Impact of Family Offices and EAMs to the Private Banks in Asia

Lately, Asia has been witnessing a rising number of family offices and External Asset Managers (EAM) setting up their businesses here. Private banks here have been quick to setup EAM desks and family offices to address the challenges from these new market entries.

While these actions are to a certain extent a stop-gap strategies to address the threats from these competitors, there is a need to understand the medium to longer implications of these new entries to the existing private banks.

a) Shift to transaction and custodian services

With the attractiveness of offering independent advice, Ultra High Networth Individuals (UHNWI) and families, with net assets in excess of USD50mio, are looking towards EAMs and family offices for wealth planning, advisory and discretionary services. Future demand for private banking services by these customer segments will tend to be more transactions and custodian-related with the private banks.

b) Changes in client relationship management

With the available choices of EAMs and family offices services, some of the UHNWIs and families will tend to establish relationships with one of these institutions away from establishing relationships with multiple private banks. From the private bank perspective, EAMs and family offices will tend to be the primary contact rather than the client themselves. Client relationships for these segments, will move from a primary to a secondary role.

What is next for Private Banks?

It is not doom and gloom for private banks with the entries of EAMs and family offices. There are opportunities if the right strategies are embarked.

1) Improved execution services for products and services
To attract clients to the private banks, private banks must offer state-of-the-art execution platforms for clients, EAMs and family offices. One such area of improvement is order management. Existing platforms need to be overhauled or upgraded to reflect the growing sophistication of investment products demanded by investors. STP, transparent pricing, accurate client reporting and ease of retrocessions calculation are among the areas ripe for improvements.

2) Effective client relationship management
In the past, an effective client relationship is about how one understands the client and execute a proposal that meets the needs of the client. However, private banks can no longer ignore the importance of the social network. Private banks must incorporate some form of social network with the EAMs and family offices. This form of enterprise network allows the private bank, EAMs and family offices to link up in a B2B (business-to-business) network for prospect introduction, transactions/products enquiries and marketing. Lombard Odier, a swiss-based boutique private bank, established a social network (http://www.e-merging.com/) linking EAMs and family offices to their network.

The use of EAMs and Family Offices in Asia is still at its infancy stage compare to Europe and US. However, demand for EAMs and family offices are set to rise in the coming years and private banks must evaluate their business strategies to ride on this growth.