Asia’s wealthy investors are further inching towards discretionary portfolio management (DPM) services, partly driven by the market volatility caused by Covid-19, according to a panel of private banking executives who spoke during Fund Selector Asia’s DPM and Family Office Asia Forum.
“The challenging market environment that we all went through during the first quarter was quite unprecedented, and that opened the eyes of a lot of investors who were quite sitting comfortably over the last eight-to-10 years,” Paras Gupta, DPM head for Asia at UBP, said during the online event held last week.
“It was a bit of a wake-up call and underscored the importance of utilising strategies by managing discretionary portfolios in order to navigate risks.”
In Asia, the bulk of wealth for most banks is managed on an advisory or transactional basis. Most banks attribute this to investors’ preference for being hands-on with their investments, especially since most of them are entrepreneurs.
“Considering that the wealth in Asia is relatively new, it hasn’t been through that many market cycles, and it takes a couple of market cycles to realise the risks that one is facing.
“Now, clients are now starting to appreciate the value that professional managers do,” Gupta said.
Echoing Gupta, Siok-Kuan Tham, head of wealth discretionary for emerging markets at Deutsche Bank, said that clients are starting to get more comfortable with DPM mandates, especially during the uncertain environment in the past nine months.
“We have seen positive response from clients to discretionary mandates during this period,” Tham said.
She explained that most individuals tend to be emotional when it comes to managing their own money, and having dedicated portfolio managers helps as they would have an objective investment position rather than an emotional one.
“Clients have a certain level of comfort to know that they have dedicated portfolio managers looking at the market on a daily basis and making decisions, especially in a very volatile and uncertain environment,” said Tham.
TARGETING THE YOUNGER GENERATION
While there is now a broader acceptance toward DPM in the region, key client segments who are more likely to adopt discretionary services are the second or third generation, according to Gareth Nicholson, head of fixed income for DPM portfolio at Bank of Singapore.
“We are seeing a lot of second or third generation money coming through and looking at DPM solutions,” Nicholson said during the panel discussion.
He explained that the younger generation has more awareness of “not having all your eggs in one basket” to diversify risk, and that putting their money into the hands of professionals have helped them find the right solutions.
Shihan Abeyguna, head of business development for Asia at Morningstar, added that private bankers can also include the topic of sustainability to attract them into adopting DPM services.
“The younger generation do have a strong view on sustainable investing, [and having a conversation with them about sustainability helps solidify the relationships with clients],” he said.
STEADY INCOME, EASE OF DOING BUSINESS
Separately, the panellists also discussed how banks are now looking at increasing DPM penetration, as they are now facing difficulties of generating income amid the current interest rate environment.
“One of the key streams of revenues for the banks, which is interest margins, have completely evaporated given the low interest rate environment,” UBP’s Gupta said.
“That used to be a steady, annuity kind of revenue streams for financial institutions, banks and wealth managers. Now, what do you do replace that? The answer is to focus more on business lines that give you a similar kind of a revenue profile, [and one of them is discretionary businesses].”
Bank of Singapore’s Nicholson added that while DPM demand is rising, banks are now also faced with additional competition coming from fintech companies and asset managers, which are moving towards wealth management.
DPM businesses are also more attractive than transaction business models from a regulatory standpoint, Gupta added.
“The suitability requirements, the disclosures that one has to do if you are trying to a transactional kind of business, are cumbersome. It’s very difficult for advisers to be in touch on the phone with clients and disclose information, and it is quite a nightmarish scenario from that perspective.
“So regulatory obligations are sort of facilitating this move towards more discretionary and professional management of money,” he said.
