Private Wealth Management Association / PwC Hong Kong ... · Private Wealth Management ......

September 2016

Private Wealth Management Association / PwC Hong Kong private wealth management landscape 2016

www.pwchk.com

Contents

Digitally driven onboarding

Mobile and online advancements

Digital offerings and product innovation

Non-financial related services

Contacts

Focusing on operational efficiency

Shift in Private Banker attributes

Onboarding challenges and the road to digitalisation

Challenges facing Private Wealth Managers in Hong Kong

Market size and client base in Hong Kong

Focusing on China

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P.01 P.02 P.03Introduction

1PWMA / PwC Survey 2016

The findings of this report are based on results from the Private Wealth Management Association (PWMA) Hong Kong survey conducted jointly by the PWMA and PwC in July 2016. The purpose of this survey was to gather information about the current Private Wealth Management landscape in Hong Kong.

The survey was conducted by means of an online questionnaire. 35 out of the 46 PWMA member firms completed the survey. The results have been analysed in combination with global and APAC insights from other sources where available.

The survey report touches upon the following areas:

• Key challenges faced by Private Wealth Management Organisations (PWMs)

• Market/ industry size

• Private Banker attributes

• Operational efficiency

• Onboarding challenges and digitalisation

• Digital service offerings and product innovation

• Non-financial related services

Introduction

PWMA / PwC Survey 20162

Talent

Driving efficiency + security

PWMs have issues obtaining and retaining talent

Key Challenges• ‘Finding and onboarding of key talent in

the front-line’

• ‘Limited Talent Pool’ and ‘Lack of talent in HK industry’

• ‘Recruitment and retention’

• ‘War for talent, high staffing costs’

Key Challenges• ‘Digitalisation’

• ‘Enhancing IT platforms to increase efficiency and to meet regulatory requirements’

• ‘Cost effective evolution of the technology platform’

• ‘Information security’

1 in 2

Rise in operating cost Decrease in revenue

of PWMs cited regulation as their top challenge

Key Challenges• ‘Cost effective management of regulatory

compliance’.

• ‘Ongoing impact of global regulatory reforms on our business and clients’

• ‘Compliance to stringent regulations and ability to adapt to regulatory changes’

• ‘Strict regulation and selling processes’

• ‘Tightening regulatory requirements’

Key Challenges• ‘Rising cost base despite low fees’

• ‘Managing the rising cost of doing business’

• ‘Maintaining / growing profitability’

• ‘Highly competitive markets, particularly in the HNW space’

• ‘Falling margins due to highly competitive market’

96%

Regulation Talent

Operating cost vs. revenue

Digitalisation & IT enhancements

Challenges facing Private Wealth Managers in Hong Kong

PWMA / PwC Survey 2016 3PWMA / PwC Survey 2016 33 Publication Title

Market size and client base

Asia Pacific has been at the forefront of growth in the private wealth management market in recent years. Hong Kong’s population of High Net Worth Individuals (HNWIs), with net worth between US$1 million and US$30 million, rose by 4.6% in 2014, followed by a further 3.3% increase in 2015. This trend is expected to continue until 2020.1

According to Private Banker International Report in 2016, there were 200,000 HNWIs in Hong Kong, collectively holding around US$1.1 trillion in wealth. In their report, the HNWI population is expected to grow by 14.2% to reach 230,000, while total HNWI wealth is projected to grow by 23.5% to reach US$1.4 trillion.1

According to Wealth-X, Hong Kong’s private wealth management market volume grew to US$600 billion in 2015 to become the fifth largest offshore wealth centre globally.3 Our 2016 survey of 35 private wealth management organisations in Hong Kong indicates total Assets Under Management (AUM) of over US$700 billion.

The Asian Private Banker’s 2015 AUM and RM Headcount League Report indicates the number of Private Bankers in Asia at 5,213 and the size of Asia AUM at US$ 1.47 trillion as of 2015.4

Overview of Hong Kong’s private wealth management market

1. Private Banker International: Greater China Awards Luncheon 20162. Wealth X & UBS. “World Ultra Wealth Report 2014” (2014)3. WEALTH-X BILLIONAIRE CENSUS 2015-20164. Asia Private Banker 2015 AUM & RM Headcount League Tables

Total Ultra High Net Worth wealth reported in 2014 was US$595 billion, with a population of 3,335 UHNWIs in Hong Kong.2

Hong Kong is ranked 2nd billionaire city with 79 billionaires, behind New York with 97, who together possess total wealth of US$291 billion as of 2015.3


Focusing on ChinaGrowing importance of the private wealth market in China

The China market is growing in importance for the private wealth industry due to the strong momentum of wealth creation. During 2015, China continued to close the gap with the United States in terms of both the number of billionaires and total wealth. During 2015, China registered an additional 70 billionaires – an increase of 37% year-on-year, while the total wealth of Chinese billionaires grew 53% to US$675 billion5.

