IMPROVING THE ADVISORY CAPABILITY IN ASIAN WEALTH MANAGEMENT

Transcription

1 Roundtable July 2012 IMPROVING THE ADVISORY CAPABILITY IN ASIAN WEALTH MANAGEMENT Our co-host for this roundtable: Gerard Clancy Executive Director, Wholesale Distribution, Asia Pacific Threadneedle Investments T E gerard.clancy@threadneedle.com One of the biggest challenges for the Asian wealth management industry continues to be how it can encourage clients to think longer term, and in a more diversified way, as part of their portfolio strategies. With asset allocation in the region being different from what Western approaches suggest it should be, getting Asian clients to divide their investible assets more evenly across bonds, balanced funds and equities is difficult. Asian investors also don t tend to think from a total return perspective. Plus, their views of time horizon and the fact that their emotional time horizon leads them to look at performance and perceive risk in the short term are a huge factor in the investment decisions they make. Trying to break the cycle by getting investors to look at options such as discretionary mandates for long-term growth, or diversifying away from real estate, for example, seem elusive. In particular, Asian investors tend to shy away from discretionary mandates towards a more active involvement. These were some of the thoughts of product gatekeepers and advisory specialists at a roundtable discussion co-hosted by Hubbis and Threadneedle Investments in Singapore in July 2012, around the concept of how to build a true advisory capability. Yet bankers and advisers play a critical role in encouraging clients to look at the merits of asset allocation and discretionary mandates on an objec- tive basis, rather than pushing individual products and giving clients the impression that this is all the industry can offer. One approach, therefore, might be to create a specialised discretionary mandate with an advisory allocation portion, so that it has an element of client-directed investment to it. At the same time, trust is a key part of success in this area. As is the fact that investment time horizons are often driven by the timeframe for an adviser s own performance measurements as well as the evaluation of the institution s performance. Managing client portfolios must also increasingly be about using technology solutions in a smarter way, such as the use of automated real-time riskcontrol mechanisms to help advisers have more instructive conversations with clients about their positions. Ultimately, it is critical for frontline advisers to constantly improve their understanding of their clients needs and what they are trying to achieve. This will enable them to drive conversations based on client expectations both about the markets as well as their returns and how to achieve and implement this over the long term. Improving advisory capabilities also needs to involve a combination of asset allocation and the bank aligning its interests with those of the client. Banks can then hope to steer clients using a step-by-step approach first to a guided advisory model and subsequently to discretionary management. 1

2 Chairperson Hansi Mehrotra Managing Director, India Hubbis Participants Rajesh Manwani Head of Advisory, Products & Sales Singapore Credit Suisse Private Banking Alexis Calla Global Head, Investment Advisory & Strategy, Group Wealth Management Standard Chartered Bank Dennis Harhalakis Head of Products & Services Private Banking Chinatrust Commercial Bank Tang Hsiao Ching Head of Fund Solutions, Asia Bank Julius Baer Ron Lee Head of Investment Advisory Private Banking, Asia Union Bancaire Privee Nikk Low Senior Investment Counsellor EFG Bank Rohit Jaisingh Senior Director, Capital Markets and Structured Products, Asia Pacific ANZ Bank Peter Brooks Behavioural Finance Specialist Asia Pacific Barclays Edmund Gomes Head of Active Advisory, Wealth Management Services, Singapore BSI Bank Gerard Clancy Executive Director, Wholesale Distribution, Asia Pacific Threadneedle Investments * The views expressed at the discussion were solely on a personal basis and not representative of the organisations represented. HNW CLIENT APPETITE Hansi Mehrotra: Which asset classes and products are clients investing in at the moment? Dennis Harhalakis: Clients are interested in the asset classes which are performing well, which is no longer clear cut after the past few years. When it comes to equities, the question is whether we can trust equities as an asset class, and then which part of this asset class. Edmund Gomes: I agree that for single-name equities, it is difficult to determine the outlook for the business. Investing in these requires a client with a certain amount of conviction or on-the-ground knowledge of the company and sector to feel comfortable enough to invest. However, equities on a more thematic basis, whether with ETFs or managed funds, there are some cases where clients are happy to buy the whole S&P500 to take market exposure, for example, or energy as a sector play, or global emerging markets as a theme. Tang Hsiao Ching: Although clients remain wary in terms of equities, there is still activity from a fund perspective, and especially in markets and for sectors we as a house are bullish on, for example, liquid markets such as the US, clients want ETF exposure. In times like in 2011, where correlations are high across the board, markets are less fundamentally driven and many passive strategies outperform active strategies. However in periods where markets are more fundamentally-driven, active managers have proven to outperform passive strategies as managers are rewarded for their stock-picking skills. Hansi Mehrotra Hubbis 2

