Private bankers in Asia may eventually find that their careers are focused more on providing financial advice and less on flogging financial products – and this may make it easier for them to move firms.
Some senior private bankers in Asia are now supporting an industry-wide move towards a European-style “advisory model” – where clients are charged, typically once a quarter, an up-front fixed percentage of their total assets under management (AUM) at the bank, as opposed to paying fees on individual financial transactions.
“If you go back five, seven years, the accepted model was that as a client, you didn’t have to pay for advice. And as a provider of advice, you got paid through the producers of the products,” said global CEO of Barclays Wealth Akshaya Bhargava in a recent interview with Singapore’s Business Times. “I think that is fundamentally wrong. It creates a conflict of interest. Any retrocession fees should go back to the client, and any services provided, such as advice, are best explicitly stated.”
“The advisory model has been widely accepted in Europe – it’s the traditional approach there,” says Clarence Law, a Singapore-based business advisor in private banking. But while smaller European private banks such as Pictet, LGT and Lombard Odier also insist that many of their Asian clients pay advisory-based fees, larger firms like Barclays, UBS and Credit Suisse tend to use transaction charges in Asia.
“In contrast to Europeans, Asian private clients haven’t traditionally liked paying for advice, so the big private banks ‘Asianized’ their model when they first move here,” explains Rahul Sen, a former private banker who now works as a headhunter in Singapore. “But this is slowly changing at the large banks in Asia – if the amount of their AUM under the advisory model was almost zero just five years ago, now it’s about 5% – and expanding.”
As we’ve reported throughout this year, hiring new private bankers in Asia is difficult because of the widespread reluctance of their clients to transfer to a new firm. Bankers working primarily under an advisory model, however, may find it slightly easier to change companies.
“On the one hand, there’s even more need to shift your clients to the new platform because you rely on a steady cash-flow paid up-front by these clients,” says Sen. “But on the other, the advisory model actually makes it more straight-forward to move clients because it’s a simpler model. It doesn’t depend on the new bank being able to offer the same complex products as the old one – that can be a deal breaker.”
The advisory model brings both advantages and disadvantage for the careers of Asian private bankers Share on twitter. While revenue streams are in theory more certain, clients typically become more demanding when they have paid money in advance. “They put more pressure on relationship managers (RMs) to prove they are good for the dollar,” says Sen.
Banks in Asia tend to offer advisory services mainly to ultra-high-net-worth clients, those with at least US$30m in AUM. “Revenue-wise at this level the model works better for the bank and these type of people often don’t mind paying if they are getting a better service,” says Sen. “And if they’ve already been paid upfront, they know the RM won’t be going hell for leather on structured products and the like.”
“It takes a lot of the sales aspect out of the job, and the pushiness to invest in certain products,” says another Singapore-based headhunter, who asked not to be named. “But fundamentally, the advisory model only works when the client has an extremely strong and long-term relationship with the RM and is happy to pay for advice based on trust.”