Competition between Singaporean private wealth players and foreign groups is roaring in the Lion City but only the fittest will survive.
Private banks that opened shop in recent years face mounting challenges ranging from rising costs to robo–advisers that provide algorithm-based portfolio management at low costs, challenging the traditional private banking model.
According to a Deloitte study in 2015 total assets under management excluding domestic assets in Singapore rose by 25% between 2008 and 2014 and stood at $500 billion end-2014, making it the sixth largest private banking hub in the world. However, despite the growth, there are questions as to whether the pie is big enough for everyone.
“The level of competition has gone up a few notches," Nam Soon Liew, EY Managing Partner, Financial Services, Asean, told FinanceAsia.
Last year, DBS's private bank bought Société Générale’s private banking assets in Asia, burnishing its regional ambitions well outside the city-state. Having integrated the business in October last year, DBS has ambitions to keep growing regionally.
Other banks such as Standard Chartered are also keen to assess opportunities. "We are growing the private banking business and continue to place a lot of strategic focus on it, so if anything up for sale is interesting we will look at it,” Michael Benz, Standard Chartered's Hong Kong-based global head of private wealth, who visits Singapore regularly told FinanceAsia. “Many factors have to come together to make it appealing, including where the clients are and what price sellers expect,” he added.
Finding right model
While many private banks descended upon Singapore in recent years like panhandlers in a gold rush, the pickings proved slim for some.
“In the past, many European and Swiss banks came to Singapore,” Bassam Salem, CEO of Citi Private Bank in Asia-Pacific, told FinanceAsia. “Many of the consultants told them that the El Dorado is in Asia and, when they came, they did not find [what] they were promised but instead found high salaries, high expenses and a highly-regulated market. For many of them, revenues were very elusive because their business model did not fit the market place in Asia,” he added.
Global banks say their ability to provide investment banking services has been more important in Asia, where a higher proportion of the wealth is held by rich first and second-generation entrepreneurs focused on building their businesses. As such, they say that private banks without that breadth of service struggle.
"At the ultra-high-net worth end of the market, a balance sheet is important," Jessica Poh, Citi Private Bank's Global Market Manager for Asean told FinanceAsia. "They are still in the wealth creation stage and their personal and public sides are intertwined. The bank with a balance sheet is important," she added.
To compete, private banks have struck partnerships with investment banks, which they say allows them to offer clients services without being conflicted.
"We recognise that wealth creation is particularly important in Asia, specifically the offering of capital markets and transaction ideas to private banking clients. To ensure we can offer these as part of a client’s wealth continuum, we have two very strong collaborative partners - Bank of America Merrill Lynch and Macquarie," David Lim, Julius Baer's CEO for Singapore and Head of Private Banking in Southeast Asia told FinanceAsia.
Adding to the challenges, the Monetary Authority of Singapore (MAS) has been tightening regulation in areas such as due diligence on clients, ensuring that banks sell investors suitable products, and data protection.
Tighter due diligence on clients means that it takes longer for private banks to bring in new clients, which can be frustrating for private bankers and clients.
“Many banks are strengthening their processes on how clients are on-boarded but a balance needs to be struck and they have to cater to the client servicing aspect,” said EY’s Liew. “The time it takes to on-board a new client is still quite long for private banks. It can take 40 days or more,” he added.
MAS has also tightened requirements for private bankers, requiring them to have individual licenses and also pass a competency assessment and receive ongoing training.
Private bankers say there is a shortage of qualified bankers, both in Singapore and Hong Kong.
“The reality is that there is a massive shortage of talent. There is 20 times more potential demand than supply,” Francesco de Ferrari, head of private banking Asia Pacific at Credit Suisse told FinanceAsia. “There are around 4,000 relationship managers licensed in Singapore," he added.
To meet increasing regulation, banks have to invest more in technology and the costs have tended to favour players with scale.
“The critical mass to run a private banking business in Singapore has gone up significantly over the past five to six years,” said Standard Chartered's Benz. "You can’t be halfway in the business. Either you are fully committed or you are not,” he added.
To stay competitive as robot advisers threaten the turf of private banks, players are also investing in technology. DBS, for example, has partnered with IBM to introduce Watson, an artificial intelligence platform that processes complex data to enable DBS’s relationship managers to better assess their clients’ investment needs. Elsewhere, Swiss bank Credit Suisse in March launched a new private banking app in Asia.
Despite the rising costs and regulations, there are bright spots with Singapore positioning itself as a private wealth hub.
According to the Deloitte study, Singapore is competing with Hong Kong for the position as the fifth largest wealth hub in the world, with $500 billion of assets under management (AUM), trailing Hong Kong, which has $600 billion worth of assets, and far behind Switzerland, which has some $2 trillion worth of AUM, the largest in the world. The AUMs exclude domestic assets.
Wealthinsight expects Singapore to overtake Switzerland as a private banking hub by 2020. Supporting this is the rising tide of wealth in the region. “It’s quite clear where the biggest wealth pools are in Asia. First of all in China but, closer, in Indonesia, Malaysia and other Southeast Asian countries," said Benz
A big chunk of the growth in AUM assets in the lion city is also homegrown. "Traditionally, much of Singaporean's wealth has been in property, local security houses and local banks but what we have seen of late is a sophistication of the Singapore investor, with more Singapore wealth moving into the private banks," said Julius Baer's Lim.
As Hong Kong moves towards closer integration with China and the city deals with political unrest in terms of the Occupy Central movement, Singapore, which has a safe if staid reputation, is expected to be a beneficiary.
“Some of the clients book their assets under management in Singapore for diversification purposes as they feel that Hong Kong is part of China and Singapore is a different jurisdiction,” said EY's Liew.