Amid slumping Asian markets and a dimmer outlook for deals this year, bankers in Asia are going back to basics: managing money for wealthy clients.
Global banks from Goldman Sachs Group Inc. to Standard Chartered PLC are deploying new tactics to gather more assets from Asia’s wealthy families. Firms are hiring more private bankers and culling clients from other parts of the bank. Bankers want to show clients their advice is needed in turbulent times. They are also pouring on perks, offering clients access to ritzy cars and events around the world.
The 18% decline in the Shanghai stock market so far this year and mounting doubts about new share offerings have banks counting on wealth managers to bring in a bigger share of revenue across Asia.
“Particularly in Asia-Pacific, wealth management is going to grow,” said Keith Pogson, senior partner in financial services for Asia-Pacific at Ernst & Young. “It’s one thing that is a constant.”
The potential is immense: The Asia-Pacific region had 4.7 million high-net-worth individuals in 2014, more than any other region in the world, according to Capgemini and RBC Wealth Management. Such individuals, defined as those with investible liquid assets of $1 million or more, controlled $15.824 trillion in assets as of that year.
Private banking, or wealth management, is an attractive business because it doesn’t tie up much capital on a bank’s balance sheet. It generates steady returns, as banks earn fees by charging clients a percentage of the assets they manage and extra fees for customized products.
Still, wealth management in Asia isn’t a surefire strategy: Firms have consolidated in the past two years as smaller players struggled to compete. Clients globally are making fewer transactions as a result of uncertainty in markets. Younger, tech-savvy clients are less likely to rely on a bank’s wealth managers for investing guidance.
Asia’s rich, many of whom are entrepreneurs, tend to favor more complex and risky investments than their U.S. counterparts. That could be changing.
“When we talk about diversification, we have much more attention than in the past,” said Amy Lo, head of greater China wealth management for UBS Group AG.
Expanding wealth management is also a chance for banks to offset volatile investment-banking revenue, which often hinges on the performance of the region’s stock markets.
Investment-banking revenue in Asia has been uneven in recent years. Initial public offerings in Asia generate smaller fees than in the U.S. and local banks have been getting a bigger slice of that fee pool.
Trading revenues, hurt by new regulatory capital requirements, have been lackluster, and aren’t expected to rebound soon. Banks such as Morgan Stanley have laid off traders amid weakness across their bonds, currencies and commodities businesses.
Most banks don’t break out their earnings for Asian wealth management, but it can be a significant contributor to earnings. At Credit Suisse Group AG, Asia-Pacific wealth-management revenue totaled 907 million Swiss francs ($893 million) for the first nine months of 2015, accounting for 15% of the global total. That is up from 10% for all of 2011.
Standard Chartered is spending $250 million to build a single wealth-management platform. The Asia-focused lender plans to grow its private-banking and wealth-management assets under management by $25 billion by 2018. It had $61 billion as of June 2015.
To meet that goal, the bank wants to sell its corporate clients on wealth-management offerings, said Anna Marrs, global CEO of commercial and private banking at Standard Chartered, while nearly doubling its pool of about 300 relationship managers in Asia by 2020.
UBS expects to more than double its wealth-management staff of about 100 in China over the next five years, Ms. Lo said.
Goldman Sachs has seen a 35% increase year over year in the past few years in wealth-management revenue and relationship-manager headcount for the greater China region, said Ron Lee, head of private wealth management for Asia-Pacific at Goldman. Mr. Lee said he expects continued growth in both this year.
Banks in Asia are also trying to use the close relationship that private bankers have with their rich clients to squeeze more revenue out of their investment-banking business.
Credit Suisse recently tapped senior banker Vikram Malhotra to oversee a new unit focused on the bank’s top entrepreneur clients. He will coordinate how the bank pitches them wealth-management and investment-banking services.
At UBS in Asia, former investment bankers have sat within wealth management for more than five years, including about 20 currently, working on deals for clients. Morgan Stanley found about one-third of its China equity and debt deals through its private-banker network in 2015, according to a spokesman.
To get new and existing clients’ attention, banks are offering perks. Citigroup Inc. gives some clients a Ferrari California T for a day, while others get invitations to Singapore’s Formula One Grand Prix. UBS clients heard renowned Chinese pianist Zhu Xiao-Mei play in Beijing in October.