3 Nikk Low: There seems to be a distrust of the equities markets, with a seemingly constant outflow from equity mutual funds. A key reason for this is volatility, which is driving funds towards fixed income. But volatility often opens the window of value opportunity as well as tactical plays concentrating on relative performance across different segments of the market. One of the effective tools used to express outperformance conviction is via structured products. Tang Hsiao Ching: It has been interesting to note that of our top 20 funds, a vast majority are bond funds. On the flipside, investors wanting equity exposure have tended to opt for equity-linked notes (ELNs) or direct investments. Rohit Jaisingh: The biggest trend we have seen has been the investment in high-yield debt. Clients are keen to buy this type of paper, whether this is low-grade corporates or high-grade corporates issuing subordinated debt or perpetual bonds. The placement of high-yield debt in the first five months of 2012 surpassed the levels of the whole of Tang Hsiao Ching Bank Julius Baer Clients are only taking notice when we are able to offer them an instrument with a headline coupon of 4% to 5%. Rajesh Manwani: We are also seeing a greater representation of fixed income than ever before in client portfolios and transaction flows. At the margin, strategic investors have steered away from equities and cash towards bonds, primarily direct bonds and sometimes funds. At the same time, FX flows have been strong given strong trading as well the increased volatility creating opportunities for yield-enhancement strategies. ETFs are being increasingly used. However, some of this increase has been in a trading context with a need for instruments with high liquidity and transparency. Alexis Calla: We ve also seen a rising interest in regional fixed income. Some clients are more receptive to discussing value plays in recent months, looking at good-quality stocks globally, especially in the cash equities space. The biggest trend we have seen has been the investment in high-yield debt. Clients are keen to buy this type of paper. Ron Lee: In general I have also seen a shift from equities to FX, with a lot of dual currency investments (DCIs) being sought. As long as there continues to be uncertainty in terms of the debt crisis in Europe, there will continue to be this appetite shift to shorter-term yield plays such as DCIs. In terms of managed equities, however, we have seen a shift towards Asian equities, and in particular highdividend paying stocks to buffer more (expected) volatility. 3

4 DISCRETIONARY MANDATES Hansi Mehrotra: To what extent is more money now going into discretionary mandates? Ron Lee: Investors with discretionary mandates tend to be European clients, although there has been some increase in interest recently from older-generation Asian HNW individuals who are now more open to managed portfolios with total return mandates. A more prudent way to customise an Asian client s portfolio would be to create a specialised discretionary mandate with an advisory allocation portion, so that it has an element of client-directed investment to it. But the number of clients in discretionary mandates is still a small portion overall. Nikk Low: Asian investors tend to shy away from discretionary mandates towards a more active involvement in the markets. There is room for discretionary mandates in client portfolios, particularly in a volatile market environment and in cases whereby it is difficult for an individual investor to efficiently manage a specific asset class, for example fixed income). Bankers and advisers play a critical role in encouraging clients to look at the merits of discretionary mandates on an objective basis, rather than pushing individual products constantly and giving clients the impression that this is all we can offer. Gerard Clancy: Asset allocation in Asia is very different from what Western approaches suggest it should be, with 20% more speculative money and the rest safe assets money. So trying to get Asian clients to divide their assets along the lines of the Western mindset of 60% in bond funds or balanced funds, and then 40% in equities, is challenging. The challenge, therefore, is trying to access the 80% in Asia which isn t yet allocated to investments. This is often on deposit with local banks. Ron Lee Union Bancaire Privee 4

