Financial intermediaries, under different names, are expanding in Asia but how independent and open are they, and what are the tests that matter? This publication, in conjunction with UBS, recently held a briefing in Singapore to examine the state of play.

Financial intermediary businesses in Asia are on the rise, challenging existing operating models and responding to client demand for more diverse offerings and independence. But cost pressures could force consolidation, industry figures said at a recent Breakfast Briefing in Singapore. 

The forces creating new financial intermediaries (FIMs) in Asia and how issues such as demand for more fee/cost transparency will play out have been on the radar of this news service for some time, as seen by recent research reports. Gathering at the offices of UBS at One Raffles Quay, Singapore, a number of wealth management figures debated the issues. The event was organised by WealthBriefingAsia. 

Kicking off the event was Hugo van Kattendijke, head, Financial Intermediaries APAC at UBS. He outlined a recent report on the EAM and related market in Asia-Pacific.

“We see a material increase in the number of FIMs, whether they be EAMs or FOs being set up in APAC. Part of that is through completely new FIMs, part of that is drive by FIM headquarters in other locations, such as Europe and the Middle East setting up regional offices in Singapore and Hong Kong,” Van Kattendijke told delegates.

“If FIMs are indeed able to induce...attract senior banker talent to the industry, surely this will be indicative that this perspective on growth is more broadly based than just in the financial intermediary industry. Otherwise senior bankers surely would not make the switch,” he said. “Anecdotal evidence [at UBS] is supportive of healthy growth,” he said. 

There were signs of more sophisticated and complex offerings coming through, although this may be more of a “nascent” development in the sector in Asia, he said. Van Kattendijke, referring to other recent survey evidence, said he saw more of a move towards a fee-based model among FIMs; at present the industry did not see fee transparency, however, as critical to business success.

At the panel discussion were Rohit Bhuta, CEO of Crossinvest (Asia),  Urs Brutsch, managing partner and founder, HP Wealth Management; Steve Knabl, COO and managing partner, Swiss-Asia Financial Services Pte; Stefano Veri, group managing director, head global financial intermediaries, UBS Wealth Management, and Van Kattendijke. 

Briefing chair Andrew Deane, Asia Publisher at WealthBriefingAsia, asked whether there was a need to have clearer definitions of terms such as “external asset manager”, “multi-family office“, and the like. 
Bhuta replied that “We use poetic licence to describe ourselves every which-way”. He discussed how terms such as external asset managers, independent asset managers and IFAs were often not particularly external or independent – creating confusion. To overcome the problem, he said that it was essential to be clear on three main points: understand who the client is, the client proposition and the way a firm gets paid.

It was okay to take retrocessions but they have to be disclosed to a client for the term independent to be legitimate, he said. “We as industry players we should be able……to say that we are independent, completely transparent and stand behind what we do for our clients,” Bhuta said.  

Talking about potential threats to retrocessions from regulators such as the Monetary Authority of Singapore, meanwhile, Bhuta said: “100 per cent of our revenues are from our clients”. He said he would rather sacrifice revenue growth and AuM inflows because he knows he could say he relied entirely on the client and therefore independent.

Picking up on the issue of definitions, Brutsch said: “It does not matter what you call yourself but what you do for your client.”

When an institution was called a multi-family office, the work was more about strategic asset allocation - not just investment. The biggest defining quality of independent asset manager was alignment of interest, he continued. 

Terminology
Knabl considered the array of terms people use to describe financial organisations in Asia. “We have wealth managers, private bankers…we don’t have IFAs. You can call them what you want….we are very broad-based in what we allow the businesses to do.” 

“We are paid by our clients...that is where alignment of interest comes in. We see revenues coming in from management fees, retrocessions….management fees…it is a bit of everything. It is all a question of transparency about how you are making your money,” Knabl said.

Clients know firms are making money…but more so, they want to know how much firms make, he said. 

Asked if he thought the MAS will completely ban retrocessions, Knabl said he doubted it will happen. 

There are cultural/historical reasons why clients in Asia are comfortable with retrocessions, he said. For a start, they are reluctant to make an upfront payment. 

“What will then happen is that the market will evolve,” Knabl said, adding that some clients will say they are paying too much and prefer to pay a management fee instead. 

“Asia is a very transactional place. If you don’t trade on their account they call you up and ask why you are not trading,” he continued. 

Considering the broader evolution of the financial intermediaries space, Knabl said a challenge for bankers thinking of joining FIMs is the way banks forming such people, such as whether they are being trained to add value and structure portfolios or whether they are just fed ideas.

An issue for EAMs is when they “become too big” and require certain levels of spending on infrastructure to be sustainable. Middle players might struggle because they don’t have the niche benefit or those of economies of scale at the larger end. This may lead to some consolidation, he added.

Veri said clients are increasingly demanding independence from wealth managers. “It [independence] is something they are looking for….it is more about trust; it can be the most important thing in the relationship,” he said.  

“It is about perception of performance and, if you say, keeping the same person in charge of his personal affairs,” Veri continued. 

Veri said it was unusual to see successful intermediaries taking care of each and every type of client from affluent to ultra-high net worth; a clear value proposition is absolutely essential. 

He could not comment, he said, on what the MAS might do about retrocessions, but agreed with other panelists that the key issue overall was transparency on fees. “The most important thing ….is a transparent discussion with the client and understand the proposition being paid for.”

Van Kattendijke, asked about whether there will be more entrants or more consolidation, responded that one the demand side, “We have within the industry a rather attractive tailwind and overall growth of the wealth industry in APAC”.

Another pro-demand force was inter-generational wealth transfer; the younger generation has a different view on how it wants to manage and protect its money. 

“There is a wish to move from informal gate-keeper relationships to more professional relationships,” he said. 

On the supply side, there is a generation of bankers nearing retirement or looking to change how they serve clients - with some joining the newer business modes. Bankers can either join an existing FIM or start their own, he said. 

He saw regulations pushing FIMs towards scale and hence towards consolidation.

“Asian growth is so strong that you can have your cake and eat it…..it will take some time before consolidation becomes a stronger trend,” Van Kattendijke added.