Business with high net worth individuals, the so-called HNWI segment has always been one of the most lucrative markets for financial services providers. But the increasing difficulty of walking the tightrope between risk and return in recent years has led to sharp growth in competition in the sphere of asset management. As a result, private banking is no longer the fiefdom of Swiss banks alone. Whereas previously it was the providers themselves who fought for market share, there is now a similar global battle going on between the financial centres themselves. Switzerland continues to top the league table for management of offshore funds, according to statistics drawn up by consultancy firms. A report by the Boston Consulting Group (BCG) gives Switzerland a market share of approximately 24%, followed by the various Caribbean centres (13%) and Luxembourg (12%). The same report shows that Hong Kong and Singapore together account for around 6% of global offshore funds.
Private banking in Asia
The strong performance of many Asian economic centres and the relatively high savings ratio in the region has caused Asia’s share of the offshore private banking market to rise to 13% excluding Japan, and 22% including Japan. The respective levels for Asia in 2001 and 2002 show just how dynamic regional growth has been: Asia +6.3% and +10.7%, North America +1.3% and -2.1%, Europe 0% and +4.8%. The number of Asian HNWIs increased by 4.9% in 2002 (North America by 1.9%, Europe 3.9%).
The Asian crisis in 1997 also sparked off a new wave of client thinking as far as management of their assets was concerned. Whereas previously clients preferred to manage their own assets, be it in cash, direct investments or property, the last few years has seen an awakening of interest in and need for more balanced investment strategies and professional advice. Despite this new degree of awareness, the Asian private banking client still tends to be very "hands on" when it comes to the management of his or her assets.
Many affluent Asians hold their assets outside their country of domicile. According to the BCG, only in the Middle East, Eastern Europe and Latin America are more funds held offshore than in Asia. There are numerous reasons for this preference, but high local taxes and security are no doubt two of the key ones.
Singapore's opportunity as an offshore centre
Hong Kong and Singapore are the two main key Asian centres when it comes to offshore private banking. As former British colonies they benefit from a solid financial infrastructure, political stability, a free market economy and a well-trained, multi-lingual labour force.
According to the BCG, however, only a half of all offshore funds in the Asia-Pacific region are held in these two centres. The remainder lies elsewhere, with the lion's share probably in Switzerland. The political takeover by China means that Hong Kong probably has only limited prospects of increasing its position in the offshore private banking market, which is why Singapore has a major opportunity to adopt a similar role in private banking in the Asian region to that played by Switzerland with regard to the rest of the world.
Laying the political groundwork in Singapore
In the middle of August, Lee Hsien Loong, son of the 81-year-old inaugural Prime Minister Lee Kuan Yew, took over the office of Prime Minister. He will retain his position as Finance Minister, while the stewardship of the Monetary Authority of Singapore (MAS) - Singapore's central bank - will be taken over by the previous Prime Minister, Goh Chok Tong. This should ensure that Singapore remains on track to becoming a significant hub for financial services in the Asian region. Today Singapore boasts some 700 local and foreign financial institutions. These employ around 5% of Singapore's workforce, and account for 12% of GDP. Fund management is an area in which the growth rate has been astounding: annual growth of assets under management has averaged roughly 20%. In 2003, institutional funds grew by 35% to more than S$465 billion.
Promoting wealth management capabilities
In 2002 Lee Hsien Loong set out his vision of Singapore becoming a financial centre for East Asia. The intention was not to compete against London, New York or Tokyo, but to play a fundamental role in certain niches. The basis of such a role would be fair and transparent financial industry regulation and an open, competitive transaction-processing platform. Particularly in the most promising areas, accelerated growth is to be sought by means of financial incentives and other promotional measures.
In June 2004, at a wealth management industry event, Lee Hsien Loong also referred to "human capital" as both an opportunity and a challenge for the financial sector. As a result, particular emphasis would be placed on the promotion of wealth management skills. One way of doing this would be via the Financial Sector Development Fund (FSDF), which is aimed at developing talented individuals and improving the infrastructure of Singapore as a financial centre. The FSDF currently comprises three initiatives: the Financial Training Scheme, the Training Infrastructure Enhancement Scheme and the Financial Sector Manpower Conversion Scheme.
Competitive training offer
The Financial Training Scheme (FTS) is designed to give financial support to people already active in the finance industry in Singapore who would like to expand their knowledge. Fifty percent of training costs are reimbursed to financial institutions based in Singapore. The incentives also apply to events organized abroad.
