UBP joins a growing group of wealth managers such as UBS, Standard Chartered and Noah Wealth Management who see a recent pickup in the trend of mainland investors seeking offshore diversification of their assets.
Reasons for diversifying offshore include concerns over further RMB devaluation, domestic market volatility and the ongoing generational change as China’s entrepreneurs get older and want to preserve wealth.
“Ten years ago, most clients focused on building out businesses. Now they are more international in their lifestyle. Their business may be in Hong Kong or Singapore, their children may be in overseas schools and their residence offshore. They are asking how we can help them with next generation planning.
“All of those things lead them to have increased appetite for diversification in asset classes and location. Chinese clients are far more open to that conversation than before. It’s a huge opportunity for wealth management.”
To address the opportunity, some global banks such as Credit Suisse and UBS are building mainland operations. However, Blake doesn’t believe the answer is to invest in onshore operations.
“Onshore takes a long time to break even and also the domestic banking market in China is already well-served by domestic players.”
"More firms will follow Socgen and Barclays and exit this market"
However, a partnership with an onshore bank is far more attractive, he said. “If there was a complementary set of services, we would consider it.”
In April, UBP completed the acquisition of Coutts' wealth management operations in Hong Kong and Singapore.
Globally, UBPs total assets are about CHF 113bn ($115bn). In Asia, combined private banking and asset management AUM is CHF 14bn, with private banking alone making up CHF 10bn of that figure.
The firm expects that the business in Asia will double to 20bn “in the medium term”, Blake said. To that end, UBP is hiring relationship managers. The plan is to get to 100 from 70 today in the next two years, but Blake said the focus is on quality not quantity.
He expects consolidation among banks to continue as intense competition creates margin compression.
In April, Oversea-Chinese Banking Corp (OCBC) agreed to acquire the wealth and investment management business of Barclays Bank in Singapore and Hong Kong. That acquisition preceeded the DBS Group’s purchase of Societe Generale’s Asian private banking business in 2014.
“The consolidation process that we are seeing is very similar to what happened in Switzerland. Foreign players with wealth management as a small part of the overall financial services organisation decide to focus on core businesses rather than a business that needs additional investment to get up to speed.
“That’s now happening in Asia. More firms will follow Socgen and Barclays and exit this market.”
One factor driving M&A is that regulatory expectations have stepped up from five years ago and risk management resources have significantly increased, creating margin pressure.
Many banks have been spending the last 3-4 years responding to new requirements and putting in systems and process.
“Looking at compliance and regulatory teams in general before the financial crisis and now, I’d expect that team to have doubled in five years.”
The other big issue for the financial industry is fintech disruption in general and for wealth management specifically, the rise of roboadvisers. Blake said there’s a lot of hype around fintech and the debate is polarised – supposedly either technology will upend private banking or nothing will change.
“There is not much discussion about what that future engagement looks like. What will be the impact of technology on advice? Client communication and money transmission will be easier, but in terms of advice, work has to be done to understand how technology can facilitate it."
He believes technology will not replace relationship managers. "Especially when there is market volatility or when there are fundamental issues to discuss, the client wants to face a person."