More private bankers in Asia are succumbing to the lure of bumper pay rises at boutique banks, only to find themselves struggling to meet onerous revenue targets a year or less down the track.
Headhunters in Asia say boutique private banks and small-scale wealth units of commercial banks are regularly trying to poach relationship managers (RMs) from the likes of UBS, Credit Suisse and Citi. Bordier & Cie, BMO, BNY Mellon and UBP – none of which rank in Asia’s top-20 private banks by assets or headcount – are among those to have announced regional hiring drives in recent months.
Boutique private banks typically give new recruits the highest base salary increments – a mouth-watering 30% to 50% — in the industry, according to Liu Sanli, practice lead, private banking, at CA Search in Singapore.
“Boutiques don’t have the same tight salary bands at each level like UBS, Goldman and Standard Chartered do. And they pay more because there’s a risk premium for joining an up-and-coming firm,” adds Rahul Sen, a former Merrill Lynch private banker, now head of wealth management at search firm The Omerta Group in Singapore. “It’s like the bond markets – the bigger the risk, the bigger the percentage.”
“Large universal banks tend to offer lower increments compared to pure-play boutique private banks,” says an Asia-based private banking consultant who asked not to be named. “In some ways, the pure ones have spoilt the market by offering astronomical pay packages that impair their ability to maintain a healthy cost-income ratio.” Many smaller banks in Asia now have cost-income ratios of 80% or more, threatening their long-term viability, according to Benjamin Cavalli, Credit Suisse’s market area head of Southeast Asia.
Why big salaries are bad for private bankers
If rising salaries are putting the squeeze on banks in Asia, they aren’t always beneficial for bankers either. “Taking a big pay increase in a new job means you’ve just upped your break-even revenue threshold at the exact time when your revenues are most vulnerable as not all your clients will be moving their assets,” says Sen. “I’ve recently known bankers move to boutiques for obscene amounts of money – an extra $100k – but within a year they’re worried about becoming profitable and have to either reduce their salary or break even more quickly.”
“There’s no free lunch – the higher the pay, the higher the expectation. Boutique banks put more pressure on revenue from the word go,” says Liu from CA Search. “I’ve dealt with senior RMs recently who’ve moved to boutique private banks with a huge pay increment only to come back to me after just a year looking explore other banks. In most cases, they knew their days were numbered.”
“With higher pay, business plans for RMs are more aggressive in terms of both revenue numbers and timeframes,” adds Pathik Gupta, head of wealth management at consulting firm Scorpio Partnership. “Breakeven timeframes are declining further – they’re often now even less than one year.”
When deciding on a job move, RMs should weigh the short-term benefits of a big pay rise against the possibility that a lower-paying firm with a larger product platform will allow them to generate more revenue down the track, says Gupta.
“Let’s say a boutique bank pays you 40% more, but meets only 50% of your clients’ needs, but a major bank pays a 20% increment and meets 90%,” says Liu. “I would advise you to go with the latter because your survivability in the boutique might be short lived.”