ABN Amro looks to suit long-term clients
Hong Kong's millionaires' club is growing and banks are battling to win them, says Chris Davis
A recent report that found one in 20 people in Hong Kong is a millionaire is viewed as good news for the highly competitive private banking industry, which is increasingly introducing new incentives to tap into the lucrative market.
According to the survey commissioned by Citibank, 274,000 people in Hong Kong are millionaires, each with more than $1 million in liquid assets. On average, each millionaire held about $4 million in liquid assets last year, higher than the previous year's $3.4 million, the survey found.
Maria Leung, head of wealth management business for consumer clients at ABN Amro, said the high number of millionaires adds up to a lot of clients for the banks to chase.
But banks are not drawn to this market merely because it is there. Private banking's greatest attraction is that, in addition to add-on services, it is principally about long-term relationship building through asset management and investing customers' money in return for a fee, compared to retail services.
As the number of Hong Kong's high-net-worth individuals is tipped to rise by about 5 per cent a year, banks keen to sign up new customers are stepping up their incentives. In some cases private banks have lowered their new-customer requirement from the long-standing $1 million mark to $500,000.
After meeting due diligence requirements, ABN Amro will consider opening an account for customers with $500,000 to invest. 'We see offering services to clients with $500,000 to invest as a way of starting the relationship building at a early stage,' said Ms Leung.
However, to qualify for the ABN Amro Van Gogh Preferred Banking service, customers must maintain a total deposit and investment portfolio of at least $1 million or the equivalent with the bank.
She said the competitive nature of the private banking industry, particularly with many retail banks offering private banking services, means that managers must pay close attention to their clients' needs.
Affluent investors have high expectations, and private banks are increasingly offering a range of complex products such as hedge fund investments and legal and financial structures that handle cross-border transactions. Understanding the market and knowing what clients want from their financial providers are the first steps towards meeting their ultimate goals.
'The relationship manager, while offering his or her advice, will work closely with clients to pinpoint his or her priorities in financial terms and assess risk appetite,' Ms Leung said. Hong Kong's low tax and interest rates usually mean that high-wealth investors are looking for absolute returns and wealth protection.
Van Gogh Preferred Banking members are assigned their own investment consultant and dedicated relationship manager to personally oversee their investments and transactions. They also have access to ABN Amro's market analysis, global network and expertise in areas such as securities, mutual funds, bonds and other investment products. Investment products and services can be tailored to meet individual's needs and expectations.
Ms Leung said compared to the late 1990s, clients now generally have a better understanding of the value of capital protection. Consequently there is a greater interest in alternative investments that enable them to participate in the market while benefiting from some downside protection.
A key area where relationship managers advise clients is the need for spreading their investment across different assets classes instead of piling everything into property, or into one particular industry.
'We recommend diversification,' said Ms Leung, using the mantra of the modern private banker. 'With our team of experienced relationship managers we are in a position to help investors to think global and multi-strategy investments,' Ms Leung said.
The ability to offer diversified services to meet the needs of investors with different demands, as well as to distinguish itself from competitors, is crucial.
There is also the need to think long-term investment, with a horizon of five years or more. While the emphasis is still on the growth, for diversification a percentage should be placed in fixed-interest investments.
The investor should be prepared to accept a moderate to high degree of risk with significant short to medium-term volatility in the value of their portfolio.
To help investors to adopt these strategies ABN Amro has developed a range of investment tools that offer the potential to invest in developed and emerging equity markets, bond markets and multiple currencies.
For access to these markets and investment advice, clients can expect to pay around 1 per cent of assets under management, declining with larger amounts.