The private-banking industry in Hong Kong
continues to invest in digital tools to grow business from the next generation
of wealthy clients.
Few take that to mean investing in
digital-asset capabilities. Rather, private banks are investing more in omni-channel
ways to interact with clients and support their relationship managers.
With an eye to post-Covid work, they are also
using digital to reinforce a return to face-to-face client engagements.
KPMG released a survey of industry players
and clients last week at the annual conference for the Private Wealth Management
Association. Paul McSheaffrey, partner at KPMG, says the industry remains on
target for continued growth, but has struggled with COVID-related impositions
on travel and face-to-face meetings.
“These restrictions hurt the industry’s ability to harvest new clients,” McSheaffrey said at the PWMA event.
Tough year
The value of assets under management among
Hong Kong’s private banks fell in 2021 by 6 percent, to HK$10.6 trillion ($1.36
trillion). That decline was mostly due to market conditions, not a loss of
business. The industry recorded net fund inflows in 2021 of HK$638 billion ($82
billion).
However, according to KMPG’s survey,
private banks blamed COVID restrictions for a lackluster year. Although the
industry adopted work-from-home arrangements and speeded up digital
transformation, private banks have not been able to rely on digital channels to
accelerate growth, as many consumer banks have.
Vincent Chui, CEO of Morgan Stanley Bank
Asia and head of its regional wealth management business, said the industry is
doing a good job in protecting wealth while making a spread on cash deposits, thanks
to rising interest rates.
But when it comes to flow (transaction and
spread) business or fund AUM, the businesses are now losing money. Investment
portfolios are emphasizing alternative investments such as private equity, but
this won’t compensate for broad market turmoil.
“So long as beta and politics are challenging, we must deliver value solutions and acquire new clients who need that,” Chui said.
Digital for growth
For working with Asia’s richest families, private
banks have continued to rely on face-to-face relationships, even in the teeth
of COVID restrictions. Morgan Stanley relationship managers (RMs) endured
multiple rounds of long quarantines to visit clients in mainland China, Chui
said. “It was totally worth it because clients appreciated it, and their trust
in us and their business with us grew exponentially.”
McSheaffrey says the two biggest means for growth, however, are digital transformation and tapping the Greater Bay Area. Most firms regard business in the GBA (including the leading cities of Guangdong Province and Macau) as important to growth – but until travel restrictions are lifted, have few ways to accelerate it.
That leaves digital. McSheaffrey says over the
past two years, private banks have focused their investments in technology for operations
and risk management. “We’re now seeing a move to more client-facing digital
solutions,” he said.
What has gone ignored is regtech
(regulatory technology). KPMG notes private banks are laggards when it comes to
adopting regtech solutions, with only 31 percent of firms saying they have onboarded
at least one. Compare that to a broad banking survey by the Hong Kong Monetary
Authority, which found 80 percent of corporate and retail banks have embraced
at least one regtech solution.
On the client side, tech offerings so far
have been basic, such as providing clients with statements and research, and some
self-service to speed up paperwork.
“You can never over-communicate, and digitalization has helped,” said Jimmy Lee, head of Asia Pacific at Julius Baer.
New client engagements
Some banks are now adding more
sophisticated services to their digital platforms, usually in the form of giving
new tools to their RMs so they can provide advice or portfolio planning online.
“Digital transformation remains a people business,”
said Arnaud Tellier, Asia-Pacific CEO at BNP Paribas Wealth Management. “Clients
like human interaction, whether it’s via a video chat or in person.”
For digital solutions to become more useful, however, they will need to be more localized – something that the global banks struggle with. “Many institutions have overseas headquarters and global solutions,” McSheaffrey noted. “It’s been difficult to customize that…very few banks have Hong Kong-specific solutions.”
Virtual asset avoidance
If there’s one area in digital that private
banks are not embracing, it’s virtual assets. KPMG’s survey found 81 percent of
private banks have no plans for custody and trading of cryptocurrencies and
other virtual assets.
There are, of course, exceptions. 14
percent of firms are building their own infrastructure to support client
activity, and another 6 percent are partnering with a crypto company. Almost all
firms (96 percent) want virtual assets to remain below 10 percent of client
portfolios, and about half say client portfolios should be less than 1 percent.
KPMG says client demand for virtual assets
will therefore be met elsewhere, and not by private banks, at least not in Hong
Kong. Banks continue to be concerned about regulation, as well as volatility
and liquidity.
That might change. Hong Kong authorities
are moving to support a local crypto industry. Senior officials have recently
iterated a commitment to allow crypto, in contrast to mainland China where it
is banned. The securities and banking regulators are looking to draft a framework
for stablecoins. More announcements are expected in the coming weeks.
But private banks are more likely to
embrace digital assets if their clients clamor for it, so their tepid response may
reflect a lack of demand as much as concerns about regulation – or the fact
that by now, rich families keen on crypto have already worked out how to source
it elsewhere. Either way, it doesn’t look like a growth driver for private
banks in Hong Kong.
