Small Private Banks Target Asia's Newly Wealthy

In Asia, a group of small private banks, advisory firms and start-ups are being set up as they look to take market share from the jaws of the big investment banks. The dissatisfaction of affluent clients with the financial advice they received during the financial crisis has become an opportunity that these small firms are trying to capitalize on.

 

There's never been a better time, says Urs Brutsch, founder of Hoffman & Partners Wealth Management (Singapore) Pte. Ltd. Brutsch and several colleagues left Credit Suisse's Clariden Leu Ltd. to start the Asia-focused firm last year. Prior to that, Bruch was in charge of Clariden's Asia-Pacific business. He declined to say how many clients have invested in his new company, or how many assets it currently manages.

Brucci said banks have done quite poorly over the past few years and that independence has become more valuable than ever.

While parts of Asia escaped the worst of the economic downturn, some high net worth individuals in the region suffered heavy losses, particularly in Hong Kong, where many clients were trapped by highly leveraged structured products that were hard to get out of and saw large amounts of their savings go down the drain. According to Merrill Lynch Global Wealth Management (Merrill Lynch Global Wealth Management) and the consulting firm Capgemini (Capgemini) jointly released a report in 2009, at the end of 2008, Hong Kong's high net worth individuals' assets shrunk by about 65%, leaving a total of $181 billion.

Smaller firms argued that, as smaller firms, they were not involved with the complex products produced by the in-house investment banking departments of larger firms. They indicated that, because of their independence, their private bankers would not simply peddle products that might not match a particular client's overall level of risk or investment objectives.

Asia today is also the largest growth market in the wealth management world. According to a Merrill Lynch/Capgemini study, for example, in the 10 years to 2018, China and India will have nearly three times as many high net worth individuals as they did at the beginning of the period, and will have increased their total personal wealth by about $4 trillion.

Large companies are not indifferent. Credit Suisse and JP Morgan (J.P. Morgan) still believe that Asia is the fastest-growing region in the world in terms of assets. J.P. Morgan's international private banking sector, the head of the Wurth (Douglas Wurth) has just moved from New York to Hong Kong, in the new post is responsible for all private banking markets outside North America.

There has been criticism that the big banks, in their 2006-2007 hiring spree, have been indiscriminate in their approach to well-connected private bankers. This Credit Suisse Asia private banking business head Kreis (Marcel Kreis) countered that the big banks are also client-oriented, and and proprietary trading and investment has nothing to do.

We are now focusing more on recruiting bankers with more experience, he said.

But some private bankers say that because many Asians have earned their wealth rather than inherited legacies, their relationships with outside advisers are formed now, not as a legacy of the past. For new entrants and seekers of specific target markets, this situation means that the territory before them is wide open. Small private banks are keen to portray the big banks as impersonal product pushers.

BSI, the Swiss-based private bank of Italian insurer Generali Group, has taken a big step forward. Late last year, it poached 70 private bankers from the Singapore unit of RBS Coutts Bank, the private bank of the Royal Bank of Scotland (RBS). Next month, Hanspeter Brunner, formerly of RBS, will take over as BSI's chief executive for Asia, still based in Singapore.

Switzerland's Bank Sarasin & Co. is another specific target market seeker expanding aggressively in Asia. A spokesman said that from December 2007 to June 2009, Carson Loeb's private wealth assets in Asia and the Middle East grew nearly 30% to 10.8 billion Swiss francs ($10.1 billion). To further attract funds from Asia, Carson LeBow will open a private banking branch in Hong Kong next month. To expand its reach, the company has hung a banner on an office building in Hong Kong's busy Central district, where two major roads intersect.

The 169-year-old private bank is also in the process of applying to the Singapore regulator for a license to accept local currency deposits. Approval is expected in 2011, and its local client base may expand as a result.

In addition, Carson LeBow is expanding its client base in Asia by poaching experienced private bankers from much larger rivals. Most notably, it has hired Grace Barki, formerly of UBS, to run its Southeast Asian business. While at UBS, Barki was in charge of Indonesia and the Philippines. Febby Avianto, also from UBS, is in charge of Carson Loeb's Indonesia team, a market he has been following since he worked at his old employer.

Even non-financial firms are seeing entry opportunities. British law firm Herbert Smith LLC recently decided to expand its private client practice to Asia. Until now, its services in Asia have been strictly limited to corporate clients.

Rupert Ticehurst, a London-based partner at the firm, will head up the initiative. He said Asian business owners are increasingly asking for help with personal matters such as succession planning, taxes, trust services and charity. In addition a spokesman said that in the midst of the recession, the firm's business in Europe has decreased. I did a tour of private banks in Asia and found that there aren't many lawyers here who serve private clients, Ticehurst said.