The increase in the number and the total wealth of billionaires in China also impacted the client base of PWMs. Among the 35 PWMs surveyed, almost all have clients/beneficial owners who are domiciled in Greater China.

5. WEALTH-X BILLIONAIRE

CENSUS 2015-2016

“A new billionaire was created almost every week in China during Q1 2015”

-UBS/PwC Billionaire

Report (2015)

Figure 1: Top countries where clients / beneficial owners are domiciled (exclusive of Hong Kong)

• Singapore• Indonesia• Switzerland

Taiwan

China

Others

HongKong

12%

96%

93%

PWMA / PwC Survey 2016 5

Out of the

35 PWMs surveyed

Shift in Private Banker attributes

Figure 2: Most important Private Banker attributes for their organisation now and in the next 5 years

Low importance

Low

imp

ort

ance

In 5 years

Tod

ay

Hig

h im

po

rtan

ce

High importance

Ability to assess client suitability and risk profile

Communication skillsAbility to provide advice on clients’ overall wealth goals

Responsiveness to clients’ needs/requestsAbility to retain existing clients

Ability to gain new clientsAbility to identify and respond to client needs

Ability to collaborate across your organisation to deliver client needs

Ability to provide innovative solutions to clients

Personal impact and influence

Cross-selling skills

Ability to provide asset related advice

Recognised industry qualificationsGood knowledge of external products (open product architecture)

Risk management

Ability to provide advice and planning as a distinct service

2,200 Back Office

Practitioners

over 3,400

Front Office

Practitioners

2,000

Middle Office

Practitioners

78% of PWMs agree/strongly agree the industry will have to invest more in talent management and development going forward.

Our survey respondents believe there will be a shift in the relative importance of Private Banker attributes over the next 5 years. Risk management and the ability to provide advice and planning as a distinct service will become more important in the next 5 years than they are today. Seven attributes are of high importance today and will continue to be of high importance in the next 5 years, these are displayed in the top right quadrant.


Focusing on operational efficiency

Figure 3: Strategic or tactical approaches currently used to increase value from operations

85%Centralisation of activities through shared internal services (e.g HR, finance, etc.)

77% End to end process and efficiency improvement

50%Development of more integrated operational centres of excellence (e.g securities processing, product provision, etc.)

42% Use of outsourcing arrangements

23%Development of new onshore markets with

operational infrastructure requirements

15%Development of new offshore markets with

operational infrastructure requirements

85%

of PWMs indicate the top strategic/tactical approach they use to increase value from operations is “centralisation of activities through shared internal services”.

79% of PWMs surveyed responded that they have employed strategic or tactical approaches to improve operational efficiencies.

7PWMA / PwC Survey 2016

Figure 4: Outsourced functions and associated locations Operations and Technology are the primary functions that are outsourced, followed by Finance and HR. The top locations to which services are outsourced are Singapore and India.

Operations

Technology

Hong Kong

Hong Kong

India15%

Singapore50%

Phillipines5% China

10%

India23%

34%Singapore

Switzerland15%

US4%

Scotland8%

Holland8%

US5%

15%Switzerland

Phillipines4%

China4%

Operations functions

Technology functions

Operations

Technology

Hong Kong

Hong Kong

India15%

Singapore50%

Phillipines5% China

10%

India23%

34%Singapore

Switzerland15%

US4%

Scotland8%

Holland8%

US5%

15%Switzerland

Phillipines4%

China4%


Limited functionality of tools supporting relationship opening

43%

Missing know-how of RMs

13%

Limited functionality of workflow tools

30%

No disciplinary action or incentive scheme for RMs to ensure quality of documentation

9%

Too many manual process steps

65%

Limited ability to adapt processes to new requirements

26%

Other: resources4%

Complexity and volume of forms

48%

No communication across teams within the onboarding process

4%

Too much waiting time between process steps

22%

Onboarding challenges and the road to digitalisation

Figure 5: Key issues within the onboarding process

65% of organisations consider “too many manual process steps” to be a major issue within the client onboarding process.

