real challenge is finding bankers and investment professionals “who can satiate the bank’s appetite for growth,” says Mr Malhotra.

To attempt to fill this gap, the bank runs a three year analyst programme for graduates sourced from local, European and American schools and trains them through an in-house programme, including secondments to the US. 

New hires are made from private banking as well as the broader financial industry, and may include investment bankers, as well as professionals in the private equity or hedge fund space. 

“What is important is that people have client skills, having dealt with clients throughout their careers,” states Mr Malhotra, recalling that in previous banks he worked for, private bankers were recruited from areas as diverse as the technology and hospitality sectors.

“You have a lot of superstars out there, who have large books of businesses, with large revenues, but these won’t necessarily be a fit in JP Morgan,” says Mr Malhotra. “We have to be selective in who we hire, we want team players, be they with grey hair or be they without grey hair, and they have to be able to work within our culture and framework.”  

The role of the private banker at JP Morgan is to onboard the client and drive the relationship to the different needs the client has, be it investment banking, private banking, philanthropy, wealth structuring/advisory or just lending. The investment professional, in particular, is an integral part of the relationship and talks directly to the client. “We don’t even allow our bankers to input any trades in the system,” he says.

Today’s wealthy private investors want to know a lot more about investments and financial markets, and technical skills are much more important today compared to the past, “when a good old private banker would just fly in and fly out of countries, wining and dining the clients and nothing much more”. 

JP Morgan is among the top five private banks in the region, claims Mr Malhotra, and aims at growing its business further. “But growth is not just about hiring private bankers. This is where the industry got it wrong.” 

While there will always be need for more bankers, what is important is to “create capacity”. This can be achieved through technology and better processes, to improve efficiency and private bankers’ productivity. Operational efficiency starts from client on-boarding, through both process and automation, which leads to better client experience, he states.

Segmentation is vital to making sure the right bankers are dealing with the right clients. Private bankers in the ultra high net worth segment can manage no more than 25 to 30 clients, explains Mr Malhotra, and should only be focusing on the largest relationships, leaving smaller accounts to private bankers in the high net worth space.

As well as deepening the relationship in the ultra-high net worth space, capacity is important to be able to build scale in the high net worth business.

“Without scale in this business it is very difficult to operate because your costs are just going to take any revenue you have the ability to generate,” he says, estimating that private banks in Asia need to reach at least $30bn to be able to operate efficiently.

Among those banks going through a heavy restructuring process are Asia-focused UK institution Standard Chartered, which announced in late 2015 that it would save $5.1bn in costs and cut 15,000 jobs by 2018.

The private banking segment is going to emerge stronger from this process, maintains Stephen Richards Evans, head of ultra high net worth business at Standard Chartered Private Bank. The bank is investing heavily in technology and people, in particular in the retail and private banking businesses, as well as in services related to RMB internationalisation. 

Standard Chartered’s ability to source private bankers from the priority bank is a key advantage, says Mr Richards Evans, who plans to increase numbers by 12 per cent over the next three years. Finding someone who can meet
the sophisticated needs of ultra-wealthy families is not easy, and therefore professional training plays a key role. 

“We bank tomorrow’s high net worths, who are today’s affluents, through our priority business, so that we have a kind of straight-through train in terms of the continuum of wealth, not only of clients but also people that advise them,” he says.

Another “great source” of private bankers is the group’s corporate and institutional bank, especially now the bank is restructuring, says Mr Richards Evans, as the staff understand the organisation’s culture and values.

“In private wealth management, it is all about people, whom you have to be able to select and grow, but in order to hire you need funding,” says Thomas Meier, head of Corporate Sustainability at Julius Baer in Zurich. He was previously regional head of Asia Pacific at the Swiss bank in Singapore for the last 10 years until the end of 2015, after which his role was taken over by veteran banker Jimmy Lee, hired from Credit Suisse, the first Asian to join Julius Baer group’s executive board.

Asia is Julius Baer’s “second home market” with nearly a quarter of the group’s assets under management globally – SFr300bn ($305bn) – having integrated Merrill Lynch International wealth management’s regional business during 2014. 

“Every region needs to be understood from within and you need to adapt your processes and solutions,” and it is important to have the agility or the authority within a global organisation to allow that to happen, says Mr Meier.

This is essential when it comes to serving clients, which in Asia is very different than Europe, notes Luigi Vignola, head of the markets and investment solutions group for Asia Pacific at Julius Baer. “Asian clients require much more interaction and proximity to markets, so if you just copy and paste your service model, you might do it in a cost-efficient way, but you are completely out of sync with the market.” 

It is important to hire capable, client-facing staff, but also professionals able to understand client requirements and convey those to product people, who can then develop the right solutions and services. 

“There is no shortcut, you have to breathe local air and have people on the ground,” says Mr Vignola. “Put it the other way round, people here like spicy food but if they take it to Europe, the food might look perfectly good, but it would not be the right product for those markets.” 

Case Study: Maybank

Malaysian bank Maybank, which has a banking or brokerage presence in all 10 Asean countries, and manages $6bn in private banking assets, has the ambitious target of building scale, by reaching $20bn in client money over the next three to four years, explains Alvin Lee, regional head of wealth management.

This would be quite an achievement. Malaysian and Indonesian banks “will find it very hard” to penetrate such a competitive market like Singapore, according to consultancy Fowler Fox. Moreover the Malaysian bank was rather a latecomer to the City state. The bank segmented its client base, and established the newly-created Private Wealth team, catering to clients with at least $700,000 in investable assets, only in late 2013. The bank aims at serving both local as well as offshore clients in Singapore, while the Premier Wealth division in Malaysia serves mass affluent clients.

The bank has around 40 private bankers working in Malaysia and Singapore and plans to hire 20 more this year. Many private bankers are sourced from the ‘priority’ or ‘premium bank’ and “upskilled”, says Mr Lee.

“We never set out to compete with the likes of the big banks. We just want to have a private banking service to make sure our corporate or retail banking clients are well served, when they qualify as private banking clients. We have a sizeable client base to capture,” he says. 

“I do not want prima donnas, or star bankers, but to be extremely pragmatic, I think it would very difficult to attract a star banker to Maybank, they will probably want to go to Goldman Sachs, JP Morgan or Morgan Stanley.” 

A lot of candidates, joining from priority banking, use Maybank as a stepping stone, he admits, to become private bankers and then try and join bigger banks. “Attracting talent is difficult, retaining talent is equally difficult,” says Mr Lee.