Tan Su Shan, group head of consumer banking and wealth management, DBS Bank shares her 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.
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?
The macro environment will continue to be challenging from both a business and regulatory standpoint. We can expect to see further margin compression and higher costs of compliance. Against this backdrop, firms that were over-zealous in their hiring efforts during the recent good years may suffer from cost overruns that will not be sustainable. Further consolidation in the industry cannot be ruled out — those lacking scale or a wider range of solutions (for example, boutique-type outfits) may be forced to exit the market. The bigger firms or the universal banks with a ‘one bank’-type solution will be better placed to withstand such volatility and turbulence.
Business Performance | What is the one revenue line that you must build up significantly in the coming few years to ensure business sustainability? What is your view on the revenue mix of the industry in general?
For sustainability, we must think long-term. What would the next generation want and need?
Firstly, getting the wealth structure and estate planning right is paramount to building the foundation for a good, sustainable long-term relationship that can span multiple generations. Secondly, sound advice around proper asset allocation and customised discretionary offerings with an open architecture platform are essential to committing the clients to us. Thirdly, cultivating an ESG agenda for investing and being able to create interesting, timely access to bespoke or good PE or RE deals will also help engage clients, especially the next generation. Fourthly, leveraging our one-bank solution, including capital market and corporate banking services for families that are still very involved in their businesses. Being able to add value to their businesses and better understanding the wealth creation process makes the relationship a lot stickier, and the solutions a lot more relevant.
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?
On the contrary, DPM services are better equipped to handle such environments. DPM managers have the expertise to manage portfolios in times of turmoil, and the discipline to adjust, rebalance, and ensure holdings align with clients’ risk appetites. Selfdirected clients may not be as disciplined. When markets get tougher, we see stronger interest in discretionary mandates as clients want more than just products — they’re also seeking expert advice and investment solutions, and consistency in portfolio management.
Alternatives have been gaining traction as they provide valuable diversification from classic asset classes — hedge funds, long-short, and relative value strategies may perform well in volatile times. Private investments through private debt, private equity, and real estate should also be considered as they require longer-term investment horizons and are less subject to perceptions of short-term volatility.
Investment Solutions | Ten years on from the GFC, how has your product shelf evolved and how has clients’ perception of structured products changed since then?
Structured products have come a long way since the GFC and are an important asset class for private clients in Asia given their flexibility, customisable solutions, and pay-off profiles that can be tailored according to investment preferences.
DBS offers a suite of innovative structured products that articulate our clients’ investment objectives and are designed to take advantage of prevailing market conditions and trends — for instance, products linked to ESG-compliant companies outperforming the broad market or increasing volatility in equity markets. We also invest significantly in helping clients to understand structured products.
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 has democratised investing by lowering barriers to entry, but our view is that customers are not ready for a fully ‘human-less’ experience. We believe in an integrated approach, and are developing capabilities by investing in intelligent digital advice and portfolio solutions technology to automate parts of the process.
We’re observing several potentially disruptive developments. Firstly, as traditional robo-advisory models originated from the US and rely on ETFs, local investors using these are taking on currency risks that they may not be fully prepared for, since global ETFs denominated in local currencies have relatively limited liquidity outside of the US. There may be significant change in the industry as investors get savvier.
Further, high customer acquisition costs question the sustainability of a B2C business model. We believe market share will likely go to B2B robo-advisors that work with banks and other financial institutions and are able to provide an intuitive, integrated customer journey.
Lastly, regulation. The environment is still nascent and differs across jurisdictions, but this could change as robo-advisory becomes more prevalent.
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?
Private banking traditionally has a high cost-to-income ratio given bespoke offerings, low customer-RM ratios, and stringent regulatory requirements. Applications addressing these will be most disruptive.
Fully harnessing technologies like AI and big data for data-driven insights, such as predictive analytics, can enable banks to provide personalised, algorithmdriven financial advice and do more — especially relevant as we move towards open banking. As regulatory requirements and compliance costs increase, these can also ramp up efficiency by automating parts of the KYC, sales surveillance and monitoring processes, and decreasing customer onboarding times.
Whilst we invest significantly in digitalising client experiences, we still believe human advisors have a key role to play in designing customised solutions and client engagement. Tools that enable seamless integration across offline and online advice and boost RM productivity will prevail.
We are also monitoring the use of blockchain technology in wealth, which is still in the experimental stage.
Meet 2018’s industry leaders in the full round up of of Asian Private Banker‘s the Final Word 2018.