Singapore

Outlook for Asia’s Independent Asset Managers

I had the opportunity to attend a recent wealth conference here in Singapore, focused on the Independent Asset Manager (IAM) industry in Asia (primarily in the key booking centers of Singapore and Hong Kong).

The IAM industry and I have come into contact with one another several times over the years, whether through personal connections, professional initiatives, or through speaking engagements for the banks that offer custody and external support desks to outside asset/wealth managers.

So here are a few personal musings, based on the discussions at the conference as well as my own experience (note that for a complementary read, I recommend you check-out Vineet Vohra’s LinkedIn Post):

Definition

The IAM business model is tripartite, spanning:

  1. The bank… Offers asset custody, product and technology platform, execution, and reporting
  2. The IAM… Offers overall relationship management and wealth strategies/ asset allocation
  3. The client… Is the client!

There is another widely-used industry term, the External Asset Manager (EAM). The easiest way to understand the difference is that an IAM is also an EAM, with the latter representing a broader universe of players such as family offices and fund providers.

You may be wondering what the real difference is between a family office and an IAM. At its essence, I would describe the family office (whether single-family or multi-family) as more focused on institutional-level investments and a service reaching far beyond wealth strategies and investment allocation, into areas such as philanthropy and estate planning).

Growth and Outlook

A key message for me at the conference was that IAM players in Asia see growth as “disappointing”, with a market share figure for Asia of just 4% being mentioned several times.

That is the historical lens. The upshot is that “boundless optimism” of several years ago has given way to “cautious optimism”, which reflects beliefs around areas such as market dynamics (i.e. consolidation and strong overall HNW wealth growth) and client needs (i.e. increasing focus on holistic wealth management with trusted long-term advisors).

Consolidation in particular could be a major tailwind, given there have been ~9 private banks exit/be acquired in Singapore alone since 2014, and these periods of turmoil tend to be when experienced private bankers strike out on their own as IAMs.

Trends

I would not claim this to be an exhaustive list, but what follows are my take on the “top of mind” trends shaping the Asian IAM landscape.

  1. Regulatory burden is very much top of mind. Beyond new regulations that affect IAMs and private banks alike (such as CRS), a lot of time was spent looking at the relative differences between the regulators in Singapore and Hong Kong.
    1. Singapore is generally felt to be ahead in terms of taking a proactive and collaborative approach with clear guidelines, as well as on basics such as the general ease of business banking
    2. While Hong Kong felt to be further behind due to a less prescriptive set of guidelines and a less consultative approach (though improving), it scored positively for recent efforts to launch a Consultation Paper to weed out those so-called independent firms who are not acting in a client’s best interest
  1. Digital seen as a key tool in this the most high-touch and human of wealth arenas. I was fascinated to see automated advisors (robos) in attendance at the event, speaking at the event, and being white-labeled by independent asset managers themselves! Given the criticality of the human touch in this higher-end of wealth management, it is a great sign of a topic I fully believe in, that of “hybrid advice” (more to come on this in the coming months). My takeaway is that innovative independent asset managers are using automated tools to increase their reach/scale and operating efficiency, and NOT to replace the human relationship.
  1. Other opportunities were commented on, such as the benefit to scale for IAMs from the recent trend of investment banks cutting back on their equity research desks to the benefit of lower-cost and more accessible (to an IAM with relatively low AUM levels) research providers.

Path Forward

While the overall outlook remains cautiously positive, there are several areas that need to be addressed/factored in for the long-run success of the IAM model to truly take-off.

  1. Talent. In addition to the long-term industry issue of a lack of widespread wealth/investment/advisory talent in Asia, there also needs to be an awareness/capability-building in complementary areas of technology, legal, and other complementary fields given the changing shape of the industry.
  2. Entrepreneurial preparedness. More specifically for the IAM model, there also needs to be greater awareness for potential IAMs on what it will take to be successful. While investment talent is key, so too is an entrepreneurial hunger that will be the driving force to build a business and overcome difficult periods. Likewise, a solid cash cushion is very important when starting out.
  3. Client awareness/marketing. There is still a gap in connecting the significant number of HNW clients in Asia to the IAM model. More events as well as strong IAM-private bank partnerships could help to overcome this and grow the market.
  4. Custodian bank support. One notable area that some IAMs flagged as a challenge is in managing the internal politics and incentives of bank employees/ client advisors who may de-prioritize the IAM if not part of the EAM desk. Bridging this gap will enable both parties to do better.
  5. KPIs and the balance of product vs. service. Products and solutions are critical, but should be driven by a wealth strategy, trusted relationship, and transparent KPIs that share the upside between IAM and HNW client. This is one of the key elements of the IAM model, and avoiding slipping back into overly “product” discussions will be important.
  6. Focus, focus, focus. Stick to your knitting. An IAM differentiates on advice. An IAM does not differentiate on complex corporate-like offerings.

Ultimately, this is a client business, and I was fascinated to see that the conference organizers managed to get three very wealthy individuals to share their stories on the stage (actual HNW clients of some of the presenting IAMs).

What stood out was the response to “Why do you need a wealth manager?

One client, who built and then sold a financial firm, felt that the IAM model overcame the conflict of interest he felt with some traditional private banks (notably not all private banks, and just one person’s perception). Additionally there was a feeling that the IAM had a deeper understanding of his business and personal situation, which informed the investment strategy.

One client, a former tier-1 investment bank Managing Director, boiled the choice down to “scale vs. service”. Having experienced turnover of the wealth manager assigned to him at his private bank (which he acknowledged could also be viewed as a positive in terms of always having “someone” available), he felt that the relationship managers he interacted with did not have any real intimacy with him nor knowledge of his personal situation.

Lastly, the clients did not have a high sensitivity to fee levels. As one put it, “if you pay peanuts you get monkeys”. More important was the overall fee structure and transparency, as well as the value-added (such as an ability to get to the “art of banking” and provide perspective and new approaches to what trying to achieve with wealth).

In closing, I personally think that the IAM model has some exciting times ahead and has advantages for both traditional private banks as well as individuals striking out on their own.

Additionally, the challenges and success factors outlined for IAMs are relevant to private banks as well, be it related to incentives, advisor training, and clear focus on value delivered to end-clients.

David

 

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