7 June 2017 |

Straight Talk: Edmund Koh, head of wealth management APAC, UBS

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Asian Private Banker sits down with Edmund Koh, UBS’ head of wealth management for APAC, to discuss his first 18 months in the role, banker productivity, tech investments and China.

Ed, UBS Wealth Management APAC recently passed the CHF 300 billion mark in investible assets – the first time any private bank in Asia has done so. Why have you attached such importance to this feat?

It’s a milestone. Reaching and surpassing any benchmark is significant, not only for UBS but also for the entire industry, and so it is worth talking about.  Breaking through CHF 300 billion (CHF 311 billion) is clearly an achievement, especially if you look at our Q1 figures last year when we were at about CHF 255 billion – that’s a 21.9% jump year-on-year. In absolute numbers, the difference alone [CHF 56 billion] is equivalent to a mid-sized wealth manager, and this was achieved within 12 months. Not only is this positive for my colleagues, it is positive for the industry.

Your first 18 months in the role coincided with what was an exceedingly difficult macro environment which, in turn, had a pronounced negative effect on the industry in 2016. Take us through those first few months.

Both Kathy [Shih, president, UBS APAC & Koh’s predecessor] and myself, together with Jurg Zeltner [president, UBS Wealth Management], had been working closely together, so the transition wasn’t exactly a surprise. It was something we had planned, and we executed the transition in as smooth a manner as possible. When you encounter such headwinds as we did last year – for instance, Brexit and uncertainty in Europe, a QE pullback and, nearer to home, the Indonesian tax amnesty, it would have been tough for anybody to navigate.

When you encounter such headwinds as we did last year – for instance, Brexit and uncertainty in Europe, a QE pullback and, nearer to home, the Indonesian tax amnesty, it would have been tough for anybody to navigate.

We were very clear directionally in terms of what we had to do, which was ‘more of the same’ –
essentially CIO-led or fact-based investments with a product shelf that is positioned to deliver the best possible solutions to our clients, while maintaining a policy of hiring the best.

And, as with any business, we have had to look closely at cost deployment and productivity. When you see your top line under pressure, you need to focus on productivity.

I needed to reflect on where we were going. I started with a basic premise: we hire and retain the best, and we will continue to do so, even though it is tough because there are not that many seasoned bankers in the market. For the rest who are willing to work, we are always happy to find them a role that is more suitable to them. For those who are willing but incapable of delivering, unfortunately, we have to part company. This philosophy will continue to apply because we think our clients deserve to have the best.

Underneath all this, I was very clear when I took over in January 2016 that I want to be known as the best risk-managed wealth manager that generates incremental profit consistently.

How are you, as the regional head, driving productivity?

Client feedback is fundamental. I randomly pick out 10-20 client reports every weekend and I read through them and then I will give the respective client advisor [CA] feedback on where they should improve and how coverage should be broadened.

Sometimes, I recognise that a particular desk head may be more disciplined in a particular area and so I try to buddy-up CAs. That’s how they improve. In doing so [reviewing reports], you form a common language around key performance metrics: broadly, clients’ performance and whether this performance is guided by our house views; I also look at P&L at the regional, country, country-head, regional market manager and country-head levels. All five of us are aligned in terms of where we want to go.

Underneath all this, I was very clear when I took over in January 2016 that I want to be known as the best risk-managed wealth manager that generates incremental profit consistently.

I randomly pick out 10-20 client reports every weekend and I read through them.

You already have the biggest frontline team in Asia, and yet you aim to hire another 100 CAs in Hong Kong for the HNW segment. Why not just focus on improving the productivity of your current team?

We are improving productivity. But if you look at the overall development of the markets in Asia, there is a billionaire created every three days. Along the way, more SMEs are being developed and there are more entrepreneurs and affluents in the market.

If I look at our productivity indicator for CAs, we have been improving by double digits on a CAGR basis for the past three or four years. But there comes a point when you really need to expand your base as well. We have been running with around 1,100 to 1,200 CAs in APAC. If you asked me, “Ed, would you like a frontline of 1,500?”, I would say “not yet”. I would like to keep the number stable at around 1,200.

If I look at our productivity indicator for CAs, we have been improving by double digits on a CAGR basis for the past three or four years.

What that means is that I will continue to groom, train, retain and upgrade, such that our staff continue to improve. This is true across the front, middle and back offices.

Much has been written about UBS WM APAC’s approach to segmentation, with the perception that you are pushing down and commoditising your offering. What’s your view towards client segmentation and the appropriate balance for the firm, both in terms of asset gathering and generating returns on those assets?

It is true that clients have different requirements depending on their level of wealth. But if you put things into perspective in Asia, 400-plus billionaires will need to transfer US$2.1 trillion of their wealth over the next 20 years.

That’s why UBS has put a great deal of emphasis on its family office offering, where we service clients around four key pillars: generating returns that are greater than expenses; formulating and implementing good family governance; attracting the best talent for the family office; and avoiding intra-family dispute.

