When not out lunching or golfing, private bankers in Singapore and Hong Kong should – in theory – be counting their blessings. Theirs is an industry underpinned by surging Asian private wealth, which is expected to rise to $40 trillion by 2025, according to Capgemini. While investment banking hiring is sporadic at best, several private banks – including Morgan Stanley and Deutsche Bank – are relentlessly adding headcount.
Still, many senior private bankers say working in the sector is actually less appealing and more stressful than when they started their careers in the 1990s or 2000s. Margin pressures – which have already forced players like Barclays, Coutts, ABN AMRO and ANZ to quit Asian wealth management – lie at the heart of their concerns. Pre-tax profit margins are 21 basis points of assets under management in Asia Pacific private banking, compared with 25 to 26 basis points in Europe, according to BCG.
Private banks have reacted by heaping additional pressure on their RMs to bring in more revenue and AUM. As we reported earlier last year, new recruits who don’t perform could be shown the door in less than a year. “The reduction in margins and the subsequent higher targets which RMs are now expected to achieve are pushing some RMs to exit the financial industry or move to external asset managers or family offices,” says Sean Kang, director of Asia Pacific wealth management at consultancy McLagan.
Meanwhile, private banks in Asia have continued to bolster their compliance teams as the industry becomes more heavily regulated to prevent money laundering. In an EY survey last year, 39% of private banks in Asia said compliance was their main budgetary priority, compared with just 11% and 9% in Europe and North America respectively who cited it as their chief concern. “Increasing the number of risk and compliance officers has put further pressure on margins because these people aren’t revenue producers,” says former Merrill Lynch private banker Rahul Sen, now a headhunter.
Compliance isn’t just squeezing margins; it’s having a direct impact on the work that RMs perform. “At the start of my career I could open an account for a new client in days, now it might take months,” says a Hong Kong-based private banker.
Regulatory work on current clients is also time consuming. “Due-diligence updates are basically coming in all the time for me to help compliance with,” says the banker. “I recently did eight client reviews in one month – that’s a lot of work and time away from generating revenue.”
There’s another trend that RMs in Asia are worried about: “Their clients are now realising that most actively managed funds are not performing as well as passive funds, after deducting fees,” says Kang from McLagan.
“Some clients are moving away from the higher margin actively managed funds sold by banks, into passive funds or index funds,” he adds. “This is contributing to banks’ falling margins, which is serious enough for banks to start reducing costs through heavy investment in technology.”
While most private bankers don’t think this tech investment poses an existential threat to their jobs (they say wealthy clients still want face time), it is still adding to the pressures they are facing. Clients could switch some of their more straightforward investments to banks’ in-house tech platforms or turn to one of the many robo-advisors that have recently sprung up in Singapore and Hong Kong.
“Robo-advisors are able to compare costs and returns on their investments easily. If the client isn’t happy with the returns, they can move assets to other banks,” says headhunter Sen. “There is now more pressure on private bankers to outperform on investments as well as increase their AUM with net new money.”
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