Private bankers will have to justify big pay as industry consolidation looms

Normally, when an industry goes through consolidation, it presages job losses. But once again the wealth management industry in Asia is breaking all the molds.

Despite the growing momentum of deals that will ultimately result in fewer businesses chasing the gargantuan pool of funds on Asia held by the rich and super rich - expected to reach US$16 billion by 2015 - the demand for private bankers continues to grow unabated.

But signs are emerging that fewer players in the region will mean the private banker's heydey is coming to an end, and he or she will no longer be able to move around as easily or command hefty increases with each new job, nor will mediocre performance be tolerated.

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Last week, Singapore's Business Times reported that DBS Group Holdings, HSBC and Standard Chartered were believed to be pursuing Societe-Generale's Asian private banking business, which was first mooted in. None of the banks would comment on the speculation.  

Business Times quoted bankers saying that consolidation in Asia's private banking business was likely to pick up, as some institutions walked away from the high cost-to-income ratios, not least of which were due to paying steep salaries to experienced relationship managers.

The paper cited recent PwC research on private banking that found that Singapore and Hong Kong banks' cost-to-income ratios were among the highest in the world, at an average of 83 in 2012, and expected to be 76% this year."Relationship manager costs account for as much as half the cost base."

Craig Brewer, director, banking and financial services at Hudson, said that although the potential for private banks and wealth management businesses in Singapore remained very good, "...banks are clearly not in the mood to just throw money at their private banking businesses and hope for the best.

"Singapore is now an established private banking hub and many of the major players are looking for a significant return on their investment, rather than just having a presence in the market that may not be delivering strong revenue or look to be doing so very soon."

His view was echoed by another bank spokesman, who asked not to be named. "New entrants have tended to underestimate the significant cost of establishing an Asian business due to the downward pressure on return-on-assets caused by the slower economic growth in the region; the increase in operating costs - the continuing ferocious war for talent has resulted in compensation levels for wealth managers in Asia being one of the highest in the world; and the increasingly prescriptive regulatory requirements – adherence to which will require significant investment in education, compliance and technology."

She adds that the bank expects further industry consolidation and some banks may review expansion plans. "The commitment of newcomers to Asia will depend on the depth of the current profit squeeze and on whether or not they have the appetite and the war chest to fund a campaign over the long-term."

Recruiters say, however, that notwithstanding the likelihood of a contraction in the number of players, the battle for talent will continue. Gerard Milligan, Randstad strategic account director, says there is still a shortage of good wealth managers with a solid track record in the region.

Andrew Clark, a manager in the front office and treasury division of Robert Walters Singapore agreed, adding that even if the number of registered private banking firms decreased, the industry focus to grow assets under management would remain.

"If there is any noticeable reaction, it will be the lesser experienced or under-performing private bankers who will feel the strain. It will likely be a case of survival of the fittest.”