The Training Infrastructure Enhancement Scheme (TIES) is another initiative designed to ensure that Singapore has a competitive training culture. The aim is to motivate leading course providers in the finance industry to set up training centers or to expand their existing infrastructures. The scheme subsidizes up to 50% of set-up costs and running costs for a maximum period of five years, as well as the cost of developing the local content of courses.
Training drive in the offing?
Because the government is so strongly focused on the growth opportunities in private banking, it needs to ensure that there is a sufficiently large pool of qualified workers to service this industry. Previously the emphasis has been on "foreign talents", but now the focus also encompasses the "upgrading" of the local workforce. To this end the central bank has announced that it will put up S$2.5 million over the next two years for its "Financial Sector Manpower Conversion Scheme". This programme is designed to finance the training of people who are looking for a position in the new growth markets; around 70% of the training costs are to be absorbed by the state.
A preliminary phase places the spotlight on private bankers as well as employees with mid & back-office functions, the latter being offered the Settlements Operations Training Course. Here the central bank stresses that both the course's priorities, and its content, should be drawn up in close collaboration with the financial industry. It is expected that more than 300 new employees will receive intensive training in these areas next year alone. In addition, the Certificate in Private Banking should also enable bankers from other areas to gain a foothold in the HNWI business. The programme offered is a basic training module and was drawn up by the Wealth Management Institute (WMI), again in close collaboration with the financial industry. At a public introductory event held by the Institute at the end of July, more than 150 bankers expressed an interest in taking this course, which kicked off in October.
Singapore claims leading role
The above-mentioned initiatives in the sphere of financial training show that the government is doing everything in its power to expand Singapore's role as a hub for the management of Asian investment portfolios. The aim is to ensure that not just the regional but also the international client base is consistently expanded, i.e. that the global investment portfolios of Asian clients should increasingly be managed from here.
The central bank is playing a pioneering role in this development. This is only too apparent in the 2003 annual report, which refers to the intention to "…develop strategies in partnership with the private sector to promote Singapore as an international financial centre…"
Tax breaks and liberalization within the financial services industry are two further aspects that demonstrate Singapore's willingness to play a leading role in Asia's private banking industry. More than 100 subsidiaries and around 50 representative offices of foreign banks already offer their services in Singapore.
|Renowned partners and institutions
The Wealth Management Institute has two exceptionally high-profile partners in the form of the Government of Singapore Investment Corporation (GIC) and Temasek Holding. GIC was founded in 1981 and is responsible for managing Singapore's foreign currency reserves. It is one of the largest asset management companies in the world, with a portfolio of more than $100 billion. Temasek Holding is an investment holding company founded in 1974. It holds more than 20% of the capitalization of the Singapore stock market through its stakes in listed companies.
The founding of the Wealth Management Institute dates back to an initiative of Lee Hsien Loong in October 2002, a time when he was still chairman of the central bank. He took the view that the way to ensure the necessary training infrastructure for employees in banking was to establish a specialized institution for financial services. A year later the Wealth Management Institute was officially inaugurated, and its Masters programme launched shortly afterwards. In 2000 the Singapore Management University - Singapore's first private university - was founded with state support. A sign of the importance attached to this project is the fact that the renowned Wharton School has been enlisted to position the Singapore Management University as a top address for management, business and finance training within a period of five years. This cooperation agreement expires in 2005, at the same time as the Singapore Management University moves to its impressive new campus in the city centre.
Switzerland is a model for Singapore in a number of fields, which is why a Swiss partner was sought for the new Executive Programme in the sphere of wealth management. The Master of Science in Wealth Management (MWM) is a joint venture between the Wealth Management Institute, the Singapore Management University and the Swiss Banking School. The latter began its Wealth Management Executive MBA in 2001 - the first MBA to focus on wealth management.
By offering the MWM, Singapore is aiming to secure a future generation of talent in banking. One of the training modules is run by the Swiss Banking School in Switzerland, where participants in the Swiss Masters Programme attend together with their Asian MWM counterparts. This facilitates a considerable degree of cross-cultural cooperation, which in this global business area can only act as a further key to success.
This article was contributed by the author in his personal capacity. The views and comments made or expressed in the article do not represent the opinions of Credit Suisse Singapore and/or the Credit Suisse Group