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In a conference room in Singapore's Conrad hotel in early august, a gathering of Credit Suisse Group employees is in the throes of an intense role-playing exercise. As part of their training to become private bankers, the recruits take turns acting out the roles of bank "relationship managers" and their wealthy clients. Taped to the wall of the room are posters offering helpful tips on such challenges as "Resolving Skepticism" and "Resolving a Misunderstanding." Under the stern eye of Penny Radcliffe, head of Credit Suisse's in-house training program, their performances are carefully scrutinized and criticized. One stylish and confident young woman playing the part of a private banker is chided by a colleague for not asking enough questions about the client's family. A young male trainee, with the stressed-out look of someone taking his college-entrance exams, is admonished for asking too many pointed questions too quickly while neglecting to acknowledge the needs of his client with solicitous nods and smiles. After all, when it comes to selling advice?and financial products?to the rich, earning trust is the first order of business. "Relationship managers are forever eager to propose the right solutions," says Radcliffe. "We're always trying to say, 'Slow it down.'"
Slowing down, however, is the opposite of what's happening in private banking in Asia, where the business of helping wealthy individuals manage their fortunes is growing so fast that there's a shortage of bankers. The industry's largest players are planning for a rosy future: Citigroup Private Bank, a division of U.S. financial-services giant Citigroup, says it has already captured half of Asia's approximately 88 billionaires as clients, even as it launches operations in the relatively untapped markets of China and India. Also expanding their Asia footprints are Swiss behemoths such as Credit Suisse and UBS. The latter, which is already the world's largest private bank with $1.32 trillion in assets under management, had just 153 private bankers in Asia Pacific six years ago; earlier this year that number reached 600, most of them working in Hong Kong and Singapore. "By 2015, we expect the Asia-Pacific market to be bigger than the European market," says Kathryn Shih, the Hong Kong-based head of UBS's wealth-management operation in Asia Pacific. "The opportunities are huge." Says Sebastian Dovey, managing partner of Scorpio Partnership, a London-based consultancy to the wealth-management industry: "Asia Pacific is where most private banks are placing their bets right now."
That's because there's so much room for growth. According to a 2005 report by Credit Suisse, only about one in five wealthy Asians uses private-banking services, which run the gamut from investing in stocks, hedge funds and private equity to providing tailored advice on everything from estate planning to buying the right Learjet or yacht for your family. At the same time, the region's robust economic expansion is creating a population explosion in the champagne-swilling classes. Most private banks sell their services only to those who are, in the industry jargon, "high-net-worth individuals" (HNWIs)?people with fortunes of at least $1 million. The number of Asians who attained that status hit 2.4 million last year, up 7.3% from 2004, according to the 2006 World Wealth Report by Merrill Lynch and human-resources firm Capgemini. That compares with 2.8 million HNWIs in Europe, where the growth rate last year was 4.5%.
Indeed, Asia is minting more millionaires at a faster rate than just about anywhere else. The number of Indians and South Koreans achieving millionairedom last year surged a remarkable 19.3% and 21.3%, respectively, while Indonesia and Hong Kong recorded double-digit growth. The wealth of millonaires in the region is expected to grow 6.7% a year through 2010, according to the report, compared with 3.7% for Europe. Roman Scott, a vice president at Boston Consulting Group (BCG) in Singapore, says the soaring economies of China and India are behind the boom: "If you open up economies for two billion people in 10 years, multiplied by strong market performance and fewer capital controls, you get a phenomenal amount of wealth creation."
