Private banks' robotic evolution

Asia's private banking industry is set for massive change as automated investing grows in popularity.

The words ‘private banking’ can evoke some stereotypical images, like leather-backed chairs in rooms with wood-panelled walls and bookshelves filled with expensive tomes or expensively attired Swiss bankers parcelling out bits of investment wisdom over snifters of brandy and cigars. 

One item not typically included? A computer screen running a programme that spits out cheap investment ideas. 

The rise and rise of new technology is upending many assumptions in finance. Technologically savvy companies are already competing fiercely with banks in areas such as retail banking and small company loans.

They now see private banking as their next hunting ground.

Automated investment programmes, often called robo-advisers, use algorithms to arrange individual investment portfolios based upon stated preferences – for a fraction of the fees charged by private banks. 

And across the Pacific they are making rapid headway. Retail-focused US robo-advisers Betterment and Wealthfront, for example, had between them already accumulated more than $6 billion in assets under management by the end of 2015.  

These solutions are barely beginning in Asia – 8 Securities became the first independently branded robo advisory firm to offer investment products in April 2015. But their rise appears inevitable here too as the number of high-net-worth and ultra-high-net-worth Asians grows. 

“Robo-advisers will become part of the asset allocation process for HNW and UHNW individuals, while it will be 100% [coverage] across the mass affluent market segment,” Liew Nam Soon, managing partner for financial services in Asean at EY, told FinanceAsia.

Private banks across Asia are taking the rise of the robots seriously. Standard Chartered’s Peter Kok, the regional head of private banking for Asean and South Asia, told FinanceAsia in written comments the bank is investing $250 million to develop its digital services and re-architect its core banking platform. 

Singapore’s DBS said in 2014 that it planned to spend S$200 million ($146 million) over three years on digital banking and in March 2015 it introduced DBS Wealth Advisor, based upon the pioneering artificial intelligence system IBM Watson, to advise on investing using cognitive computing. Credit Suisse also has had a digital private banking platform in Singapore for over a year, offering investment analysis and research. 

“Eighteen months ago nobody knew what robo advice was,” said Alex Ypsilanti, co-founder and chief executive officer of Quantifeed, a 12-person independent group based in Hong Kong that develops robo-adviser software. “But during 2015 private banks realised that they needed to address this strategically at a high level. It’s on everyone’s agenda; whether to launch such services in 2016 or 2017.” 


The introduction of robo-advisers comes at a difficult time for many private banks in Asia, despite the region’s favourable wealth dynamics. 

Asia’s flourishing economies have minted many wealthy individuals in recent years. In their latest Asia-Pacific Wealth Report, released last June, Capgemini and RBC Wealth Management estimated that the number of regional millionaires rose by 8.5% in 2014 to 4.7 million, with combined assets of $15.8 trillion. 

But private banks have benefited from this less than they would have hoped because most of the region’s wealthy are first-generation entrepreneurs who, typically, like to make their own investment decisions and bank locally. 

Only 10% to 20% of Asia’s wealthy used private banks in 2014 versus 70% to 80% in Europe and the US, reckons EY in its report Re-thinking Private Banking in Asia-Pacific

Kok notes many of the region’s wealth are tech savvy too. “They like to see instant information and advice at their fingertips, allowing them to manage their private and business wealth needs across different time zones and geographies,” he said.

At the same time, private banks in Asia have had to pay up to retain their best relationship managers due to a relative dearth of talent. They are also continuously spending more to meet rising compliance standards. So the average cost/income ratio of Asian private banks was a worrying 75% in 2014, according to EY.

The situation has since improved but only because weaker players have exited, Liew said. Barclays Wealth Management, which is looking to sell its regional wealth management operations, is the latest. More are likely to follow. 


The entrance of robo-advisers is forcing private banks already under pressure to reconsider their business strategies. 

Automated investment services are efficient and cheap – at least for simple investing. Robo-advisers in the US typically charge 0.15% to 0.35% in fees for investors to buy into exchange-traded funds, with larger sums meaning lower fees. 

Private banks have little choice but to offer similar services, at similar rates, or risk losing their clients to those that do. “Technology is hitting the transactionary side of the private banks,” Jonathan Hollands, a managing director who works in private banking recruitment at Carraway Group, told FinanceAsia. “Banks are losing a lot of volume in equities and fixed income to cheaper alternatives, and that’s pushing them to look at more sophisticated products and alternative investments, where they can make justifiable fee income.” 

Yet there are some upsides. Once initial digital investment costs are conducted and processes automated, banks may enjoy lower overall costs. Piyush Gupta, CEO of DBS, has previously told FinanceAsia that digital services helped his private bank operations to a 58% cost/income ratio – below the market average.

While digital services may help constrain costs, there is little indication as yet that they help revenues rise. Liew said many banks see digital platforms as a means to access clients in markets where they don’t directly operate. However, he cautions against too much excitement. 

“There are compliance costs involved [in sourcing clients digitally and remotely from new markets], and banks that have predicted revenues from such efforts have so far tended to be disappointed,” he said. 


Digital platforms do at least give private banks one definite benefit: unifying their investment advice. 

“Offering global advisory [to all private bank clients] is top of the rank [in terms of importance for digital solutions]. It takes the subjectivity of [relationship managers] out of the relationship,” Liew said. 

Quantifeed’s Ypsilanti argues digital solutions can help bolster relationship manager credibility too. 

“We think you can do a lot more with digital wealth management if you use technology to empower advisers, not replace them,” he said. 

Standard Chartered’s Kok offers a similar view. “Technology helps our relationship managers to deepen their relationships with clients by pulling together the full resources of the bank, from research insights to wealth and investment advisory capabilities,” he said. 

Digital services are unlikely to eradicate the need for relationship managers – wealthy individuals will always want a human to talk to. But tomorrow’s relationship managers may need to be able to discuss complex financing and wealth-planning needs, which cannot easily be replicated by a robo-adviser. 

That would also be a welcome change in an industry that sometimes gets accused of focusing on selling products over offering more complex advice. 


Digital wealth management is disruptive and costly for private banks. It may not get them many new clients and it is likely to whittle away fees. But it cannot be ignored. 

Many of Asia’s wealthy already want to direct their own investments and digital platforms make this easier. Banks will need to offer such services. 

The big question for private banks is how best to do so. Larger players such as UBS and Credit Suisse may build their own digital wealth management platforms. But many houses are likely to find the investment and maintenance sums involved (which lie in the multiple millions of dollars) to be too expensive. Plus most lack the in-house capabilities to create such technology from scratch.  

They will likely license at least some digital services from independent suppliers, to try to appear as slick as their larger rivals.

Asia’s private banks are being drawn into a fintech fight. Tomorrow’s survivors need to arm themselves, fast. 

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