The changing nature of the wealth management client

A new breed of wealth management client is forcing change in a traditional industry.

Digital adoption is not only creating a new class of wealth management client, but is changing existing ones too. The Internet and digital technology has transformed almost every industry, and we are beginning to see its effects on the traditional world of wealth management in Asia.

Internet penetration in Singapore is at 82%¹, while growth throughout Southeast Asia is at 12% with the biggest acceleration, interestingly, occurring amongst the low-income bracket. As the middle-class of Asia continues to grow, we will see a rise in the mass affluent segment demanding a variety of financial services.

As Singapore stands as a wealth management hub servicing the Southeast Asian region (and beyond), what happens in Asia will significantly affect the wealth managers sitting in the offices of Raffles Place and the CBD.

What we will see is the 'trickle-up' effect of digitisation, affecting every segment of Asian society no matter how wealthy. Older generations – including the current crop of wealth management clients – who never trusted the Internet, are now using the medium to perform a wider variety of tasks such as Internet banking, shopping, and, increasingly, wealth management. The trust barrier that slowed progress for so many years in the US and UK is evaporating here in Asia.

Meanwhile, Asia is known as the world's first 'mobile first' region, in that while you and I still remember writing essays by hand, and sending e-mails via the large computer systems of the 1990's (remember that internet dial-up tone?!), today's younger generations have grown up using smartphones for everything from e-learning to shopping to organising their lives.

As such, they are skipping the traditional ways of managing their financial affairs altogether, and have fully embraced digital as this is all they know.

Major wealth management players have responded by significantly increasing their online and digital offerings. Credit Suisse launched its first private banking app in Singapore earlier this year, and DBS has invested billions on the 'Watson Project' with IBM.

Furthermore, many now realise that the current client is less discretionary and requires more say in how his or her wealth is managed. This is a direct consequence of the massive amounts of information available today at the click of a button, as well as the trend towards more transparency and accountability.

The last new breed of client I see coming through are the numerous start-up owners and entrepreneurs who have made Singapore their home, and set up businesses here. While we can hardly compare the City State to Silicon Valley, Singapore is still the tenth best start-up ecosystem in the world², and venture capital investments in tech firms amounted to US$1.71 billion in 2013³.

It is getting easier to secure funding, reach a wide market (including the 600 million-odd population of Southeast Asia), and there is strong government support. As such, we will see an increase in exits, and a new class of young HNW entrepreneur, with plenty of liquidity and unique wealth management needs.

While the means of accessing and engaging with this new breed of client will change, the traditional wealth manager as exists today will still be needed, in fact they will become as important as ever. There are two reasons for this, one is the inherent complexity of wealth management, and the unique skills and experience needed to grow wealth in a volatile world.

One drawback of the Internet is that it engenders a belief that users can 'go it alone', in other words manage their own wealth via a variety of online services. This simply does not work, and exposes users to a massive risk of losing their life's savings.

Secondly, the needs of the High Net Worth (HNW) individuals (those generally with US$1 million, approx. SG$‎1.4 million, or more in liquid assets) in Singapore and the region are highly complex and international, and the human touch is still in demand.

There is no replacing a skilled wealth manager with decades worth of experience, but the methods of client acquisition and engagement will evolve to suit the times.

Cost pressures are huge, especially among those targeting the high net worth segment, yet technology presents an opportunity to acquire the right clients at lower cost, allowing wealth managers to concentrate on what they do best – manage wealth.
 

¹World Bank, Internet users (per 100 people). URL: https://data.worldbank.org/indicator/IT.NET.USER.P2
²Compass’ Startup Ecosystem Ranking 2015 report, as reported in TechInAsia. URL: https://www.techinasia.com/compass-startup-ecosystem-ranking-report-2015-singapore/
³DBS, DBS launches venture debt for tech start-ups in Singapore. URL: https://www.dbs.com/newsroom/DBS_launches_venture_debt_for_tech_start-ups_in_Singapore