While some parts of the Asia region have hit turbulence lately, the wealth management market in the Philippines is showing signs of continued vigour. This article talks to local practitioners.

Do you want to know how well the wealth
management market in the Philippines
has taken off? Switch on the local television. 

Television shows about investments and
savings such as “Pesos and Sense” are popular and get prime slots. Given that the sprawling archipelago is made
of 7,107 islands and famous actor and actresses are regularly elected into
government, television popularity is a strong testament of the financial
awareness among the populace.

It doesn’t hurt that the Philippines –
the sixth fastest growing economy in the world – is the latest investor’s
darling. As the neighbouring Indonesian economy hits trouble, international
investors are quick to pin their hopes on the next rising star.

Benigno Aquino, Philippines’ 15^th
president and fourth generation politician, has won investor approval by
increasing taxes and tackling corruption head-on. In the middle of his six-year
term, he recently promised increased infrastructure spending, something sorely
needed as the economic growth gathers steam. 

Cesare Garcia , investment manager for
China Banking Corporation, sees that the “sound economic fundamentals present
more opportunities for investors to augment income”.

“The recent credit upgrades and a perceived
good governance by the present administration has given the investing public
confidence in the banking system to assist them in finding ways to better
manage their savings,” he told this publication.  

Mass
affluent from the new middle class

There is a rising middle class from
professionals. According to Roberto Ramos, a trust officer with Union Bank of
the Philippines, the outsourcing boom has created a large middle class of
professionals that are either already in the mass affluent space or will reach
there in a couple of years.

Garcia targets those with at least $500,000
in investible assets. “The age bracket would be 50 years and above with wealth
stemming from business income or their professional career as doctors or
lawyers,” he said.

As with most emerging markets, Filipino
banks that have been able to dominate the wealth management scene posses an
extensive retail base and branch network allowing reach into the outlying islands.

Bank of the Philippine Islands, Metrobank
and BDO Private Bank  are market leaders
who have set ambitions growth targets . BDO bought over the trust and
derivatives licences from Banco Santander in 2003 and is now a formidable force
in local private banking.

Before 2005, BPI used to service 1,000
corporate clients with an average of $500,000 in assets. It has since gone
downstream, targeting its retail clients looking to invest a minimum of $250.
It now has 90,000 retail customers with $8.1 billion in assets and nearly half
of its total assets under management as of end-June 2013. The bank’s new wealth
management head, Mario Miranda, is targeting 100,000 investors by end-2013 and
120,000 with a 20 percent growth in AuM.

The smaller players are also targeting
double-digit growth. Rizal Commercial Banking Corp is reportedly looking at 17
per cent growth in AUM targeting $1.6 billion in AUM by the end of 2013 from
$1.5 billion in assets at the end of the second quarter of 2013. The bank currently
employs 23 relationship managers serving clients with a minimum of $115,000 in
investible assets.

Local
and global

Anselm de Souza, managing director of Sopra
Banking Software, has been closely following the Filipino wealth management
market for a number of years. He shared his observation that the bigger players
such as BPI and BDO Private Bank are positioning themselves against the like of
their regional peers such as CIMB and DBS, most local banks are still targeting
the mass affluent with minimum asset thresholds starting from as low as
$50,000.

“While foreign banks such as HSBC, Citibank
and Standard Chartered have been targeting the high end of the market for
years, Filipino banks have their own set of clients and there is a lot of money
sitting in savings accounts that can be deployed to other investment
instruments,” he said.

“It is easier to to target the mass
affluent as there are a lot of new money in the market. Among the ultra high
net worth, you are competing with banks in Singapore,
Hong Kong and Switzerland,”
Ramos said.

Opportunity for fund managers

Traditionally, Filipino investors have a
choice of four to five products that are manufactured in-house but the rising
middle class and awareness of different investment vehicles has increased the
demand for more product variety. Interest on time and savings deposit accounts
are also at an all-time low of one per cent.

Earlier this year, Bangko Sentral
Pilipinas, the country’s central bank, approved the sale of fund-of-funds to
access offshore funds that were previously closed off from local investors.

As the industry is still in its early days,
there are still teething problems. Dubious investment schemes have popped up
promising astronomical returns.

 “It’s not a walk in the park,” said Ramos.
“Investor education is still a big issue; there are still people who won’t
touch managed funds with a 10-foot pole. While banks are regulated, you still
get unscrupulous individuals who try to make a quick buck off relatively
unsophisticated investors and hurt the whole industry,”

Ramos also sees a stronger demand for
collective investment schemes. “There is still a time deposit mentality even
though there is rising interest in the stock markets.”

Manuel Ahyong Jr, RCBC’s vice president and
wealth management head, told local reporters earlier this year that the
“typical allocation is 40 per cent in near-cash instruments, another 40 per cent
in bonds and 20 per cent in long-term equities.”

de Souza highlights that most wealth
managers in the Philippines
come from a trust or asset management background, a common source of wealth
management talent in new markets. 

“Most banks sold special deposit accounts
that were 70 percent of their portfolio, with seven percent to eight percent
returns. As the central bank is now limiting access to that product, wealth
managers are hunting high and low to shift money into new investment vehicles”
he said.

Special deposit accounts are fixed term
deposits by banks and trust departments with Bangko Sentral ng Pilipinas to
absorb excess liquidity and manage inflation. 

There will be challenges that still need to
be addressed by Filipino wealth managers around talent development, product
range and service levels as with most emerging markets.
But the future looks bright for an economy that, just 50 years ago, was 10
times bigger than Singapore’s.

To view a recent feature by Titien Ahmad on issues in the Asia-Pacific wealth management market, click here.