Wealth Management in Asia2nd Edition

Hugh Ashton

Wealth Management in Asia—2nd edition

Updated by Hugh Ashton from original by Dan Jones

Wealth ManageMent in asia—2nd edition

ii © 2010

The Authors

Dan Jones was formerly a senior reporter on Retail Banker International, VRL’s flagship title. Prior to this, he was a reporter on Private Banker International, the leading source of news and analysis for the wealth management industry. Before his time at VRL, Dan worked across a range of consumer finance titles, predomi-nately focusing on the residential and commercial property sectors.

Hugh Ashton is a long-term resident of Japan, who writes on finance and technol-ogy for a variety of publications, having worked in a number of financial houses, both Japanese and non-Japanese, in Japan. He is the author of VRL’s Retail Fi-nance in Japan and Wealth Management in Japan (both published in 2008).

© 2010, VRL KnowledgeBank Ltd

No part of this report may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright holder.

This report is designed to provide accurate information on the general subject matter covered. This report is provided with the understanding that the author and publisher shall have no liability for any errors, inaccuracies or omissions of this report and, by this report, the author and publisher are not engaged in rendering consulting advice or other profes-sional services to the recipient with regard to any specific matter. In the event that consulting or other expert assistance is required with regard to any specific matter, the services of qualified professionals should be sought.

Product code: 3363

First published: London, February 2009, Second edition, March, 2010 ISBN:1-905457-90-1

© 2010 iii

Contents

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Chapter 1: The implications of the credit crisis for Asia . . . . . . . . . . . . . . 15Market sizing and assets under management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Assets under management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Succession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21The Asian entrepreneur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Chapter 2: India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27The wealth market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Reputational issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Outlook and competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35The non-resident Indian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Chapter 3: China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43The wealth market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Qualified Domestic Institutional Investor (QDII) Scheme and market regulation . . . . . 50Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Chapter 4: Singapore & Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61Assets under management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63Key market issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Recruitment and the structured products controversy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Family offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Chapter 5: Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75The wealth market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75Japanese wealth demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76The Japanese client . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82Competition and market activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Foreign bank competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Wealth ManageMent in asia—2nd edition

iv © 2010

Chapter 6: South Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87The wealth market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87Regulatory reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Chapter 7: Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95The wealth market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97Offshore vs onshore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Chapter 8: Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103Economic potential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103The wealth market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

Chapter 9: Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111The wealth market and Islamic finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Chapter 10: Other Asian wealth markets . . . . . . . . . . . . . . . . . . . . . . . . 115Thailand, the Philippines and Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Chapter 11: Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

© 2010 v

List of figures

Chapter 1: The implications of the credit crisis for AsiaFigure 1: HNWI Wealth distribution by market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Figure 2: Sources of Asian mass affluent wealth (HSBC Affluent Asian Tracker) . . 25

Chapter 2: IndiaFigure 3: City-wise distribution of wealthy households . . . . . . . . . . . . . . . . . . . . . . . . 32

Chapter 3: ChinaFigure 4: UHNWIs in Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44Figure 5: Chinese household asset distribution (Source: HSBC) . . . . . . . . . . . . . . . . . 46Figure 6: In which areas does your finance team require additional training? . . . . . . . 52Figure 7: “Chinese box” nature of cross-sector expansion in China’s financial services

industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Chapter 4: Singapore & Hong KongFigure 8: Asia Pacific HNWIs’ average net worth by market . . . . . . . . . . . . . . . . . . . . . 63Figure 9: Contribution of wealth management to fee income at HK banks . . . . . . . . . . 68

Chapter 5: JapanFigure 10: HNWI wealth distribution by region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76Figure 11: Estimates of Market Size as Classified by Net Financial Assets Held – (Source:

Nomura Research Institute) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77Figure 12: Projected size of Japanese inheritance market (Source: Nomura Research

Institute) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80Figure 13: Features sought by customers in choosing financial assets . . . . . . . . . . . . 80

Chapter 6: South KoreaFigure 14: South Korean asset allocation v selected Asian markets . . . . . . . . . . . . . . 88

Chapter 7: IndonesiaFigure 15: Asia-Pacific investor sentiment, October 2008 (Source: ING Investor

Dashboard) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Chapter 8: TaiwanFigure 16: Estimated largest wealth markets in 2017 (by number of $ millionaires)

(Source: Barclays Insights) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104Figure 17: Asset allocation in Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106Figure 18: Asia-Pacific HNWI market share by gender . . . . . . . . . . . . . . . . . . . . . . . 107

List of tables

Chapter 1: The implications of the credit crisis for AsiaTable 1: Overview of the Asian wealth management market (ex Japan)