5 Dennis Harhalakis: With real interest rates in markets like Singapore being negative, given zero deposit rates and inflation of between 4% and 5%, this creates a problem for all investors. Thus, discussions about asset allocation and investment become skewed by the need to generate some form of fixed income stream. Alexis Calla: For many years Asian investors had limited investment choice. The primary way of protecting themselves from inflation was real estate, so this has become a default longterm investment solution. Investors would benefit from a long-term commitment to managed money. However, many discretionary solutions offered in this region have a strong equity component. Given that recent experiences with equities have been disappointing, a lot of work is required to significantly replace real estate in favour of managed equity investments. Ron Lee: In general, to purpose-fit a typical Asian client into a certain profiled discretionary portfolio is difficult, so a more prudent way to customise an Asian client s portfolio would be to create a specialised discretionary mandate with an advisory allocation portion, so that it has an element of client-directed investment to it. Rohit Jaisingh ANZ Bank Nikk Low: I think that if bankers and advisers took the approach of talking to them about the management of the overall portfolio, there might be more scope to discuss the merits of discretionary mandates. Clients might come to understand what is the more affective way to maintain a portfolio that truly reflects the risk profile and hence returns expectation. Edmund Gomes: One of the issues is the level of trust which is required for discretionary mandates, and there is a question-mark over the general level of trust that clients generally have in their bankers. However, once this trust is in place, which takes time, it becomes more realistic to have these sorts of conversations with clients about taking a discretionary approach. UNDERSTANDING THE APPROACH TO RISK Hansi Mehrotra: While it seems that clients are taking lower risk, the appetite for instruments and asset classes like high yield bonds and real estate to generate yield suggests a different risk profile. Why do investors move towards products which look like yield and have what is essentially an uncertain coupon, rather than invest in a balanced and longer term portfolio with equities and then sell down, for instance, to create yield. Peter Brooks Barclays Peter Brooks: Investors don t tend to think from a total return perspective, so when they think about equities they are mostly focused on growth and less focused on dividend-paying stocks. When they think about certainty of a revenue stream, clients look towards fixed income because of the coupon. 5

6 Being driven to deliver quarterly growth... will determine the way that advisers discuss products and portfolios with clients. into investors looking at performance in the short term and perceiving risk in the short term. Trying to break that cycle involves getting investors to look at other options, such as discretionary mandates for long-term growth, or diversifying away from real estate, for example. There is no guarantee that a series of short-term decisions amount to a good long-term investment portfolio. Hansi Mehrotra: What solutions can help investors counter this? Yet they don t think about the fact that with interest rate changes, the price of the bond fluctuates. This explains the preference towards fixed income and the supposed certainty of the coupon. Rohit Jaisingh: The key to understanding Asian clients better is knowing their time horizon for investing, and the extent of their desire to get out of these investments. It seems that since most Asian investors are entrepreneurs, and therefore have most of what they consider long-term growth assets in the form of their businesses and real estate. This is in contrast to a typical European investor who might instead rely on funds to deliver long-term growth. Asian investors therefore view what they have invested with the banks more as play money with which they look for quick returns and have a keen interest to be actively involved in the investment of this money. This leads to more interest in ELNs, DCIs and, to a lesser extent, high-yield bonds. views of time horizon are a huge factor in the investment decisions they are making at the moment. I think advisers in Asia are generally poor at communicating what time horizon is as a concept. It is when an individual needs to use that money for something else other than investing. For example, for younger investors who might have a long time horizon and high-risk capacity, it is natural to see them putting most of their money into equities with a long-term view. However, their emotional time horizon is significantly shorter. This translates Peter Brooks: At Barclays, we start with the basics of asset allocation, but with an understanding that investors can often be their own worst enemies meaning they often look to enter markets when they are at their highest and therefore when risk is actually at its highest, and then bail out of markets when they are at their bottom and when risk is arguably at its lowest given all the value opportunities. Even though nobody knows if an investment will still fall by 10% the following week, if they invest at or near the bottom of the market and have a long-term strategy to grow wealth, then it is the right time to invest. THE ROLE OF ADVICE Peter Brooks: I agree that investors Dennis Harhalakis Chinatrust Commercial Bank 6

