Hong Kong is poised to expand as a global hub of private wealth management, thanks to robust GDP growth, increased levels of personal savings and an upsurge of self-made billionaires across the Asia Pacific region. Managing Director of Hong Kong-based Private Wealth Management Association Peter Stein talks more about the opportunities and challenges
By Kenny Lau
Thanks to strong GDP growth, higher levels of personal savings and many more self-made billionaires across Asia, there are now more wealthy families and individuals in the region than in North America or any other emerging countries in the world. And Hong Kong can capture much of their need for private wealth management – a sector of financial services poised to undergo tremendous growth.
According to a recent report by PwC and Hong Kong-based Private Wealth Management Association (PWMA), 10 of the 30 global cities with the most billionaires are in Asia, and Hong Kong is only second to New York. The report, citing Asian Private Banker data, notes a 6.1 percent jump in the total assets under management (AUM) among the top 20 wealth managers in Asia to reach US$1.55 trillion in 2016.
Hong Kong continues to experience growing wealth, with 72 billionaires, 4,600 Ultra High Net Worth (UHNW) and 238,000 High Net Worth (HNW) Individuals in 2016. The PwC report, which is based on responses of 33 PWMA member firms in a survey, estimates that current assets under management in the city exceed US$800 billion – a significant increase from a total of US$700 billion indicated in the inaugural survey published last year.
“Some of that is no doubt due to rising asset prices over the previous year, but it’s generally consistent with the growth seen over the last five to six years in other data sources,” says Peter Stein, Managing Director of PWMA. “Hong Kong itself is a major source of that growth – it is home to 72 billionaires, more than any other city in the world except for New York, according to Wealth-X (a global research company).”
Hong Kong’s role in Greater China
The establishment in 2013 of PWMA as an industry association (now comprising 45 major global firms in Hong Kong) is itself a statement of the rapid wealth creation in China and across Asia in recent decades, Stein believes.
“It should be no surprise that the industry has grown in line with market demand and become a key component of Hong Kong’s value proposition as a financial services hub.” Simply put, China is the main driver of growth in Hong Kong’s private wealth management industry – a unanimous consensus among all member firms (including those with parent companies headquartered in Hong Kong, Europe, North America and Mainland China) in the survey. “There is total agreement on that point,” Stein says.
As of 2016, there were 249 billionaires in China – the second largest population of billionaires in the world after the United States – with assets under management amounting to US$670 billion.
Mainland China is home to four (Beijing, Shenzhen, Hangzhou and Shanghai) of the world’s top 30 “billionaire” cities, but remains a market to which foreign PWM firms have limited access due to various restrictions and licensing issues.
“For now, the onshore Chinese PWM market is behind Hong Kong in terms of the range of offerings and services it can provide, in part due to restrictions on investment in offshore products,” Stein says. “Ideally, though, many Hong Kong private wealth management firms want to cover China both onshore and offshore. Foreign firms, however, face challenges gaining access to the onshore market and tend to focus on the offshore opportunity.
“For all the growth it has provided so far, there’s a sense among our members that there is much more that could be tapped if the controls on capital flows in Mainland China can continue to be loosened, albeit in a controlled manner,” he points out.
Challenges facing private wealth managers
Regulatory compliance is named a major challenge in the PWM industry – concurred by 82 percent of firms in the survey – and regarded to be a complex, time-consuming process estimated to cost the world’s largest banks some US$4 billion a year. Operational complexity has made onboarding clients an increasingly lengthy process because of too many manual processes and complex forms in compliance.
The regulatory challenge, Stein explains, is a combination of local and global in nature when operating in multiple jurisdictions around the world.
“They take great effort to be compliant with the regulations in all these jurisdictions, but achieving compliance becomes costly and difficult when local regulations are not aligned with those in other major financial centers, which is often the case.
“This is not to say that regulations in one location are necessarily better or worse, but it is always helpful for the large players with a multinational footprint – and for the customers they are committed to serving – to have alignment and coordination where possible,” he adds.
There is also a shortage of talent in the industry. Talent acquisition is difficult because “there aren’t enough professionals to go around, leading to rampant poaching between rival firms,” Stein points out. To mitigate, PWMA in collaboration with the Hong Kong Monetary Authority has launched a “Pilot Apprenticeship Programme for Private Wealth Management” earlier this year.
The initiative is aimed at recruiting qualified local university students into a 16-week training program spanning two summers at a participating PWM firms. “Our goal is to expand the talent pool to support sustainable growth for the industry as a whole,” he says. “By next summer, we expect to have close to 80 students participating in either their first or second year of the program.”
Digitization & client expectation
Like many other sectors, clients increasingly expect a technology-enabled experience when dealing with their financial affairs in receiving advice, accessing research and executing transactions directly on mobile platforms rather than by phoning up a relationship manager or investment advisor. And private wealth managers are keen to expand their digital offerings, Stein says.
“There are plans to offer services such as proactive alerts to market events or the ability to trade fixed income, structured products and alternative investments via online or mobile platforms over the next two years,” he notes. “Many agree that partnering with fintech startups, and achieving regulatory approval, will be key to achieving such goals.”
With the advent of fintech and artificial intelligence, many question whether computers will one day replace the role of human advisors. The answer is no, Stein believes.
“I don’t see it quite panning out that way, and many in the industry share this view.” Instead, “a firm’s robo-advisory services will become a selling point every bit as much as the breadth of its investment offerings or its understanding of a geographic market.
“Clients will still turn to human client advisors and investment consultants to help them navigate the full range of a firm’s offerings, including those outside the parameters of a particular program. Even as technology provides clients with more sophisticated options, private wealth management is by nature a high-touch business and is likely to remain so.”