(Source: VP Bank) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Table 2: APAC Private Banking Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Table 3: Selected APAC Private Banking Assets under management . . . . . . . . . . . . . . 21Table 4: Wealth invested in own business by Asian entrepreneurs . . . . . . . . . . . . . . . . 22Table 5: Standard Chartered credit card portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Table 6: Minimum qualifications for “mass affluent” in different markets . . . . . . . . . . 24Table 7: Entrepreneurs as % of total HNWIs (by country) . . . . . . . . . . . . . . . . . . . . . . 25

Chapter 2: IndiaTable 8: Indian HNWI households/individuals: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Table 9: Income and consumption distribution in India . . . . . . . . . . . . . . . . . . . . . . . . 28Table 10: 2012 Indian wealth estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Table 11: Trusted financial institutions in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Table 12: NBFC acquisitions by foreign banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Table 13: Recent market developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Table 14: Indian HNWI financial asset distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Chapter 3: ChinaTable 15: Sources of Chinese wealth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Table 16: Hurun Rich List demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46Table 17: Selected stakes in Chinese banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47Table 18: Existing private banking operations in China . . . . . . . . . . . . . . . . . . . . . . . . 48Table 19: Chinese IPO activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49Table 20: Selected holdings in Chinese trust companies by foreign banks . . . . . . . . . 52Table 21: Chinese banks with fund management subsidiaries . . . . . . . . . . . . . . . . . . . 57Table 22: Foreign branch networks in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Chapter 4: Singapore & Hong KongTable 23: Estimated private banking AuM in Singapore/Hong Kong vs estimated private

banking AuM in Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62Table 24: Singapore and Hong Kong private banking assets . . . . . . . . . . . . . . . . . . . . 64Table 25: Number of Asian family offices – industry estimates . . . . . . . . . . . . . . . . . . 67

Contents

© 2010 vii

Chapter 5: JapanTable 26: Japanese population figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78Table 27: The professional/general investor classification (Source: Deutsche Bank) . . 79Table 28: How the wealthy save in Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81Table 29: Reasons why the MUFG private banking office is seen as attractive by

customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83Table 30: Account ownership rankings in Japan (HNWIs with >$5m in assets) . . . . . . 84

Chapter 6: South KoreaTable 31: South Korean wealth metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88Table 32: Retail and online brokerage accounts in South Korea . . . . . . . . . . . . . . . . . 89Table 33: Woori Investment & Securities change in revenue structure (%) . . . . . . . . . . 90

Chapter 7: IndonesiaTable 34: Indonesian GDP growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95Table 35: Leading Indonesian Banks by Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97Table 36: Liquid Asset Thresholds for Indonesian Mass Affluent Services . . . . . . . . . . 97Table 37: Will the share of wealth held offshore increase or decrease over the next 5 to 10

years in Indonesia? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Chapter 8: TaiwanTable 38: Sources of personal wealth cited by women . . . . . . . . . . . . . . . . . . . . . . . 108

Chapter 9: MalaysiaTable 39: Malaysia HNW forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

Chapter 10: Other Asian wealth marketsTable 40: Overview of the Thai wealth market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115Table 41: Overview of the Filipino wealth market . . . . . . . . . . . . . . . . . . . . . . . . . . . 116Table 42: Overview of Vietnamese wealth market . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

List of case studies

Chapter 2: IndiaCase study: ICICI Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Case study: SG Private Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Chapter 3: ChinaCase study 1: Bank of China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56Case study 2: HSBC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Chapter 4: Singapore & Hong KongSingapore case study 1: offshore model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67Hong Kong case study 1: offshore model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68Hong Kong case study 2: onshore model (CITIC Ka Wah Bank – CITICfirst) . . . . . . . . . 70

Chapter 5: JapanCase study: Resona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Chapter 6: South KoreaCase study: Standard Chartered Private Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Chapter 7: IndonesiaCase study 1 : CIMB Naiga Private Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97Case study 2: Julius Baer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Chapter 8: TaiwanCase study: BNP Paribas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Chapter 9: MalaysiaCase study: RHB Islamic Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

© 2010 9

Executive summary

In early 2008 the consensus was that the global credit crisis would not seriously affect either Asia or the wealth management industry. Events exposed the falla-cies of those beliefs: investors and market observers reluctantly put the myth of decoupling to bed; and suggestions that the rich would be insulated from the cri-sis proved similarly misguided, given the value destruction seen in almost every asset class over the course of 2008.

The number of HNWIs in Hong Kong, to take but one example, fell dramatically between 2007 and 2008 and there was a contraction in personal spending by all classes of society across most markets within the region, in line with the decline in the growth rates of the economies concerned.