7 Recognising this in advance enables bankers to think smartly about the product vehicles which they put clients into. For example, various structured products with look-back features can help reduce the tendency for investors to time the market. Rohit Jaisingh: Part of the issue comes from the fact that investment time horizons are often driven by the time horizon for an adviser s own performance measurements and the time horizons for evaluation of the institution s performance. Being driven to deliver quarterly growth in income generated for the organisation will determine the way that advisers discuss products and portfolios with clients. For example, advising a client on a long-term investment might run contrary to the way the adviser is evaluated by their employer. This might create a disconnect with a client s actual financial situation and objectives. Dennis Harhalakis: It is about creating an environment where an adviser is no more incentivised to sell one product compared with another, and is in fact incentivised to sell whatever works for the client. A flat-fee model, for example, means everyone Edmund Gomes BSI Bank is aligned, and it significantly reduces the possibility of mis-selling. Also, anything which increases transparency also increases trust. Edmund Gomes: Risk control is also important as a way to manage client portfolios defined by the volatility levels in a portfolio, the kind of concentration risks being run and the mark-to-market for off-balance sheet derivatives. Using automated realtime risk-control mechanisms can help advisers have more instructive conversations with clients about positions. IMPROVING ADVISORY CAPABILITIES Peter Brooks: I think it is critical for advisers to constantly improve their understanding of their clients needs and what they are trying to achieve. This will enable them to drive conversations based on client expectations both about the markets as well as their returns and how to achieve and Rajesh Manwani Credit Suisse Private Banking 7

8 asset allocation and the bank aligning its interests with those of the client. Alexis Calla Standard Chartered Bank implement this over the long term. This involves sound traditional finance in conjunction with some behavioural elements. Tang Hsiao Ching: While producers are always the priority regardless of market conditions, it is key to keep investing in the product platform even in difficult market conditions, to maintain the quality of advice given to clients. Edmund Gomes: All banks should invest much more in technology. They are running market risk across all products, and need to much better understand this. This will enable the banks to drill down much more easily and keep an eye on trading activities before any potential problems or issues arise with clients in relation to risk controls and suitability issues. Rajesh Manwani: While having a predominantly discretionary mandates based business would the ideal outcome for private banks, there is a big gap between this end-state and the current trading oriented bias of many clients. Banks need to steer clients using a step-by-step approach; first to a guided advisory model and then subsequently to discretionary management. This requires pragmatic but deliberate steps to be taken by banks and advisers. Nikk Low: I would like to see more done to improve the levels of trust between relationship managers (RMs) and advisers. The current remuneration seems to encourage transactional activities which could have led to both RMs and advisers conveniently taking individual products off the shelf and then hopefully clients buy them. Over time, advisers are seen by RMs as playing a very limited role in just sourcing products. Advisers should engage clients more and be given the opportunity to add value in portfolio management activities. Nikk Low EFG Bank Alexis Calla: To me, quite a few industry participants already have a real desire and the skill to deliver good advice. However, technology is key to improving transparency; it also gives the organisation the possibility to enhance scale and productivity. In addition, competency developed through ongoing training will remain essential to developing trust with clients. Gerard Clancy: Frontline advisers need to listen much more closely to what clients say they want, and then plan accordingly. Rohit Jaisingh: The industry would benefit significantly from improvements in the level of adviser and investor education and awareness. While there is a cost to this, it will lead to better quality advice, clients being better educated and would encourage clients to be more transparent about their financial objectives. Ron Lee: Improving advisory capabilities needs to involve a combination of Gerard Clancy Threadneedle Investments 8

