Tam believes that Wing Lung, the offshore wealth management arm of Shenzhen-headquartered China Merchants Bank (CMB), is far ahead of competitors in cross-border mandates.
CMB, which has 1000 branches in China, has developed a thriving domestic wealth management business and it typically makes client referrals, which account for 90% of Wing Lung’s cross-border business, Tam said.
HNWI boom
Private wealth in China is no small matter. Tam cited figures from the Boston Consulting Group that showed China’s private wealth was RMB 22trn ($3.54trn) in 2013 and is expected to grow 84% to RMB 40trn by 2018.
Tam said Wing Lung provides cross-border clients with a relationship manger in China and in Hong Kong, along with the bank’s investment specialists and advisors (what the bank calls 1+1+N).
Both relationship managers working together bring a deeper understanding of high net worth investor needs, he said.
“While other banks can only service their clients in one region, say in Hong Kong, we are only the only regional bank providing this [cross-border] service,” he said.
Tam has cross-border experience himself. Prior to joining Wing Lung a year ago, he worked in the private wealth management division of Credit Suisse and before that at HSBC Private Bank.
Originally from Hong Kong, he spent the first half of his 22-year professional life working in Mainland China on the corporate banking side.
During that time, he regularly met with, and often shared meals and drinks with, China’s rugged private businessmen.
“That’s how I got an understanding of the mainland businessman,” he said.
Enhanced KYC
Cross-border wealth management, however, comes with specific challenges. Hong Kong regulatory requirements for banks dealing with money coming from the mainland involve “enhanced know-your-customer” practices, Tam said.
“We need to do fairly in-depth analysis to get a deep understanding of this group of clients. We have to know how a potential client accumulated his net worth to the satisfaction of regulators before that account can be opened.”
Mainland clients also need to be understanding. To open a private bank account it can take several months, he said.
Moreover, enhanced KYC procedures require obtaining financial information about individuals living in China, which can be a difficult task.
“It’s a challenge to most global private banks in Hong Kong,” Tam said.
Mainland discretionary?
Wing Lung launched a discretionary business in Q3 last year. Tam expects that business to grow through referrals from CMB, which has also developed an onshore discretionary portfolio business.
He acknowledged that Mainland clients do not readily shift to discretionary.
In Europe, Tam estimates that the average percent of a bank’s discretionary portfolio assets vs a bank’s total investment portfolio is 30-60%.
In Asia, it’s 15-20% and of that, Mainland Chinese customers are around 5%.
“Most are entrepreneurs, and they became successful by making their own decisions. They typically want to continue making their own decisions on investing their wealth.
“But our situation is a bit different. CMB has been doing quite well in this area and they are growing their discretionary management service. They have given enough confidence to onshore clients to leave investment decisions to the bank.”
Tam said increased volatility in markets this year due to amplified geo-political concerns supports the trend toward discretionary.
“Clients need to react fast enough to the global investment environment. In a sudden downturn, if the client [with an advisory account] cannot be reached, it could develop into bad situation.
“The markets are not like they were the last few years, when growth was sustainable and continuous and it was fairly easy to expect what would happen.”
On Friday, FSA will publish part two of the Joseph Tam interview, which provides a snapshot of Wing Lung’s fund selection process and some funds on its focus list.