Stimulus packages have been implemented in many nations, but their target in Japan, to take but one example, is not the HNWI or mass affluent market. The Aso government’s across-the-board JPY12,000 (about USD135) handout of 2009, for instance, is hardly the kind of action likely to stimulate investment by wealthy (or even affluent) individuals.

Full healthy economic recovery seems a long way off in many of the Asian re-gional markets. China may be the exception to this rule, but cautionary notes are being sounded by some economists, who warn of a property and fixed asset bubble in China, unsupported by real growth, that could burst at any time in the near future, leading to a rapid decline in the number of Chinese HNWIs and af-fluent customers who will require wealth management services. However, this view does not currently seem to be shared by the Chinese HNWIs themselves.

Having said all this, there has been a relatively rapid rebound in many Asian countries, especially in the field of the mass affluent market. The V-shaped recov-ery for Asia that was predicted seems to be relatively close to what is actually hap-pening, with China still leading the pack in terms of economic growth. Though the market is not back to 2007 levels, there is a mood of quiet optimism among wealth management professionals in the Asia region, feeling that the wealthy of Asia are once again prepared to look at the benefits offered by wealth manage-ment and private banking.

Wealth ManageMent in asia—2nd edition

10 © 2010

So what does this mean for wealth management, and wealth management in Asia in particular? This report attempts to shed some light on those questions, as well as provide an analysis of demographics, trends and challenges for each of the main wealth management markets in Asia.

Acknowledging the Asian growth story has become a necessary component of any analysis of global wealth over the past decade, but entrance into the market itself remains outside the comfort zone of many private banks and wealth manag-ers. Such sentiment is likely to be exacerbated by the results of the 2008–9 crisis, but while Asian economies as a whole have been shown to be as vulnerable as their Western counterparts, the upper echelons of Asian society remain, albeit in reduced numbers, as vast, untapped resources for the wealth management industry.

Furthermore, the threat to Asian economies could have been seen as an opportu-nity for wealth managers to establish themselves. Savings rates as a percentage of GDP are far higher in Asia than they are in Western markets, a fact which should stand the wealthy in good stead. But the disproportionately low number of UH-NWIs in Asia is a clue to the fact that large numbers of the wealthy will be eager to seek advice in order to guard against net worth depreciation.

Nonetheless, the top private banks, as well as their smaller competitors, must still deal with a raft of logistical, historical and regulatory obstacles should they wish to gain access to the Asian wealth management sector, and, given the loss of con-fidence in so many of the major players, must also struggle to re-establish trust with potential customers, as well as with the regulatory environments in which they do business.

Bigger “brand name” players, supported by the reach of their investment bank-ing operations, have been developing wealth management capabilities in Asia for many years now, yet many continue to make the mistake of viewing the conti-nent as a homogenous mass not dissimilar from Western wealth markets. This is obviously not the case. However, there remain some distinctively “Asian” points which the different markets described here have in common, such as the higher savings rates, which should be considered when building up a business in the region.

For domestic institutions, the challenge is more a case of building up loyalty and creating a strong brand identity in order to ensure that clients are not lured by the lustre of a global financial institution. While that lustre has undoubtedly been tarnished by the events of the past 18 months, domestic Asian wealth managers have also lost ground on the back of structured product controversies and inad-equate client propositions, which may be a result of the relative lack of experience in the field and the difficulty in locating and retaining staff with the experience and skill sets to deal with the local wealthy and affluent customers.

For this second edition of the report, sources and statistics have been updated to provide an up-to-date summary of the Asian wealth market, and recent news and comments from players in the wealth management industry have been added to

exeCutive suMMary

© 2010 11

illuminate those areas which were still problematic at the time that the first edi-tion was published.

Within this report, the key findings are:

● that self-made entrepreneurial types represent a large potential market for wealth management services throughout Asia, when compared to other regions.

● that the existence of such a population within the Asian market demands the putting in place of a structure whereby customers can be easily up-graded to the wealth management units.

● changes in the perceived status of leading international brands in the field of wealth management.

Notes

References to “HNWIs” and “UNHWIs” in this report should be taken to mean High Net Worth Individuals with over $1 m in liquid assets, and Ultra High Net Worth Individuals with over $30 m in liquid assets, respectively, unless otherwise stated.

The report examines the Asian HNWI market, but also takes into consideration the much more numerous mass affluent market, which may promise lower re-turns per customer, but is a lower-hanging fruit in the markets covered here. “Mass affluent” individuals are defined in this report using HSBC’s definitions as in “Table 6: Minimum qualifications for “mass affluent” in different markets” on page 22.

The phrases “wealth managers”, “wealth management firms” and “private banks” are to be regarded as interchangeable for the purposes of this report.

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