PWMs are taking on average 21-30 business days to onboard a client.

PWMA / PwC Survey 2016 99PWMA / PwC Survey 2016

Figure 6: Average time to onboard a client

Greater than 121 business days

91-120 business days

61-90 business days

31-60 business days

21-30 business days

Less than 20 business days

0% 20% 40%

0%

26%

48%

17%

4%

4%

74%

of PWMs onboard their clients within 30 business days.


A quarter of PWMs cite digitally driven onboarding as the offering that would add the most value to the client experience. This is supported by the fact that manual processes and complexity and volume of forms were noted as top issues within the onboarding process. (Figure 5).

Five Hong Kong firms have already digitised their onboarding process, highlighting an opportunity for other organisations to utilise FinTech to enhance the customer experience.

Figure 7: Digital offerings currently available, and the offerings that add the most value to the client experience

Digitally driven onboarding

1 in 4

PWMs said digitally driven onboarding would add the most value to the client experience.

Over half of PWMs have knowledge platforms currently available as a digital service offering.

Digital service offerings

Number of PWMs

Currently Available

Service currently not available in PWMs but believed would add most value to client experience

Digitally driven onboarding 5 10

Means to speak to clients anytime, anywhere and by any channel

3 4

Self-service investment platform (e.g robo advice)

3 4

Knowledge platform to share insights on client (e.g a CRM platform)

15 2

Digital concierge service for clients that require services beyond financial management

1 2

Other (e.g internet banking, personalized and actionable alerts)

5 2


Technology and onboarding in Asia PacificThe need for digitally driven onboarding is also apparent when examining the increasing budget that PWMs allocate to their AML and risk processes. According to a report by Asian Private Banker, 62% of private banks in Asia commit 1-10% of their technology budget to AML and risk solutions. Half of the COOs polled also expect their technology spend to increase by 11-30% within the next year.6

6. Asian Private Banker. “Tech and talent key to tackling AML threat,”

(July 11, 2015)

1 in 7

PWMs have digitally driven onboarding.


Mobile and online advancements

• Educational material (videos, presentations, etc.)

• Proactive alerts in relation to market events

• Currency conversion calculator

• Equity trading

• Access to bank’s research

Top 5 services

Top 5 services

• Portfolio statement (view)

• Access to bank’s research

• Educational material (videos, presentations, etc.)

• Electronic mailbox for client correspondence

• Currency conversion calculator; Equity trading; Local and international payments

Online Services

Mobile Services

Top 5 services

Available Now Available Now


• Equity trading

• Portfolio statement (view)

• Access to bank's research

• Deposit booking; FX trading


• Account opening forms

• Equity trading

• FX trading

• Deposit booking

Figure 8: Top 5 services that PWMs provide today and what they will focus on in the next two years for online and mobile offerings

PWMs are growing increasingly aware of the benefits technology can provide their clients.

83% of PWMs offer mobile and/or internet banking services today.

In 2 years In 2 years


Clients’ digital expectations in Asia-PacificThe need for digital offerings are particularly apparent in Asia Pacific compared to Europe and North America, as more than 60% of HNWIs in the region find it important for wealth managers to have strong digital offerings. HNWIs in Asia Pacific are also marginally ahead of their global counterparts in employing digital technology, with 77% of Asia Pacific’s HNWIs already using online and/or mobile banking, compared to the global figure of 69%.7

7. Strategy& PricewaterhouseCoopers. “Sink or Swim: Why wealth management can’t afford to miss the digital wave (Asia Pacific Highlights),” (2016)


Figure 9: The part of a typical PWM client journey that will be most impacted by technology/FinTech

The PWM client journey

Client evaluation and decision to open an account

17%

17%Onboarding

29%Maintaining ongoing services

33%Upselling / Cross-selling

Exiting4%

62% of PWMs say digital offerings will impact maintenance of ongoing services and upselling/cross-selling the most.

78%

of PWMs either agree / strongly agree that the ability to provide new technology and digital capabilities to complement face-to-face relationships is important.

Digital offerings and product innovation

PWMs think robo advice will provide the private banker with more comprehensive investment advice to engage in more informative conversations with the client.

PWMs believe the future will be less about providing products and more about collaboration and providing innovative solutions to clients to meet their objectives and goals.


