For the wealthy, it’s now all about safety, protection
Most opt for lower risks, returns, say private bankers
By ZHANG YI TING 26 March 2009
High net worth individuals have re-shuffled their priorities in the midst of the financial crisis. Safety and protection now top their list, and when faced with the trade-off between risk and return, most prefer lower risks and lower returns, according to private bankers at a conference yesterday.
And private banks too are adapting to the changes in market conditions.
‘Clients now expect to receive information and advice on market developments with more focus on security and preservation of their capital, rather than on returns,’ Jean Pierre Cuoni, founder and chairman of EFG International, told BT. Mr. Cuoni also chairs the group’s private banking subsidiary, EFG Bank.
Private bankers at the conference said that they needed no reminder of how challenging the situation is. ‘The credit crunch has developed into a revenue crunch,’ said Kwong Kin Mun, managing director of DBS Private Banking in Singapore.
Indeed, according to Mr. Cuoni, equity markets have dropped 50 per cent, hedge funds have fallen by 20 per cent and the property market has lost 40 per cent. Past falls were ‘never as significant as this time round’, he said.
Summarising the cause of the crisis into just two words - greed and leverage - Mr. Cuoni said that people in the developed world ‘decided to make money, lots of money, and as fast as possible’, and in doing so, ‘leveraged what they have and called it optimising returns’. The result was a collapse of the ‘house of cards’, he said, and a mess that the industry now has to clean up.
There is, however, a silver lining. Private bankers are learning new lessons, as the crisis has challenged some cherished industry beliefs. For one, the buy and hold strategy is being questioned and the notion that equities always outperform bonds is no longer a certainty, said Hou Wey Fook, chief investment officer at ING (Asia) Private Bank.
Under the current climate, ‘terms like ‘innovation’ and ‘cutting edge’ are viewed with suspicion and even disgust’, said Mr. Kwong. ‘Clients want simple, direct investments in the market’, while ‘complex models and structured products are being re-examined’.
Looking head, Mr. Cuoni called for increasing internal controls and portfolio diversification. He believed that the ‘future of private banking’ lies in ‘open architecture’, where clients have a choice between in-house and external products.
Private bankers should play the ‘role of the adviser, not the role of the sales person’, Mr. Cuoni said. His view is shared by Tan Su Shan, Morgan Stanley’s head of wealth management for South-east Asia and Australia, who said that private banking will evolve to become more ‘client-centric’.
Mr. Cuoni said that he expects wealth creation to resume as soon as economic growth returns. ‘Private bankers need economic growth to grow. If we only live off the existing wealth, then we have to steal business from each other. That happens also, but is more difficult.’
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For the wealthy, it’s now all about safety, protection
Most opt for lower risks, returns, say private bankers
By ZHANG YI TING
26 March 2009
High net worth individuals have re-shuffled their priorities in the midst of the financial crisis. Safety and protection now top their list, and when faced with the trade-off between risk and return, most prefer lower risks and lower returns, according to private bankers at a conference yesterday.
And private banks too are adapting to the changes in market conditions.
‘Clients now expect to receive information and advice on market developments with more focus on security and preservation of their capital, rather than on returns,’ Jean Pierre Cuoni, founder and chairman of EFG International, told BT. Mr. Cuoni also chairs the group’s private banking subsidiary, EFG Bank.
Private bankers at the conference said that they needed no reminder of how challenging the situation is. ‘The credit crunch has developed into a revenue crunch,’ said Kwong Kin Mun, managing director of DBS Private Banking in Singapore.
Indeed, according to Mr. Cuoni, equity markets have dropped 50 per cent, hedge funds have fallen by 20 per cent and the property market has lost 40 per cent. Past falls were ‘never as significant as this time round’, he said.
Summarising the cause of the crisis into just two words - greed and leverage - Mr. Cuoni said that people in the developed world ‘decided to make money, lots of money, and as fast as possible’, and in doing so, ‘leveraged what they have and called it optimising returns’. The result was a collapse of the ‘house of cards’, he said, and a mess that the industry now has to clean up.
There is, however, a silver lining. Private bankers are learning new lessons, as the crisis has challenged some cherished industry beliefs. For one, the buy and hold strategy is being questioned and the notion that equities always outperform bonds is no longer a certainty, said Hou Wey Fook, chief investment officer at ING (Asia) Private Bank.
Under the current climate, ‘terms like ‘innovation’ and ‘cutting edge’ are viewed with suspicion and even disgust’, said Mr. Kwong. ‘Clients want simple, direct investments in the market’, while ‘complex models and structured products are being re-examined’.
Looking head, Mr. Cuoni called for increasing internal controls and portfolio diversification. He believed that the ‘future of private banking’ lies in ‘open architecture’, where clients have a choice between in-house and external products.
Private bankers should play the ‘role of the adviser, not the role of the sales person’, Mr. Cuoni said. His view is shared by Tan Su Shan, Morgan Stanley’s head of wealth management for South-east Asia and Australia, who said that private banking will evolve to become more ‘client-centric’.
Mr. Cuoni said that he expects wealth creation to resume as soon as economic growth returns. ‘Private bankers need economic growth to grow. If we only live off the existing wealth, then we have to steal business from each other. That happens also, but is more difficult.’
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