Hong Kong's private client wealth sector is seen growing strongly, but practitioners fret that talent constraints will be a problem.

The private wealth industry expects assets under management to double over the next five years rising towards $2 trillion, with mainland China being a major driver, while skill shortages are seen as the strongest drag on growth potential, a study says. 

The study, by the Private Wealth Management Association, in conjunction with KPMG China, also showed that a significant chunk (41 per cent) of the 37 member organisations it polled said that family offices are increasingly important business drivers.

The 34-page 2018 report said that almost 80 per cent of respondents said China is the main driver of growth in the private wealth management industry, and that up to 49 per cent of Hong Kong’s assets under management could come from mainland China by 2023. Hong Kong is expected to benefit from its position as the traditional gateway to mainland China, while over 80 per cent of respondents also highlighted the Stock Connect as a key differentiator for Hong Kong.

Family offices and the next generation of clients are ranked as the second and third most important growth drivers for Hong Kong’s PWM industry in the future. More than 40 per cent of respondents cited family offices as an increasingly important source of business, while attracting the next generation is identified as another growth area in the midst of generational shift and digital transformation. 

“Taking advantage of this growth, however, requires a strategic approach towards seizing the opportunities as well as tackling the challenges ahead such as regulatory complexities, technological disruption and talent shortage,” Amy Lo, chairman, executive committee of PWMA, said. 

Talent
Some 66 per cent of the survey respondents noted a “limited talent pool” as the biggest supply-side constraint. While RMs are considered to be the most critical talent gap (76 per cent), the industry is also looking for compliance (53 per cent) and product specialists (53 per cent) to support RMs to drive growth and mitigate industry risks. 

The report comes at a time when financial hubs such as Hong Kong and Singapore are competing for business. The data also highlights – as shown in a recent report – why Asian financial centres are struggling to keep up with demand for private bankers and other advisors.

The report also shows how important Hong Kong is to many international wealth managers and related financial groups. More than 26 per cent of international organisations, prominent regional and mainland Chinese institutions have over 100 RMs in Hong Kong, with the number of RMs in the industry increasing by 12 per cent from 2,500 in 2016 to 2,800 in 2017. The total number of relevant PWM practitioners, which includes investment advisors, product specialists and other client-facing professionals, is around 3,800.

In the past year, the number of (US) dollar billionaires has increased by 29 per cent year-on-year from 72 to 93 in New York, placing it just behind New York globally. The number of high net worth individuals in Hong Kong also rose by 15 per cent year-on-year from 148,000 to 170,000. Offshore clients make up an important part of the industry, and the number of HNW individuals in nearby locations in Asia Pacific (excluding Japan) increased by 13 per cent from a year earlier from 1.8 to 2.0 million.

Unsurprisingly, the report argued that technology is important in helping drive growth. More than half (54 per cent) of the survey respondents note that the industry’s current digital capabilities are not meeting client needs, the industry plans to invest significantly in technologies and digital solutions in the next two years to address this issue, and to prepare for competition from new entrants.

The report also showed that the pains of onboarding clients remain a problem, with all respondents saying that sales practices and suitability are where they are spending the most resources. Some 95 per cent said KYC and anti-money laundering issues were areas where they spent the most resources.

Family offices
The study found that family offices are the second most important driver for Hong Kong’s private wealth management sector, and 41 per cent of the survey respondents said that FOs were an increasingly significant business driver.

“It is important for Hong Kong to attract not just the newly established family offices in mainland China and Asia – where the concept is gaining popularity - but also the global family offices that are increasingly looking to diversify assets into Asia,” the study said.