In Asia, Deutsche’s discretionary business still lags way behind advisory.
“The advisory model is still very dominant, but we want to make [the two models] more balanced”, Huynh told FSA. “By 2020 we want to double our AUM.”
However, it is difficult to assess that goal because he would not reveal current discretionary assets.
Huynh said that over the last six years the bank’s Asia discretionary business grew assets annually in double digits on the back of more demand from clients, but the growth was interrupted by “some outflows”.
The outflows were likely due to some serious missteps the parent firm Deutsche Bank has made in the past few years. Dwindling revenues and a series of regulatory fines and lawsuits led to speculation about a bailout by the German government. In 2016, the IMF called the bank the biggest threat to the global financial system.
Earlier this month, after years of financial losses, Deutsche Bank ousted CEO John Cryan and replaced him with Christian Sewing.
Huynh said these factors have had no prolonged impact on Asia wealth management and he continues to add staff in the region.
Discretionary drivers
Huynh said he believes that the growth of discretionary mandates will be partly driven by regulators. He said Asia is likely to follow Europe’s example with Mifid II, implemented by the EU this year, to increase client protection. Mifid II demands 50 more data fields to be completed for each trade than its predecessor, which therefore “creates more work and documentation focus from a banker’s perspective”.
The discretionary business is expected to grow because it involves less bureaucracy than the advisory model. “We don’t need to call every client for each trade we propose, as long as it is within the mandate,” Huynh said.
The generational handover of wealth is another factor expected to drive discretionary portfolio management in Asia.
“We are still at the first, or maximum second, generation of wealth. Even the second generation feels the obligation to follow dad’s steps in the business,” Huynh said. “I would say it will take minimum another one or two generations before you see more of these investors inclined to choose professional advisors.”
Asia product demand
Over the past six months Huynh has been bringing more thematic funds to the discretionary mandate. Alongside with cybersecurity, infrastructure and healthcare, which had a good track record last year, he is adding ideas like artificial intelligence.
“Of course there only are a handful funds that invest into these areas”, he said.
For five years, clients were mainly interested in fixed income, he said. “Most clients are businessmen or entrepreneurs who are still CEOs or major shareholders of a company. For them, the risk is in their business and when it comes to investment they would rather take less risk.”
However, last year the appetite started changing and Huynh has been moving some fixed income assets into equities due to the expected interest rate hikes.