Last year, Asia's HNWIs were worth a total of $7.6 trillion, according to Merrill Lynch and Capgemini. That large number belies popular misconceptions about the private-banking industry. To the uninitiated, private banking is an exclusive little world of secret Swiss bank accounts and starchy "wealth advisers" plotting corporate takeovers and tax dodges with their superwealthy clients over lobster and Château Margaux. While the banks do offer many perks, it is no longer such a rarefied niche market. For many financial institutions, private banking is increasingly crucial to the bottom line. For example, 46% of Credit Suisse's pretax banking profit in the second quarter of this year was generated by private-banking operations. While retail banks must focus on volume by hawking me-too products to millions of less-wealthy customers, private banks can rack up bountiful revenues by offering a wide range of lucrative services to a smaller number of rich and superrich clients. It's not uncommon for a top private banker to thrive with as few as a dozen clients, who are happy to pay richly for personal guidance on such esoteric matters as, say, reducing taxes, setting up a low-risk-high-return hedge-fund portfolio, investing in emerging-markets property or establishing a charitable foundation. "The profitability comes in because the client has many different relationships with the bank in terms of private equity, real estate, trusts and stockbroking," explains Deepak Sharma, chief executive of Citigroup's global wealth-management arm for Asia and the Middle East. "This relationship is very deep and very broad." It can also be very close-knit, going beyond the nuts and bolts of standard personal finance. Citigroup Private Bank and UBS host wealth-management training sessions for the sons and daughters of their clients, for example, helping them prepare to manage their inheritance or even take over the family business. Kaven Leung, managing director for Citigroup Private Bank's north Asia and Canada operations, says he regularly takes trips to New York with the family of a multibillionaire Hong Kong tycoon to meet with market analysts and fund managers. Says Leung: "We try to address both the financial needs and the human needs" of customers.
Although the current scramble for Asian clients is driven by the region's growing wealth, the seeds of the boom were sown not by prosperity but by adversity. In the past, Asians have tended to manage their money without professional help, and to stash a lot of it conservatively in cash, savings deposits and real estate. "The Asian rich have had a high propensity to hold cash," says Scott of BCG. "That was why private banking didn't take off for a long time in Asia." But several economic shocks?including the tech-stock crash of 2000 and the 9/11 terrorist attacks the following year?prompted the world's central bankers to slash interest rates in an effort to revive economic growth. With returns on savings deposits falling to around 1% (or even lower in Japan), Asia's wealthy were roused to seek alternatives. Today, they tend "to expect a lot more return from their investments" than investors do in other regions, says Shih of UBS. Clive Bannister, the London-based CEO of HSBC Group Private Banking, notes that Asians are more "hands-on" in their investment decisions than the bank's European clients?and less willing to wait for returns to be realized. "There is no doubt that the investment time horizon for many of our Asian clients is shorter than it is for our European ones," Bannister says. Asia's wealthy also tend to be younger and to have made their money through their own entrepreneurial efforts, while there is more inherited wealth in old-world Europe.
To meet the demands of this growing demographic of impatient and increasingly sophisticated Asians, private banks now offer a slew of new investment products. One of the most popular: so-called structured notes, which are complex derivatives that often pay a guaranteed minimum return like bonds, or pay above the minimum depending upon the performance of other asset classes, such as stock-market indexes or commodities. "The beauty of structured products is you can tailor them to clients' needs," says Gary Tiernan, head of product management for Deutsche Bank in Asia. It's a buoyant enough business that Deutsche now has a structured-product team of five or six people in Singapore alone, catering to private-banking clients there.
Some banks go even further in offering products that provide not only profits but that aura of exclusivity and sophistication that the client with everything may be inclined to prize. One vehicle with almost irresistible snob appeal is the "Ultimate Wine Fund" offered by the private-banking arm of the French giant Société Générale Group. Available primarily to customers of SocGén's Asian private bank, the fund is linked to a specially created Cayman Islands firm that, acting on the advice of wine experts and auction houses, buys and stores select vintages. Investors wanting to cash out after the minimum one-year holding period may redeem their shares for actual bottles of wine, which can be drunk or resold at a profit (or loss) by a wine broker. "It's a physical fund, and it's very liquid," quips Daniel Truchi, the CEO of SocGén's private-banking operation in Asia. The minimum investment in the fund: $300,000.