9 CONTACT DETAILS AND PROFILES OF PARTICIPANTS Alexis Calla Global Head, Investment Advisory & Strategy, Group Wealth Management Standard Chartered Bank Dennis Harhalakis Head of Products & Services Private Banking Chinatrust Commercial Bank Edmund Gomes Head of Active Advisory, Wealth Management Services, Singapore BSI Bank Alexis is global head of investment advisory and strategy for Standard Chartered Bank. He has overall responsibility for defining the bank s advisory proposition and its delivery to clients of both the private and priority segments. His role includes overseeing the investment advisers globally. Alexis and his team are also responsible for establishing the bank investment outlook, generating investment ideas and identifying risks and opportunities across products, regions and asset classes. They also maintain the strategic and tactical asset allocation framework. Alexis joined Standard Chartered Bank in November He was previously with Citibank in New York where he was global head of investment products & advice for the retail bank. He brings with him 17 years of asset management, investment product and wealth management experience in Europe, the US and Asia. Alexis has a post-graduate degree (DESS) in finance from the University Paris 9 Dauphine. He is married with two children and currently lives in Singapore. He enjoys skiing, photography and reading essays and fiction. Dennis Harhalakis has over 25 years market experience, covering all major assets classes. He has been involved in setting up and managing wealth product platforms since 1996 and is currently head of products and services at Chinatrust Private Bank. Chinatrust, the largest bank in Taiwan, recently launched a Singapore based private bank and this was a unique opportunity to build a whole platform from scratch. Dennis has worked with clients from Asia, Europe and Latin America, and has been based in Singapore since E dennis.harhalakis@chinatrust.com.sg Edmund joined BSI in January 2010 as an adviser with the active advisory team. He then moved into the role of head of active advisory in June Prior to that Ed was with RBS Coutts in Singapore from June 2004, primarily in the role of an active adviser. Before moving to Singapore in 2004 he was with HSBC, Mumbai, in the private clients division. Ed brings a tactical approach to portfolio management and works primarily with non-benchmarked portfolios / clients. He started his foray into the advisory world with the FX markets where he was the FX specialist at RBS Coutts before moving into a role managing multi-asset class portfolios. He has a BA degree in Economics from Mumbai University. E Edmund.Gomes@bsibank.com E Alexis.Calla@sc.com 9

