HSBC has brought a digital platform for private banking to Asia in a bid to reshape its relationship with clients, away from product-pushing to a more transparent revenue stream based on advice.
“This is to future-proof our business,” said Wei Mei Tan, global and Asia head of advisory for HSBC’s global private banking and wealth division. The bank has notched success in Europe with fee-based business models that incorporate its house investment view into client portfolios.
“This is something urgent,” she said of the Asia business. “We have to do this now.”
Product addiction
Charging clients for advice has been a tall order for private banks in Asia. Rich people in the region typically use multiple private banks and treat them more like brokers, taking orders from the customer.
Asian wealth is newer and first- and second-generation elites treat their investments more like part of their business. They are more hands-on, more trading oriented, and keen to make the money generate handsome returns. The typical client in Europe, on the other hand, is more interested in conservatively managing a family inheritance.
Private banks in Asia have responded over the years by being more transactionally focused. Although wealth management is a big business, with Singapore and Hong Kong as booking centers managing close to $10 trillion of family assets, success has been based on investment- or corporate-banking tie-ins and trades, rather than advice.
Or it has been based on relationship managers (RMs) pitching products and strategies to clients – and compensating the RMs on commission. This naturally encourages the industry to sell complex, expensive products rather than those that benefit the client.
Without a strong advisory model, private banks have also struggled to win discretionary mandates. That is, wealthy people in Asia are less likely to trust a private bank’s investment team with a free hand to invest their money. This makes it difficult to scale the investment side of a wealth business in Asia.
Going digital
Although both clients and (most) private banks are ill-served by the transaction-based model, bad habits are hard to break.
The top-tier private banks may decide to forego any serious attempt at digital customer solutions, regarding these as “hygiene” (expected and commoditized) rather than as a differentiator. Instead their relationship managers go to extraordinary lengths to please their tycoon-class clients.
HSBC is betting that it can maintain its high-touch RM business with a more digital approach in which clients pay a fee for advice. It is rolling out HSBC Prism Advisory, a platform that uses Aladdin Wealth technology to provide data analytics, and combining this with its RMs to provide bespoke advice.
Aladdin is the risk analytics tool developed by BlackRock to provide risk management and portfolio construction to institutional investors. It is used by many third-party asset managers as well.
The customer-facing digital platform and other technical aspects supporting Aladdin were developed by the bank’s in-house tech team.
Embedded in Prism, HSBC will use it to provide RMs with insight into client balance sheets, and optimize advice across a client’s multiple portfolios.
“We want to reduce the perception that private banks just churn portfolios,” Tan said. “This isn’t about individual products, but looks at a client on a portfolio basis, and uses data to help clients reach their investment objectives.”
Supporting RMs
She says the bank is confident that Prism will succeed in Asia because the region’s clientele are more comfortable with digital in general. For example, mobile penetration rates are higher in Asia than in Europe, including among the very wealthiest. There is a greater portion of people in Asia that want to access information, guidance, and their RMs via mobile, as well as via desktop or a Zoom call with an RM (if not in person).
But the bank launched Prism in Europe first because clients there are already habituated to advice-led services. This will remain a challenge in Asia.
“Prism represents a step change in what investors are willing to pay for,” Tan said. But providing an institutional-grade risk engine, and then allowing clients to make decisions around its recommendations, can still give clients the control that many of them desire.
It also makes the RMs better equipped to provide more knowledgeable advice. In the run-up to launching PRISM, the bank has been training its Asia RMs on how to use it.
Client segments
HSBC is rolling out Prism in two stages. First it is now available to all clients with $2 million or more placed in the bank’s booking centers in Hong Kong and Singapore.
It will soon extend Prism to Hong Kong investors that are accredited as professional investors, which means those with investible assets of $1 million or more. This includes family offices as well as rich individuals.
The bank has no plans to adjust the platform for retail customers. An institutional-grade portfolio contains too many products or strategies that would run afoul of Hong Kong and Singapore product-suitability rules for the mass market.
Will it work? Can HSBC use Prism to create a fee-based advisory business while maintaining its high-touch service for the super rich? Tan says the project will be judged by the assets it attracts, and the risk-adjusted performance it delivers.
“It will take time to really know,” she said.