Such offbeat offerings indicate the growing need for private banks to distinguish themselves from competitors in a fragmented market that's ferociously competitive. The largest global private banks in Asia are UBS, Credit Suisse, HSBC and Citigroup, but there are scores of others, and no single player is dominant?Citigroup, which manages roughly $70 billion in Asian private-banking assets, is one of the top-three regional players, yet it still controls just 3-4% of the Asia market. With customers up for grabs, selling services can be about marketing the sizzle?bragging rights and a sense of privilege?as well as the steak. Thomas Meier, head of Asian private banking at Bank Julius Baer, one of Switzerland's oldest private banks, argues that his institution's classic pedigree gives it a particular edge in Asia. Headquartered in Zurich, the firm started out more than a century ago as a simple foreign-exchange office on the city's exclusive Bahnhofstrasse, where Switzerland's largest banks?and costliest jewelers?are housed. "Asians love history," says Meier. "If you can show them 120 years of history, it gives them an enormous level of comfort." Other firms find their own ways to impress, not least with a seductive patina of opulence. A stark, cool modernism pervades Credit Suisse's Singapore office, while the Persian rugs and somber oakwood in Citigroup's office across town convey a reassuring, grandfatherly solidity.
The biggest challenge for now is not, in fact, attracting clients but finding and training enough qualified staff to service them. Asian private bankers differ from their European counterparts, according to Credit Suisse industry analysts. They tend to be relatively young (average age: 35). Yet, because of the proliferation of esoteric investment choices, their work is becoming more complex than ever before. "The technology in private banking has evolved tremendously," says SocGén's Truchi, exacerbating the need for more sophisticated bankers. "It's gone from simple brokerage services to hedge funds and derivatives." Says BCG's Scott: "The biggest pitfall is that customers are getting more demanding, but the talent base isn't able to [meet] their demands."
The problem has become so acute in Singapore?which aspires to become a regional hub for wealth-management?that the government has helped to create a vocational school to groom aspiring private bankers (see next story).
One result of this gap between client demands and the ability of a single bank to satisfy them is that many savvy Asian clients open several accounts and play bankers off each other to get the cheapest price. "Some of the serious guys have four to five accounts," says Scott. Another result is rising salaries as banks tussle with one another for talent. Industry consolidation may be the inevitable endgame. Only the biggest banks will be able to satisfy the growing salary demands of private bankers, so middle-tier players may gradually be squeezed out. "The big will only get bigger," says Didier von Daeniken, head of private banking for Credit Suisse in Southeast Asia. "As a middle player, it's not easy to make money because [staffing] costs have risen."
For now, though, there's a sense that the party has only just begun, with much of the expansion opportunity driven by the recent opening of the financial sectors of China and India to foreign private banks. Having joined the World Trade Organization five years ago, China is required to start making its banking market more accessible to foreign firms in 2007. In anticipation, Citigroup opened a private-banking office in Shanghai in March?the first such office on the mainland?in a bid to attract some of the 300,000 Chinese millionaires that it reckons are currently underserved. "With the kind of wealth that's been created in the last 10 years or so, clearly there is a lot of raw material," says Citigroup's Leung. "There's a high savings rate, just under $1 trillion in assets have been accumulated, and it looks like that number will double in the next decade or less." Citigroup expects China to become the single largest private-banking market in Asia outside Japan.
India, too, is becoming a hot spot. Its pool of millionaires is growing roughly three times faster than China's, according to the 2005 World Wealth Report; Indian assets under management stand at $307 billion and have been growing roughly 15% a year, according to BCG. Much of the activity is now focused in Bombay, but Citigroup, for one, is planning for rapid expansion in other key Indian cities, too. "You need to be on the ground in Calcutta or Delhi to offer domestic products," says Citigroup's Sharma. In the next three to five years, he aims to have as many as 100 offices and roughly 1,000 employees across India, up from about 100 employees in the private-banking operation today. The next generation of private bankers had better learn fast. Asia's burgeoning band of millionaires will be counting on them.
- Neel Chowdhury | Singapore
- Asia's burgeoning class of millionaires and billionaires offers a vast new market for the world's wealth managers. A Special Report on the private-banking bonanza