Asia HNWIs like Big Tech, not wealth managers: report

Asian high net worth individuals are willing to become clients of big technology firms, and regional wealth management companies are increasingly worried about the threat such companies pose, according to a newly released wealth report.

The World Wealth Report 2017 by Capgemini revealed that 72.5% Asian HNWIs were open to becoming a wealth management client of a Big Tech firm, which is 16 percentage points higher than the global average of 56.2%.

This number rose to 75% when it came to Asian HNWIs who hold advisory or discretionary accounts with wealth managers.

HNWIs are defined as individuals who hold investable assets of at least $1 million.

The report defined ‘Big Tech’ as being data-driven technology firms that are not traditionally present in financial services. Internet-focused companies such as Google, Amazon, Facebook, Apple, Alibaba, Baidu, and Tencent have made large inroads in e-commerce, banking, and payments.

Their potential entry into wealth management poses an existential threat for traditional players in the industry, the report noted.

Executives at wealth management firms seem well aware of the threat these companies can pose. All-told, 78.3% of respondents from wealth firms to the survey said they saw Big Tech entry into wealth management as a strong possibility. Just 13% said they thought the scenario to be unlikely, and 8.7% saw no threat from Big Tech.

David Wilson, head of Asia wealth management for Capgemini, argues that big tech firms are more likely to partner up with wealth management firms than set up in direct competition to them. However, the mere existence of these companies in financial services is pressurising wealth management firms to raise their game in the digital space.

“I think a partnership model can make sense, but regardless of whether it’s partnership or competition, the implication for firms [to improve their digital services] is still relatively consistent,” he told AsianInvestor.

No satisfaction

The threat posed by potential new entrants is very real, given the low satisfaction levels HNWIs have for traditional wealth managers.

On average, the percentage of Asia Pacific (ex Japan) HNWI satisfaction with their wealth managers stood at 57.4% in 2016, according to the report. At a press briefing, Wilson said that anything below 70% suggested “lower than a passing grade” and that there was clearly a lot of room for improvement.

One key reason for this level of dissatisfaction is among HNWIs possessing $1 million to $5 million in investable assets .They said they found it increasingly hard to access private banking wealth services.

Wilson told AsianInvestor that private banks have been noticeably raising the minimum assets threshold for clients, typically focusing on rich individuals and families who have $30 million or more.

“90% of the world’s HNWI population are in the $1 million to $5 million band, so we’re talking about the majority of people are now increasingly getting underserved,” he noted.

A recent report also found that tougher regulations on know-your-customer and asset-management-liability were lengthening the time it took to open an account with wealth management firms in Hong Kong, which also caused more frustration among clients.

Digital drive

The implementation of technology can potentially help to solve account setup and help extend wealth services to a broader array of clients.

Jason Lai, chief executive of Singapore based wealth manager Thirdrock Group said it is crucial for the wealth management industry to embrace digital capabilities or risk becoming redundant.

“As the industry’s digital maturity lags far behind the majority of other industries, firms are increasing under pressure to digitise in the face of client expectations, new competitors, and regulatory compliance,” he told AsianInvestor.

When asked why they would choose big tech, 64.2% and 54.4% of global HNWIs said they would do so to get greater efficiency and more transparency.

Additionally, 51.8% said they wanted to receive online excellence, including the availability of digital apps and devices, while 51.6% believed big tech would bring more innovation to wealth management, according to the survey.

It’s also possible that Big Tech companies could offer increased personalization of service to HNWIs falling under wealth managers’ catchment requirements.

“You still have a lot of segmentation by asset size, and based on that segmentation you’re channeled into certain blocks of service that anyone has access to in that segment, but you don’t get to choose,” Wilson said. “If I have only $1 million I may want to pay a big fee for a more private banking-life service—why shouldn’t I be allowed to do that?”

Computer clash

Global wealthy individuals said they were also aware of potential dangers posed by data-rich Big Tech firms. When asked, 53.6% of global HNWIs expressed concern about privacy and security, while 45.8% were wary of a completely digital experience devoid of human interaction.

Singapore-based Lai said the wealth industry is set to see a blurring of boundaries between fintechs, asset managers, and independent wealth managers, with each taking advantage of the other’s strengths to compete for a bigger slice of the pie. Many companies are choosing to wait and see whether clients will be tempted to migrate to tech entrants, he added. 

Pivoting towards greater digitalisation of wealth management services will require culture transformation, according to Wilson. Companies will need to incorporate fail-fast processes into the service delivery, agile work programmes, and clear communications from the top down.

“They have to realise that investing in digital is a fundamental part of the business,” Wilson said. “It’s not an expense item that needs to be minimised year after year.”

Overall, the Asia-Pacific HNWI population grew by 7.4% in 2016, and wealth grew by 8.2%. Asia-Pacific remains the world’s largest HNWI market, with the highest number of HNWIs, at 5.5 million.

The World Wealth Report was conducted in May and June this year, with the Asia Pacific portion being based upon 1,119 responses from HNWIs in the region.