SINGAPORE (Reuters) - Private banks in Asia have not learnt the lessons from last year’s financial crisis, risking even worse performance if the same mistakes are made ahead of the next economic downturn, PricewaterhouseCoopers said on Tuesday.
Banks need to change their revenue models to focus on client performance rather than earning fees from pushing products, and professionalize the industry to produce quality relationship managers that have the courage to tell clients what they need.
“If lessons are not learnt...the next time a crisis comes, and it will come, you are going to hit a bottom that is even lower,” said Justin Ong, PwC’s head of Asia Pacific wealth management practice, at the Reuters Global Wealth Management Summit in Singapore.
“We came out of this crisis a little too fast.”
His comments come after many private banking clients were burned by complex products that turned toxic in the financial crisis, leading them to choose simpler investments and shun institutions worst hit, but a market rally has produced optimism.
“The Asian banking environment is still very much a sales or product-driven culture,” said Ong. “Private banking has to be more holistic. It cannot just be about the product, the whole business has to be more client centric.”
Ong was one of three authors of a global PwC survey, published in July, that showed 53 percent of rich people relied on their own research as their primary source of financial advice, reflecting a “significant” lack of trust in private bankers.
Some of the problems faced by private banks in Asia include the relative lack of experience among relationship managers, with many of them below the age of 40.
Asian clients, more likely to be first generation entrepreneurs than wealthy from inheritance as is more common in the West, are reluctant to pay for advice and the incentive structures of private banks are skewed toward pushing products.
Ong, who said cash was king for his own portfolio, said there is a danger of clients taking unnecessarily high risks to try and regain what they lost last year, instead of thinking about preserving wealth and transferring to the next generation.
“Asian investors are still very transactional. They still rely on their own expectations. The challenge is that clients are saying we know what we want, give us what we want.”
According to Capgemini and Merrill Lynch’s global wealth management report, the number of high net-worth individuals fell 15 percent last year, and their total worth declined by a fifth.
Ong said the downturn could lead large banking giants to try to shed marginal wealth management businesses, particularly as compliance costs from increased regulation go up.
“People hope to see more acquisition targets but I don’t think you’re gonna see many in the market especially if the market picks up,” he said, adding that market optimism may have raised valuations for private banking assets.
Additional reporting by Saeed Azhar; Editing by Muralikumar Anantharaman