Non-financial related services

PWM service offerings are expanding, with 35% of respondents currently offering non-financial services in addition to services that address the financial needs of the client. These services include, but are not limited to, art, real estate and luxury concierge services.

35% of PWMs offer other services, in addition to addressing clients’ financial needs.

Figure 10: Non-financial services offered by PWMs

Auctions / Art Collection

22%

Real estate services

56%

Wealth planning advice

11%Luxury Brands

11%


A few words about the research and sources:

A number of sources were utilized to research and profile the landscape of private wealth management industry in Hong Kong. These were blended into a mosaic analytical framework from which we conducted extensive analysis. This information and data is part of PwC proprietary data and analytics structures and are non-commercial in nature and specifically non attributable regarding the identity of any underlying individual or family. In addition to the result of the survey conducted by the PWMA, the following were specifically leveraged as a part of our research:

• PwC has a significant body of research drawn from publishing studies on Wealth and Private Banking, and Family Businesses including current and future perspectives on a number of industries from which we were able to derive insights. These include “Sink or Swim: Why wealth management can’t afford to miss the digital wave (Asia Pacific Highlights),” (2016) issued by Strategy& PricewaterhouseCoopers, and the UBS/PwC Billionaire Report (2015).

• For the market data on Hong Kong’s High-Net Worth population, Ultra High-Net Worth population and private wealth market in China, we used the “Wealth-X Billionaire Census” (2015-2016), “World Ultra Wealth Report 2014”-Wealth X & UBS, and “Headcount League (2015)” - Asian Private Banker. For the respective projection of the High-Net Worth population, we used the Great China Awards Luncheon (2016) - Private Banker International report.

• Other market data on the budget spent on AML and risk solutions is based on the “Tech and talent key to tackling AML threat” report (July 11, 2015) issued by the Asian Private Banker.

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice of any kind. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

PwC and the PWMA are not affiliated. The PWMA is a Hong Kong-based voluntary association incorporated as a company limited by guarantee. The initiative to set up an industry association for the private wealth management industry is the result of a consultancy study sponsored by the Hong Kong Association of Banks (HKAB).

Contacts

Joanne Leung

Managing DirectorPWMA+852 3758 [email protected]

Antoinette Hoon

Private Banking Advisory Services Partner PwC HK+852 2289 [email protected]

Marie-Anne Kong

Asset and Wealth Management LeaderPwC HK+852 2289 [email protected]

James Quinnild

Financial Services Consulting Asia Pacific Leader PwC HK +852 2289 3422 [email protected]

Julie Watson

Financial Services Consulting Director PwC HK +852 2289 6354 [email protected]


Established in September 2013, PWMA is a Hong Kong-based voluntary association incorporated as a company limited by guarantee. The main objectives of PWMA are:• to better position Hong Kong as the private wealth management hub in the region by promoting

and encouraging the growth and development of the PWM industry in Hong Kong and to help maintain Hong Kong’s status and competitiveness as a major financial centre;

• to promote proper conduct, integrity and high standards of professional competence on the part of PWM practitioners;

• to provide a forum for members to discuss and exchange views on trends and challenges faced by the PWM industry and how to strategically position for these trends and challenges;

• to provide industry representation and consultation in Hong Kong on PWM related matters; and

• to provide a channel for the private wealth management industry to maintain ongoing dialogue with governments, regulators, trade bodies and non-governmental organisations.

PWMA has 46 full corporate members, with a 9-member Executive Committee serving as the governing body of the PWMA.

About Private Wealth Management Association (“PWMA”)

About PwC PwC China, Hong Kong and Macau work together on a collaborative basis, subject to local applicable laws. Collectively, we have around 600 partners and 15,000 people in total.

We provide organisations with the professional service they need, wherever they may be located. Our highly qualified, experienced professionals listen to different points of view to help organisations solve their business issues and identify and maximise the opportunities they seek. Our industry specialisation allows us to help co-create solutions with our clients for their sector of interest.

We are located in these cities: Beijing, Shanghai, Hong Kong, Shenyang, Dalian, Tianjin, Qingdao, Nanjing, Suzhou, Hangzhou, Ningbo, Wuhan, Changsha, Xi’an, Chengdu, Chongqing, Xiamen, Guangzhou, Shenzhen, Macau.

www.pwchk.comThis content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2016 PwC. All rights reserved. PwC refers to the China member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. HK-20160817-4-C1

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