External asset managers have a long history in Europe but are relatively new to Asia.
Investable wealth in Asia is now an estimated US$12 trillion – only slightly less than in the US, which has the largest share of high net worth individuals in the world.
Today, Asian clients are looking more towards wealth protection and preservation, where in the past the primary focus was on wealth creation.
So, while the external asset management sector is still relatively small here, I believe it will continue to grow.
Independent asset managers, or external asset managers (EAM) as they’re called in Europe, sit externally to private banks.
Our clients’ bankable assets are with these custodian banks but the assets are managed by us, not by the banks.
Why? Some clients prefer to have a gatekeeper to manage and safeguard their assets.
Many people suffered substantially during the Lehman Brothers crisis from trading exotic and risky products sold by private banks.
If you look at market performances over the past five years, irrespective of asset class or geography, no one would disagree that it’s a more difficult environment to look for sustainable, long-term investment returns.
Increasingly, clients are looking for impartial investment advice that’s tailored to their risk appetite and investment objectives.
And EAMs are a new alternative here in the Asia‑Pacific for high net worth individuals who want bespoke solutions while retaining access to private banking services.
EAM isn’t new in Europe. Private banking in Switzerland has more than 150 years of history and EAM has more than 80 years of development.
Veco is a wealth management group with 40 years of Swiss heritage and tradition.
In the Swiss banking system, almost 20 per cent of assets under management are overseen by EAMs.
In Asia I believe the number is less than 5 per cent, but it’s growing.
It’s still a new concept here and easily misunderstood as IFA [the services of an independent financial adviser].
We work closely with private banks as they provide the custodian services to our clients and use them for execution and investment services.
On the other hand, we also compete with them as we both target the same type of client.
However, this love/hate relationship has worked smoothly in Europe for many years and I believe this can be replicated in Asia.
Some local banks are still reluctant to work with EAMs, but I believe those who do will be able to grow much faster and stronger than those who don’t.
To be successful, an EAM has to build a long-term relationship.
It would be very easy to fall into the trap of making short-term profits by churning client assets and selling less suitable but higher-margin products.
Good EAMs select best-in-class products for their clients.
Peter Lee is CPA Australia’s Divisional President – Greater China.
Trick of the trade
It’s said that “wealth shall not pass three generations” and it’s true that family wealth can dissipate in the hands of future generations.
How do we convince clients of the need to plan for the future and help them do that? By storytelling.
After they hear real-life stories – such as the son who lost it all on gambling – they begin to think seriously about succession planning.
This article is from the October 2013 issue of INTHEBLACK magazine.