For this space, we lead the market and continue to invest. For our global ultras, 70% of these individuals are entrepreneurs and require IB coverage/one-bank solutions. Then there are the HNW professionals whose needs are more immediate. So, of course, you must have bankers who are differentiated along these lines.

As it stands, which segment is the most important in terms of driving profitability?

For UBS, the stickiest and most sustainable is the HNW segment, while global ultra and above have the best cost-to-income. In other words, you need both. You need that diversity in your earnings.

The industry is facing competition from large-scale fintech firms, including some Mainland players, that are pivoting with some force into wealth management, even if they are targeting a lower client segment. At the same time, UBS has made some substantial investments into tech, to the extent that UBS, from some angles, has competencies that are comparable to a fintech company. Do these ‘non-traditional’ competitors worry you?

There will always be a certain segment of our clients that is not necessarily suited to tech-led servicing.

You can’t connect people via Facebook for buy/sell-side deals, for example. Yes, you can do club investments, but those are small tickets. At UBS APAC, we deal with the big tickets. That’s my priority, but it doesn’t mean I won’t invest in tech as a differentiator. As you know, we will roll out new platform [One Wealth Management Platform] in Asia in 4Q17-1Q18. This has been 2.5 years in the making we have spent hundreds of millions to further differentiate us from our competitors and to be more relevant and drive higher productivity.

If you ask most of our competitors, they will admit that we have, more or less, the most advanced system, and so they may wonder, “why has Ed gone crazy and invested even more?”

If you ask most of our competitors, they will admit that we have, more or less, the most advanced system, and so they may wonder, “why has Ed gone crazy and invested even more?” My answer is that you have to continue to put investments to good use by being more relevant in 5 to 10 years.

The new system is more nimble, it will have more flexibility and greater allowance for interfaces. We are ensuring that we don’t fence ourselves in in a tech sense.

We are also actively working on statement aggregation, because with the AEOI coming, customers will inevitably look to consolidate their accounts. Once the common reporting standard is in full force, clients will see that they do not require six or seven accounts, but maybe three principle banks. It will always be those with scale that will benefit from this dynamic.

Are you seeing this account consolidation now?

I’m already seeing quite a fair bit of it which, in part, explains our growth from CHF 266 billion to CHF 311 billion in investible assets year-on-year.

If you look at our business in Taiwan, for example, if you acquire a HNW client, it will typically cost US$20,000, unless of course you are farming from your retail base. With tech-based solutions and a rigorous onboarding process supported by tech, we have been able to reduce that five-fold to around US$4,000. Bringing down these costs means improving turnaround times, leading to better client satisfaction.

Sticking with cost and, specifically, opportunity cost, UBS’ presence in China is widely viewed as a currently unprofitable and uncertain venture, even if China, as a wealth management market, has massive promise. To what extent is this true, and how patient are you prepared to be with China?

This will always be the case when entering a ‘new’ country. For any wealth management market that has a domestic sector that you want to tackle the ‘right’ way, there is no shortcut. It will take around 8 years to be operationally profitable. It’s not just a case of being patient. It’s a case of training the right people for that market and getting the foundation right before you bring in the right clients.

It will take around 8 years to be operationally profitable [in China].

What is the current status of UBS in China in terms of licensing?

We already have the full licence with UBS Securities. We have our proprietary UBS China Limited setup, where we already have a licence for Beijing and we are awaiting the Shanghai licence. I do not anticipate issues for Shanghai and I want to respect the regulators in terms of the time they will take to assess us. They have given us a lot of favourable feedback, so let’s see how this develops. I’m optimistic, I have to be, as it’s a great market to be in.

Personally, I’ve been in China since 1991, including with my previous employers. What I’ve learnt in China is that you can never be all things to all people. You need to focus on a few core businesses and do it well.

A lot of people believe that you go into a country and obtain a licence just to service the local investor base. We’re different. When we go into China, we bring with us billionaire clients that want to invest in China through UBS. In this sense, the Shanghai licence is important for China as well.

[I]t would be invaluable for our brand to be in China for China. That’s the nature of my communication and dialogue with the authorities there.

For example, we recently held a seminar for around fifty of the most important families globally, from Latin America, Middle East and Asia, and there was a lot of serious interest shown by these parties to learn more about China.

Therefore, it would be invaluable for our brand to be in China for China. That’s the nature of my
communication and dialogue with the authorities there.

UBS, in this sense, carries the flag for international wealth managers with serious designs on China. Does this pressure weigh on you?

No, I love it! You cannot do this job if you do not think like this, and I’m very clear that, as a
banker, you need to be respected in this manner. You also need to remember that, while you are responsible for generating shareholder returns, you must also keep the client’s welfare at the forefront. I am also clear about leadership, not only for the firm but for the industry and society.

On this point, UBS sponsored an AML risk management programme in Singapore after the bank was penalised for 1MDB-related matters. Would you have done so had UBS WM not been punished by regulators?

Absolutely, I would have. We have a fiduciary responsibility to our clients and, as market leader, we have a responsibility to drive industry best practices.

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