Edmund Koh, head of wealth management Asia Pacific, UBS Global Wealth Management shares his views with Asian Private Banker in the ‘Final Word’, a ten-part series where the industry’s leaders share their thoughts and opinions on key issues around industry trends, business performance, investment solutions, regulations and compliance, and technology.
Industry trends | What is the state of Asia’s talent pool and did your firm pay significantly higher for new talent? What is your view on private banking talent development in Asia?
The rapid growth in the wealth management industry in Asia requires experienced bankers who have weathered market cycles and are able to effectively advise their clients on new investment opportunities. At UBS, we have built up a reserve of capacity by continuing to attract and retain such talent over different market cycles.
Today, we have a strong and deep bench of senior management talent in APAC with an average tenure of 20 years with UBS. Concurrently, we believe that it’s also important to nurture a pipeline of talent and we have over 1,100 client advisors in APAC.
As part of our commitment to talent development, the UBS University in Singapore provides training for all our employees. UBS has been running our Wealth Management Diploma for more than a decade. This diploma is a structured certification process for all UBS client advisors and is recognised by the Swiss government. We also have a two-year Master in Wealth Management programme organised in collaboration with the Simon Business School at University of Rochester (US) and the University of Bern (Switzerland) for our key senior wealth managers.
Industry Trends | How important is it for your business to make substantial inroads in China to ensure sustainability and growth over the next decade?
It’s our vision to be the pre-eminent global wealth manager in China, leveraging the twin engines of UBS (China) Limited and UBS Securities. We see great opportunities in China across all of our businesses, emerging from China’s wealth creation, market reforms, and globalisation.
In addition to our Kowloon office opening, we opened a sub-branch in Beijing in 2014 for UBSCL — UBS’s wholly owned bank focusing on WM — and a branch in Shanghai in 2016. In December 2017, UBS entered into an agreement with Qianhai Financial Holdings to jointly develop a wealth management business in the Qianhai free-trade zone — we’re the first international wealth manager to establish a presence there.”
Business Performance | In the midst of what has been construed as an increasingly difficult macroeconomic environment, how do you think the private banking and asset management industry will perform in 2019? Will it be a year to separate the wheat from the chaff?
Growth is likely to slow in 2019 and so are corporate earnings as the impact of trade tariffs is felt on the US and Chinese economies and as tailwinds from US tax cuts wane. Monetary policy is getting tighter — 2019 will likely be the first year since the financial crisis when balance sheets end the year smaller than they started. Political risks — ranging from trade disputes to Brexit to Italy — abound. And the world continues to use more resources unsustainably.
At the same time, the best opportunities can present themselves amid dislocations. Although volatility and uncertainty have increased, there are few signs to suggest that a recession is looming. Inflation remains contained, rates are being raised in a measured way, and global consumption looks to be in strong enough shape to see us through trade or other specific risks.
Earning higher returns will take more work but opportunities are still out there. The bank or asset manager who can best guide their clients through the outlook, risks, and opportunities in the months to come to help clients achieve their financial goals amid the uncertainty will continue to perform. This will require significant scale to offer clients opportunities they hardly get anywhere else.
Investment Solutions | Though continued geopolitical uncertainty and volatility pose a challenge for DPM performance, will this ultimately prove to be a boon for the discretionary business, converting clients from trade to delegation? In these same market conditions, how critical will the alternatives business be for private banks in Asia moving forward?
Markets rarely impact a client’s choice on discretionary vs non-discretionary. Rather, they’re impacted by the desire to be involved in day-to-day investment decisions for certain portfolios as well as the actual underlying investments. So it really depends. Current market conditions have reassured clients who invest in our globally diversified strategies that there’s a strong benefit to have this exposure in light of the home-biased drawdowns this year, with Asian-biased and fixed incomefocused investors having obviously seen more headwinds.
Also interestingly, we’re still seeing that the more our clients follow the asset allocation and the strategic discipline of research-based portfolio management, the better the overall performance. Concretely, the majority of our self-directed portfolios have underperformed our CIO-based portfolios.
In our client conversations we stress that it’s a misconception that control is given up with a discretionary portfolio. The key to investment success is not whether you self direct or delegate. The key is whether you execute the strategy that fits your return and risk expectations with discipline.
This is why we advocate DPM — we believe your chance of successfully allocating across different asset classes and keeping investment discipline significantly increases if you hire a professional manager.
Many of our clients are successful entrepreneurs and understand that hiring professionals to perform a job for you does not mean giving up control.
Technology | What is your view on robo-advisors and is your firm developing robo-capabilities of its own? Have you observed any robo-advisory developments that could materially disrupt the industry?
Robo-advisory is seen by some as a growth area in wealth management, but that does not mean that there will be a onesize-fits-all approach. Others point out that wealth management clients especially value personal and emotional aspects as well as the translation of advice more than digital efficiency alone.
While there is space for further digitalisation in some parts of wealth management, any system will need the human factor and rely on the full expertise of our specialist teams. It would also need the ability to adapt to the specific needs of each client. In the foreseeable future, technology alone cannot provide the context, insight, and interpretation required to make the best investment decision. Since 2013, we have used automated systems to enhance our investment decisions. However, a lot of qualitative human judgement goes into these systems and are an irreplaceable part of their development.
Technology | What emerging technology applications do you expect to reach an inflexion point in their convergence with private banking and wealth management? What impact will they have on the operational models of private banks and wealth managers? Who will be the biggest industry disruptors?
Never before have we seen such a favourable combination of big data, powerful processing, cheap storage, and refined techniques such as deep learning. All of these inputs can now be combined to train and optimise learning algorithms to a sizeable extent.
AI will affect the entire value chain of a typical bank. From front office activities like customer services and producing investment strategies to middle and back office tasks like identifying fraud and cyber risk, delivering legal and compliance assessments, managing IT infrastructure or employees — everything that is a process can and will be automated.
We expect future benefits to impact customer experience, employee satisfaction, etc. through the vast improvements that can be made to the way we run our business today. Cost efficiency, effectiveness, and controls are also relevant drivers of AI implementation. Many banks have large complex infrastructures with large amounts of data — deploying AI or machine learning solutions to improve these areas and reduce error rates is critical. Robotic solutions can be designed to be highly reliable and might help reduce the operational risks, especially when considering that robots can be deployed 24/7/365.
Meet 2018’s industry leaders in the full round up of of Asian Private Banker‘s the Final Word 2018.