In its recent report on the effects of the Covid-19 pandemic on Asia’s wealth management industry, global consulting firm McKinsey highlighted four key themes it believes will gain prominence in the sector when the virus recedes.
Changes brought about by pandemic could see a renewed emphasis on operational risk, increased reliance on digital and analytics across the wealth management ecosystem, a transition to customer-centric advisory, and industry consolidation, according to the report.
In addition, McKinsey anticipates increased structural shifts between onshore and offshore markets.
“I’m not sure we can define a new normal for the industry yet. Even over the past three months, we’ve seen several shifts in clients’ attitudes to risk, to their investment horizon and asset allocation,” says Michael Blake, head of region and CEO, Asia, Union Bancaire Privée (UBP).
“What we can say today is that clients more than ever are looking for a solid and responsive partner who can deliver customised investment advice. Wealth managers who offer this will continue to succeed,” Blake adds.
And for wealth managers in Asia, the shift to mobile, remote and flexible working arrangements brought about by the pandemic-induced social distancing measures has amplified potential operational risks.
As a result, financial regulators in Asia might soon demand that the wealth management industry implement new contingency plans or increase spending to prepare for another black swan event.
The lockdown and travel constraints due to Covid-19, says Cedric Lizin, regional head, Asean and South Asia, private banking, at Standard Chartered Bank, saw his bank accelerate specific digitisation efforts, such as e-instructions, where there are no longer hardcopies being exchanged between departments as part of internal processes; verification of client’s ID prior to onboarding via video-call, instead of face-to-face; and email confirmations or e-signatures from clients, instead of wet signatures on hardcopies, not only for account opening documents but for others as well.
The manner in which the wealth industry rapidly adopted a number of digital solutions to counter Covid-19 constraints has expedited and made the case for increased digitisation in the sector even stronger. This momentum will surely continue and eventually straddle all aspects of wealth management from client interaction to analytics, portfolio advisory capabilities, and execution.
“At a time when physical connections have been radically curtailed, digital tools allow us to stay informed, communicate, and maintain our relationships with clients, partners and each other,” points out Vincent Magnenat, limited partner and CEO for Asia, at Lombard Odier. “In a sense, technology has helped us foster stronger relationships with clients.”
Also, some bankers, he notes, have felt closer to their clients as conversations have often taken place in the comfort and intimacy of the clients’ homes.
“We are seeing an extent of new normal manifesting in several ways,” says Standard Chartered’s Lizin. “Most evidently, we are engaging with clients differently now. Our RMs [relationship managers] are spending more of their time speaking to clients and advising them, instead of fulfilling administrative tasks.”
“We have also seen a material increase in digital adoption by clients during the crisis,” he adds. “In the last two to three months, clients have become more comfortable using digital means to interact with us.”
“We’ve become more digital, both in terms of how we work with clients and across teams,” Blake notes. “I think this is here to stay.”
“Often, the digitisation debate within the industry is presented as a zero-sum game between the competing models of robo-advisory and high-touch relationship management,” he adds. “Covid-19 has shown that digitisation isn’t just about building low-touch client systems, but is also about ensuring strong IT resilience to support higher-touch relationship management, which UHNW [ultra-high-net-worth] clients rightly expect.”
But even with cutting-edge technology that facilitates a wealth manager’s ability to stay close to clients, ultimately it’s the quality of the advice and services that still makes the difference, Magnenat points out.
The Covid-19 driven market turbulence has also had a significant influence on investors attitudes in Asia. For some, trust in financial advisors and investment markets will have diminished, and they may not return until the pandemic is eradicated, if at all.
For other more bullish investors, they too may now seek a safer, less volatile approach for at least some of their portfolio.
In either scenario, opportunities for wealth managers to re-engage with clients and put them back at the core of their business have emerged.
“There are some clients who decided to de-risk and adopted a wait-and-see attitude, and they are waiting for the market uncertainty to stabilise,” Lizin states. “We developed a new cash alternative offering to suit their needs.”
And then, there is another group of clients who saw opportunities in the volatile markets and increased their risk exposure accordingly.
“These clients have among other things invested either in derivatives products, such as fixed-coupon notes in order to get market exposure but with downside protection, or in alternative investments that are low beta and less correlated to equity markets,” Lizin adds.
According to UBP’s Blake, his bank has seen increased client interest in discretionary solutions and “new era” investment themes, such as digital economy and impact investing.
In response to the increasing interest in impact investing across Asia, UBP recently launched a new emerging equity solution that broadens its existing impact investment platform.
“Our senior RMs have found that key clients are now more accessible to a review of their portfolios, and clients are expressing more interest in discretionary portfolio solutions,” Blake states. “Covid-19 cannot become an excuse for delay or inaction. We must move forward whilst evaluating the uncertainties of the new environment.”
On the same topic, Lombard Odier’s Magnenat says: “We find that because clients have more time on their hands. They think more about topics outside of just the markets and their investments. This means we are better able to engage them on a wide range of topics, such as investments, wealth planning, philanthropy, and sustainability.”
“In addition, we see that this is actually happening both ways during this period – clients are also coming up to us and expressing a keenness about these topics.”
McKinsey, in its report, says the lower valuations brought about by the pandemic may present acquiring firms with an opportunity to increase scale, gain new capabilities, or enter new markets. Among potential acquisition targets could be small or niche wealth management firms and fintech companies struggling to stay in business.
The damage wrought on the industry by the Covid-19 pandemic has already made its presence felt at major wealth managers and private banks. And while they have ample financial clout to endure the virus fallout, smaller boutique firms and emerging wealth fintechs without such resources could now be ripe for acquisition.
Clearly the Covid-19 pandemic, while being contained in Asia, is far from over as recent news out of Beijing confirms. Wealth managers must be vigilant and prepare for a second wave.
Looking ahead, UBP’s Blake says: “Our operational resilience during the first wave of Covid-19 gives us confidence in our team, confidence in our systems, and confidence in our ability to manage a resurgence of the pandemic.”