More private bankers in Singapore and Hong Kong are succumbing to the lure of bumper pay rises at boutique banks, only to struggle to meet onerous revenue targets a year down the track.
As we've been reporting, boutique private banks such as LGT, VP Bank, EFG, and Safra Sarasin are regularly trying to poach relationship managers from major players like UBS, Credit Suisse and Citi.
If you join another large bank, the pay rise is typically 20% to 30%, but boutique private banks offer salary increments at a “mouth-watering” 30% to 50%, says Liu San Li, a former private banker, now a business partner at wealth management firm Avallis.
“Boutiques don’t have the same tight salary bands as UBS, Goldman and Standard Chartered do. And they pay more because there’s a risk premium for joining an up-and-coming firm,” adds former Merrill Lynch private banker Rahul Sen, now a global leader in private wealth management at search firm Boyden. “It’s like the bond markets – the bigger the risk, the bigger the percentage.”
“Large 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.”
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 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, whereas major banks mainly or equally focus on AUM in the first two years,” says Liu from Avallis. “I’ve dealt with senior RMs recently who’ve moved to boutiques with a huge pay increment only to explore other jobs after just a year because they knew their days were numbered.”
“With higher pay, business plans for RMs are more aggressive in terms of both revenue numbers and time frames,” adds Pathik Gupta, regional head of wealth management at consulting firm Scorpio Partnership. “Break-even time frames 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.
“It’s very important for RMs to assess the pros and cons of the banks,” says Liu. “For example, let’s say a boutique pays you 40% more, but meets only 50% of your clients’ needs, but a major bank pays a 20% increment and meets 90%. I would advise you to go with the latter because your survivability in the boutique might be short lived.”
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