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.

The "Network Effects" of successful organizations

Recently, while clearing some of my old magazines, I came across an article in Businessweek ("The Web's Walking Dead", Sep19-25, 2011 Issue) describing how some of the technology companies like Yahoo and AOL who used to be the darling of consumers and investors are now in tatters.  Other tech companies like Nokia and RIM came to my mind. While it is easy to pin the blame on poor product strategy and execution or even management, what is interesting in the article was the mentioned that these failures were due to the lack of the "network effects" that is necessary to remain successful.

Technology sector is a highly competitive one. Any one who has an great idea and a great product can market to the consumer with ease. If successful, the business will grow. But, this is the point where the similarities between a successful startup and a successful organisation stop.

So what are the "network effects" for a tech company to be successful? To understand this concept, it is easier to give a few examples. The mention of Apple, Oracle, Amazon, SAP, Cisco and Microsoft will strike cords with many of us who knows these companies for many years. There are 3 common features found across these organizations:

a) A successful suite of products backed by strong external community developers, functional and technical expertise.
If one look at the likes of SAP, Cisco or Oracle, there are many communities (across regions) to support the local sales, product and technical support because these organizations recognize that the way to expand the reach is to create opportunities for anyone to pick up the product knowledge and instantly becomes a "walking billboard" for the organization.

b) Establishment of a strong supply chain linking the suppliers to the end consumers
Apple and Amazon recognized that consumers want to acquire the best product at the most competitive price. Besides offering its own products for sale, Amazon evolves and started to look for suppliers who can offer a better pricing than itself and link it up with consumers via its website. iTunes and App Store creations help to create a global marketplace that stimulates the entrepreneurial activities that indirectly demands the products and services for sustainable growth.

c) The need to recognize that there are inherent limitations within the organization
Management is always quick to highlight successful business stories to investors and employees to boost the stock prices and company morale, respectively. But management must also recognize that there are inherent limitations in the organization that impedes the growth. Besides, organic growth or M&A, the 3rd option is to grow is explore the community by understand the intricate network that it has build and tap those opportunities.

With the rise of social media, organizations need to understand the how to bring various stakeholders together and continue to grow its business.

Understanding the efficiencies of wealth management front-office activities

There have been many numerous literature about how technology capabilities can increase the efficiency of the relationship managers and operational staff. However, few research have been focused on understanding the efficiencies of relationship managers.

A relationship manager generally covers (but not limited to) the following activities -
1) Prospect management and development
2) Client on-boarding
3) Client book development
4) Client servicing
5) Compliance-related activities
6) Operational issues
7) Human Resource

In addition to the usual ratios such as front/back or cost/income. It is important for organization to review a relationship manager's activities holistically and identify the amount of time spent on the various activities. The objective of such an exercise is not about removing the responsibility of the RM from performing selected activity, it is about striking a right balance and getting management to understand the complexity of managing the costs of the front-office.

Wealth Management - Keeping up with the regulatory challenges

Recently, Singapore launches the private banking code of conduct. A set of guidelines put up by the Association of Banks in Singapore. The code of conduct seek to define a set of standard best practices in competency and market conduct when serving HNWIs (High Net-Worth Individuals). Similarly, Hong Kong regulators are looking to refine the requirements for financial institutions in gathering evidence whether a person qualifies as a high net-worth professional investor.

With the increasing regulations imposed in key wealth management centers around the world, private banks are facing rising operational and compliance costs in meeting the higher standards in regulatory standards. While organization-wide training, technology and operational changes are necessary, sales management is also an important area on how private banks can continue to grow despite the heightened regulatory environment.

Sales managers help to identify changes to the advisory processes for the relationship managers and enhanced the overall client experience. They are the middle men who worked both with the relationship managers and the products and services teams to identify new opportunities to meet the clients' needs.

This is the key to standing out in the competition.

The next big breakthrough in technology

It's been a while since I put down my thoughts on trends on management, technology or business in my blog. My new year resolution is to share my blog to a wider group of audiences. Any suggestions from you are most welcome!

As I review the past 12 months of what has happened in the technology space, one technology that struck me was the exponential rise of ANDRIOD. More and more handset and tablet manufacturers are choosing Andriod as their preferred mobile operating platform. While there are more than 350,000 apps in App Store, Andriod market has more than 250000 apps. The gap between Andriod market and Apps Store is closing.

The question now is what's next?

To me, the natural extension for Andriod is to develop an operating platform for the desktop and notebook market which Microsoft dominates this market. Imagine that Andriod is deployed in your notebook or desktop, the tremendous opportunities in terms of user experiences and applications can be enhanced.

Let's see in the coming 12 months, will we see some indication of where Andriod is heading next.

Happy New Year!
Bernard Tan

Are we going to witness a Black Swan event?

Lately, there have been a slate of negative news coming out from United States:
a) Budget impasse in the Congress to reduce the budget deficit
b) S&P turning negative on United States "AAA"credit ratings
c) The continuing decline of the US Dollar
d) The declining global economic influence of the United States of America

I am not an expert in United States economic or political issues. However, what I do know is :
a) Governments around the world are holding trillions of US Treasuries
b) The preferred choice of currency for economic trade is US Dollar
c) Many economies have pegged their own currencies to the US Dollar

The economic and political impacts to the world should the downgrade of US's AAA credit rating occur cannot be ignored and underestimated. The repercussions could be severe and may lead to a global Depression.

I'm not a pessimist by nature. But the warning signs are clear and unless the Congress and the White House make a concerted effort in dealing with the growing budget deficit, US may not be able to recover from another Black Swan event.

regards,
Bernard

Career management strategies

It is bonus time again. By now, most of us would be either be looking to upgrade your car, looking for the next condominium or reviewing your CVs and preparing to send to the next available headhunter who calls you.

For those who are dead set on moving on, don't jump the ship prematurely. It is always easy to throw in the towel and call it quits. There are couple of simple steps to assess whether it is time for you to move:

1) Take stock of what you have accomplished;
2) What are your strengths and weaknesses;
3) Review your career objectives. Every company perform some form "strategic review" exercise every few years. We should also perform some form of strategic review as well. Look at the soft factors such as "do you enjoy predictable tasks or variety of tasks", "are you a team player or an independent team member". These questions will help you in assessing your next career move.