The Hong Kong wealth management sector is changing. The very lucrative expat market is declining, being replaced by a growing domestic wealthy population.
The political battles between China and the UK over the special administrative region (SAR) have not made it easy to determine the future potential of Hong Kong’s advice industry.
Some firms have exited, like BNY Mellon Wealth Management; but others, like investment firm Cambridge Associates, which services ultra-high net worths and family offices, have opened offices.
FSA‘s sister publication, International Adviser, spoke to several firms based in Asia to understand how companies are strategically assessing the future of Hong Kong’s advice market.
Phil Neilson, managing director of Just Service, did have a Hong Kong insurance licensed business, Just Service HK, but sold the firm and now has Malaysia-based Just Service Global catering to Asian clients.
“I do not see Hong Kong as an area of growth for the expatriate market in the short term.
“There are niche opportunities for the local market in light of the Greater Bay Area initiative. Giving access to a population of around 70 million as opposed to 7.5 million in Hong Kong.”
But big players in the market, like The Fry Group and Quilter International, still see the opportunities that Hong Kong has to offer.
James Sutton, director of Hong Kong at The Fry Group, said: “Whilst it’s been a year full of uncertainty, our Hong Kong office has had one of its best for new clients and assets under advice. Being regulated in Hong Kong, Singapore, Dubai and the UK gives us a unique opportunity to gain clients in Asia and offer them security and continuity if they move elsewhere.
“We need to continue to be nimble looking forward, but the outlook is positive.”
Mark Christal, Hong Kong chief executive and head of north east Asia region at Quilter International, added: “Hong Kong remains a key, well-established and well-recognised international financial centre which supports a range of growth opportunities and a broad demographic.
“There is a significant high net worth population in the area, which drives a need for high quality financial advice and flexible wealth solutions.”
IMPACT OF POLITICAL RELATIONS
Political tension between China and the UK over Hong Kong shows no sign of abating.
IA reported that more people are using the UK’s visa scheme to flee China’s security crackdown.
Sutton said: “Sadly, any political tension or change creates uncertainty for the average person living in Hong Kong, but this has increased the need for good quality, transparent advice that clients can rely on.”
Oliver Wickham, head of business for Hong Kong at St James’s Place Wealth Management, added: “Geopolitical tensions between these countries have impacted both expatriates and locals alike in Hong Kong.
“However, amidst the uncertainty, there is growing demand for more specialist advice and counsel, particularly as many weigh up their options; including understanding potential relocations and managing their cross-border UK/US/Sino investments.”
EXPAT VERSUS DOMESTIC
The make-up of the Hong Kong market 25 years ago was predominately driven by expat wealth.
Now, there is a large Chinese domestic wealth flooding into Hong Kong.
So, is the UK expat no longer valuable for firms?
Neilson said: “There is still a demand from expats in Hong Kong, but a reducing market.
“Also the regulatory market in Hong Kong remains confusing to the public with four regulators. There is a decreasing demand for advisory services in Hong Kong financial planning services in Hong Kong.”
Christal disagrees and believes “there remains a strong demand from the traditional expatriate market”.
“However, there is an increasing recognition of and demand for international wealth solutions from a domestic and regional client base who consider themselves internationally mobile or may hold wealth internationally.”
He added: “Our client demographic has been evolving over a number of years rather than just the last few months.
“When we set up our Hong Kong branch in 1991, the majority of our clients were UK expats. Since then, this has evolved into a mix of traditional expats from a range of nations such as Australia, UK and South Africa, as well as internationally mobile local affluent and high net worth clients.
“This shift is due to globalisation, which has in turn increased client’s mobility and made it more likely that they will hold and invest their wealth internationally.
“This creates a need for wealth solutions that may help mitigate the tax consequences of being globally mobile as well as consolidate wealth and help simplify reporting.”
For Just Service’s Neilson, what has changed “is the feeling of security in Hong Kong”.
“Now, foreigners and locals alike, are trying to process the move away from freedom and protection that comes with English rule of law, to one of ‘as long as I keep my nose clean – out of trouble – we’ll be ok’. That is a massive change of headspace. Hence, many are unsettled.”
FUTURE OF THE ADVICE MARKET
With all of these moving parts, Hong Kong may not suit every company.
But with the Wealth Management Connect (WMC) pilot scheme in the Guangdong-Hong Kong-Macau Greater Bay Area, there seems to be a future for the SAR.
Neilson said: “It’s grim in the short term. The assumption is once Hong Kong people become familiar with a one China system, that is how residents see the current changes. a new Hong Kong will arise.
“For expatriates that will look more like a posting to Shanghai or Beijing.”
The Fry Group’s Sutton said: “There will always be a need for advice in financial services, especially for high net worth individuals. Despite current uncertainties for Hong Kong, it’s still a great place to live, work and forge a career, so we are positive for the outlook of the business.”
SJP’s Wickham added: “It’s hard to say exactly what the future holds, particularly as events continue to unfold in 2021.
“What we’re still seeing is that Hong Kong’s fundamentals as a China gateway, Asian financial centre and expat destination, will not diminish in the near-term and there is an increased awareness of the importance of face-to-face advice.
“This will bode well for the future of Hong Kong’s financial advisory market.”
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