Asia, land of opportunities

Wealth Briefing, Ubs

A research by Ubs reveals the future development and the market of Eam in Asia: from the drivers to success to the big focus on alternatives, following there is a list of ten points about how the sector will evolve

1) STRONG GROWTH EXPECTATIONS FOR EAM MARKET SHARE; MORE INDEPENDENT WEALTH ADVISORS EXPECTED TO EMERGE
The participants in this study, who were based in the main in Sin¬gapore and Hong Kong, varied quite widely as to their estimates of the share of private wealth managed by EAMs in their centre. Yet more than two-thirds of participants believe that EAMs manage up to 10% of the private wealth in their jurisdiction, while over a third think it’s less than 5% currently.
An overwhelming 90% of participants believe that the market share of private wealth managed by EAMs in their location will increase in the next three to five years, however; the remaining tenth see EAM assets remaining stable.
Eight in ten respondents also see more EAMs springing up with hopes of joining in their success, while none foresee consolidation or closures.
2) ASIAN WEALTH HUBS WELL-POSITIONED ON THE WORLD STAGE, WITH INTERNATIONAL CLIENTS AS CORE BUSINESS
Nine in ten respondents judge their location as a politically and economically stable centre for global financial assets that is well positioned to compete on the global stage.
Unsurprisingly, given our Hong Kong/Singapore focus, over half of participants lean towards serving international clients, although only 10% cater solely to this market. Four in ten of the EAMs have an equal split of domestic and international clients on their books, while a small contingent work only with international ones.
However, cross-border regulations are seen as a big challenge for EAMs in Asia as they try to attract international business, with 60% seeing a negative impact and a quarter believing this to be serious.
3) VARIED OFFERINGS FROM EAMS IN ASIA
Nine in ten respondents offer discretionary portfolio management, with only slightly fewer offering advisory investment services (of course, in the broader industry in Asia-Pacific, the advisory man¬date is the more common model). Wealth planning is offered by just over a third of participants, and brokerage and execution by just under a third.
The services offered by the 35% of respondents saying they had a broader proposition ranged from life insurance through to cor¬porate advisory, and also included very family office-orientated services like drawing up family charters and wealth counselling.
4) EAMS EQUITIES-ORIENTATED, BUT WITH A BIG FOCUS ON ALTERNATIVES
When asked to identify the top products used by their clients, Asian EAMs ranked equities convincingly at number one with 73% of the votes, followed by bonds (68%) and hedge funds/private equity (41%).
Here, EAMs’ positioning of their proposition (ie that they offer a very broad investment palette, including alternatives and structured products to their clients) is clearly in evidence.
5) INVESTMENT EXPERTISE, STAFFING AND STRATEGIC ALLOCATION ARE THE DRIVERS OF SUCCESS
Over a third (35%) of EAMs in Asia see their investment expertise as the most important part of their proposition, with this significantly ahead of providing a long-lasting relationship and trust (26%).
Securing the right staff was marked out by EAMs as the most im¬portant determinant of their future success by a wide margin: an overwhelming 96% see this as either important or very important – notably almost three-quarters see it as very important.
Strategic asset allocation is regarded as a key success factor by over three-quarters of participants. This clearly aligns with the ab¬solute importance of investment expertise, as well as EAMs’ com¬mon role as the orchestrator of a number of specialist investment managers.
6) EAMS INCREASINGLY “PUTTING THEIR MONEY WHERE THEIR MOUTH IS”
Currently, fees for asset management and advisory services are the stand-out elements of the revenue mix for EAMs in Asia. Revenue from brokerage and commissions forms a large percentage of fees for EAMs in the region at 46%, and trail commissions from funds are a key part of the revenue mix for one in seven of the respondents, both now and projected two to three years hence.
The EAMs included in this study expect the revenue share made up of brokerage and commissions, and fees for advisory services to fall. Meanwhile, performance-linked fees are predicted to almost double in their make-up of revenue shares entirely at the expense of asset management fees, brokerage and commissions. EAMs clear¬ly expect to be putting far more “skin in the game” going forward.
7) RETURNS ON ASSETS CURRENTLY HEALTHY, BUT MAY COME UNDER PRESSURE
Currently, the average return on assets for EAMs in Asia seems healthy according to the respondents. Only 15% of this group re¬ported return on assets of 60 BPS or fewer and 15% also reported a return of over 100 BPS or more, with the bulk of 70% falling into the 61-100 BPS range.
8) CUSTODIAN SELECTION CLIENT-CENTRIC; DIVERSE RANGE ON OFFER UTILISED BY EAMS
Custodian selection is highly client-centric, with clients being part of the decision-making process in over 80% of cases.
There is significant variance in the number of custodian banks Asian EAMs are offering to their clients. While 50% offer up to five custodians, a fifth of participants reported that they have clients choose from 11 or more.
Over half of respondents book 21-40% of their total AuM with their main custodian. Meanwhile, a quarter of EAMs reported placing less than 20% of assets with their “main” custodian – a figure which arguably negates any notion of this being a primary relationship at all.
9) TECHNOLOGY AND PROCESSES TOP BRAND AND REPUTATION IN CUSTODIAN CHOICE
When it comes to EAMs’ own choice of custodian, by far the most important selection criterion in their minds is quality of service, with nine in ten deeming this important or very important. Next was the bank having efficient technology and processes for working with EAMs (78%), and then the brand and reputation of the bank (73%).
The fact that technology and processes are held slightly more im¬portant than reputation and brand aligns with the fact that almost a quarter (22%) of EAMs don’t seem to put much store in their own technology offerings being a selling point to clients.
10) CLOSER COLLABORATION IS DESIRED WHEN WORKING WITH CUSTODIANS; ONBOARDING IS KEY PAIN POINT
Generally, Asian EAMs seem to be very much in favour of greater collaboration with custodians, with 80% of respondents agreeing or strongly agreeing that the two sides should partner more closely to better serve end-clients’ interests.
Looking to where difficulties lie when custodians and EAMs partner, we see that client onboarding is as big an issue here as it is across the whole wealth management industry internationally.
An overwhelming 96% of participants said that this was a signifi¬cant or very significant pain point, which is unsurprising given the lengthy and onerous proceedings that are all too often in evidence.

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