This article is based on an October 2013 research report published by Hubbis (HK) Limited, entitled “Asia at the Tipping Point Creating a Sustainable Wealth Management Industry”. Some of the excerpts of the report have been quite critical about the level of ethics, professionalism being practised by some wealth management executives in face of global competition, undercutting the level of quality in pursuit of profits, and trying to achieve fast growth by cutting corners, etc.
The report is based on a survey conducted by Hubbis on the findings of more than 100 wealth management senior practitioners, in conjunction with the Asian Wealth Management Association, through a series of committee meetings in Singapore, Hong Kong, India, and Malaysia in August and September 2013, which culminated at Hubbis’ Asian Wealth Management Forum 2013 in Singapore in late September – http://www.hubbis.com/forum/wmf2013_sg/.
The report contains several startling facts about the overall wealth management industry in Asia regarding various practices that did not seem to work towards the benefit of the clients. The global financial regulatory environment has changed dramatically following the collapse of Lehman Brothers in September 2008, and brought about the Global Financial Crisis (GFC) of 2008 – 2009, which saw several banking reforms being implemented across the world. However, despite the various regulations and strict enforcement, there are some wealth management executives trying to exploit some loopholes in the system in order to achieve faster growth. If these issues are not being addressed especially at a time where trust and investor confidence in the global financial sector is at its historical lows, the wealth management industry in both Asia and globally will not be regarded with respect among clients for quality and high ethical performance.
The following is a bar chart obtained from the Hubbis report that shows the level of trust and credibility clients have on the overall wealth management industry in Asia:
As readers might have noticed from the chart above, the level of trust among clients on the general state of the wealth management industry is at its historical lows, with approximately 55.0 percent to 60.0 percent expressing their dissatisfaction on the level of financial advice, and quality among many wealth management executives. The report cited some of the factors which might have contributed to the low level of confidence among clients on the Asian wealth managers, including the multiple, and at times: conflicting, regulatory requirements in every jurisdiction; rising costs relating to compliance, people and infrastructure; thin margins on many products; volatile investment markets; excessive cash holdings in many client portfolios; unrealistic expectations of firms, putting pressure on relationship managers (RMs) to sell; and shallow talent pools, from front-line advisers to back-office staff, etc.
The report cited similar concerns expressed by several senior management staff including the limited focus on, and importance placed in, ethics and ethical behaviour; the lack of emphasis in developing the right style of management culture that instils discipline, and right mind-set among executives, and RMs; lack of credibility that most of these senior managements feel that continues to exist in the wealth management industry; shortage of a highly professional talent pool, among others.
The report has also examined some of the urgent reforms that are needed in order to prevent the Asian wealth management industry from deteriorating further, including the continuous education that emphasise on the importance of ethics, and professionalism, the removal of short-termism mode of wealth management planning, which goes to the heart of fundamental portfolio management such as examining and understanding the investor client’s objectives, goals, and constraints, etc.; being transparent at all times in all the marketing campaigns, etc.
The report has looked into the possibility of introducing an industry-wide fee-based services system where fees are being levied on clients for the quality of professional advice being rendered. The fee-based system is widely practised in North America, and in Europe, however, it is being shunned away by many Asian High Net worth Individuals (HNWIs) who are not convinced of the need to pay for advice. Most of these Asian HNWIs believe that they can achieve better performance by themselves, and their desire to retain control in the process. However, the report has also criticised certain quarters of the industry that the excuse given frequently is that Asian clients do not want to pay fees, while in some cases, the authors feel that it is true, but for others if asked, they see some value in the offering. In addition, most of the Asian wealth managers are seen as order takers, and providing access to market. The authors feel that it is not sustainable in the long-run, and could be seen as a disadvantage to the Asian wealth managers in an increasingly globally competitive industry. The wealth management executives are urged to go back to the basics of portfolio management, first understanding client objectives, then develop the entire wealth plan that revolves around those investor objectives. The report’s authors are optimistic that the fee-based model will gradually gain acceptance among many Asian investors as long as value added is being created ranging from professional advice, service rendered, and overall wealth plan performance.
In conclusion, I believe that readers will find the 32-page report does provide several interesting insights about the various startling revelations about the state of the Asian wealth management industry including some of the statistics being conducted among several wealth management practitioners, and clients where ethics and professionalism are still in need of reforms before it starts to deteriorate further. The fee-based system is also an idea mooted by the authors of the report which shed some light on the general progress towards industry-wide adoption by the Asian wealth managers. There is still hope for more reforms and improvements made to the overall standing of the Asian wealth management industry, and it has to start from the stressing on the importance of having the right culture, and adopting sound ethics and professionalism principles in the rendering of wealth advice.