10 CONTACT DETAILS AND PROFILES OF PARTICIPANTS Rajesh Manwani Head of Advisory, Products & Sales Singapore Credit Suisse Private Banking Rohit Jaisingh Senior Director, Capital Markets and Structured Products, Asia Pacific ANZ Bank Ron Lee Head of Investment Advisory Private Banking, Asia Union Bancaire Privee As head of advisory, products and sales, Rajesh Manwani is responsible for establishing and implementing an effective product and investment solutions process for relationship managers and product areas in Credit Suisse. This includes supervision of investment products, advisory frameworks and the sales management function in South-east Asia. Rajesh joined Credit Suisse in January 2008 from UBS Wealth Management in Singapore, where he was director, managing the investment funds offering for Southeast Asia. Prior to that, he worked at Standard Chartered Bank for eight years within wealth management, managing portfolio and fund products on a global basis in his last role. Rajesh holds a Business masters from the Indian Institute of Management, Calcutta. He is also a Chartered Financial Analyst (CFA) and a Chartered Alternative Investment Analyst (CAIA). E rajesh.manwani@credit-suisse.com Rohit Jaisingh heads the capital markets and structured products function in Asia Pacific for ANZ Bank. Based in Singapore, he oversees the offering of all capital markets products, including equities, fixed income, foreign exchange and structured products, and is responsible for the infrastructural support in ANZ Bank underpinning the advice and solutions for these. Prior to joining ANZ Bank, Rohit has worked for 20 years in various sales, trading and structuring positions in Deutsche Bank Global Markets, UBS Investment Bank and Citi. Rohit holds a MBA qualification from the Indian Institute of Management Calcutta. E Rohit.Jaisingh@anz.com Ron Lee joined Union Bancaire Privee s Singapore office as head of investment services, private banking, Asia in November His area of responsibilities cover investment advisory services, across asset classes for the region, and also supporting RMs in providing advisory expertise to prospects and clients. Ron also oversees the function of head of products and execution for Asia. He joined from Lombard Odier & Cie in Singapore, where he was the South-east Asia head of investment advisory for four-and-a-half years. Prior to that, he was the head of investment counseling for Indonesia and Thailand at Citigroup Private Bank. He brings with him 22 years of trading and advisory experience in capital markets. Ron is an Australian national and studied at the New South Wales Institute of Technology, Sydney. E roe@ubp.ch 10

11 CONTACT DETAILS AND PROFILES OF PARTICIPANTS Tang Hsiao Ching Head of Fund Solutions, Asia Bank Julius Baer Nikk Low Senior Investment Counsellor EFG Bank Hsiao Ching is executive director, and the head of fund solutions for Bank Julius Baer in Asia, responsible for leading the fund selection and fund advisory efforts in the region. She joined Bank Julius Baer in 2010 from BNP Paribas Wealth Management s investment fund advisory and product development team, where she was responsible for the growth and penetration of investment funds and also the product validation of private banking products in Asia. Prior to that, she spent eight years at Temasek Holdings, including six years of investment experience in private equity fund investments and direct investments, as well as in business development and risk management where she worked with Temasek s financial services portfolio companies across Asia to provide post-investment support. Hsiao Ching has a BA (Oxon) in Philosophy, Politics & Economics from the University of Oxford, and holds the CAIA charter. Nikk has 21 years of predominant experience in the financial services industry, covering product development, investment and corporate advisory, and client-relationship activities. He has been a senior investment counsellor, and first vice president, with EFG Bank Singapore for the past five years. His primary role is in helping clients (through the CROs) look at portfolio positioning and investment opportunities across different asset classes. E nikk.low@efgbank.com E hsiaoching.tang@juliusbaer.com 11

12 CONTACT DETAILS AND PROFILES OF PARTICIPANTS Gerard Clancy Executive Director, Wholesale Distribution, Asia Pacific Threadneedle Investments Peter Brooks Behavioural Finance Specialist Asia Pacific Barclays Gerard is responsible for wholesale distribution in Asia, ex-japan and Taiwan, and product and business development in Asia Pacific. Prior to Threadneedle, Gerard was director of sales at BlackRock, where he executed strategy and wholesaling of investment management products to private banks, retail banks and IFAs in Asia ex-japan. He held a variety of sales and management positions with Merrill Lynch in New York, London, Singapore and Hong Kong before the merger of Merrill Lynch Investment Managers and BlackRock. Gerard has a Masters in International Finance and Banking from Columbia University. Peter Brooks joined Barclays in March Based in Singapore, Peter provides specialist knowledge to Barclays Asian businesses in Singapore, Hong Kong, India and Japan. He focuses on the psychology and attitudes of investors in emerging economies. He provides research commentary on how investor attitudes are affected by prevailing market conditions and how this links to investor behaviours. He frequently shares his insight in the leading business newspapers across Asia. He holds a M.Sc. in Economics and Econometrics, and a PhD in Behavioural and Experimental Economics, from the University of Manchester. E Gerard.Clancy@threadneedle.com E Peter.Brooks@barclaysasia.com 12