Wealth managers work hard to regain investors' trust

PUBLISHED : Sunday, 18 October, 2009, 12:00am
UPDATED : Sunday, 18 October, 2009, 12:00am

Private-wealth management firms have gone back to the drawing board, working to rebuild their relationships with clients and prepare them for a new financial environment, after last year's bruising market crash shredded portfolios.

Nearly half of all advisers lost clients last year, according to the Asia-Pacific Wealth Report, issued by Merrill Lynch's Global Wealth Management group and Capgemini. And 85 per cent of the survey's respondents said keeping clients' trust and business were the two greatest challenges this year.

'The key focus is maintaining the client trust, [because] people have lost trust in wealth management firms,' said Arvind Sundaresan, head of sales for Asia-Pacific at Capgemini. 'The sales-driven approach of selling products to customers was not pursued very well given the crisis we went through.'

Many well-heeled investors across the region had become accustomed to steady, uninterrupted returns as markets cruised steadily higher before the onset of the financial crisis. The downward spiral last year was a harsh reminder about the need for risk protection as overly aggressive portfolios were crushed.

Hong Kong's benchmark Hang Seng Index tumbled 48.3 per cent last year for its largest loss in 31/2 decades. The Shanghai Composite Index nosedived 65.4 per cent. And across the Pacific, the Dow Jones Industrial Average in New York fell the most since the Great Depression in 1931, 33.8 per cent.

Even though stock markets have rebounded, investors are still spooked and have clung to cash. That has driven a wedge in relationships with private bankers.

Deutsche Bank Private Wealth Management had reached out to clients by explaining how the financial environment had changed and how to adjust their portfolios, said Lok Yim, head of the firm's private wealth management for North Asia.

'You have to take client engagement to different levels,' Yim said. 'So if last year was about having three conversations a day, next year may about three conversations which are a lot longer and a lot deeper.'

Deutsche Bank has also stepped up efforts to educate investors on the lessons of the financial crisis, such as the need for downside protection and the presence of counterparty risk. It has started running simulations for investors on how their portfolio would hold up after a hypothetical situation such as the downfall of another Wall Street firm or a sudden increase in inflation.

'You build investor education over time,' Yim said.

Private banks have also separated their clients into smaller and more specific groups so that they can better match them with appropriate investment products and services.

'Whatever little is left from the client network, each wealth management firm is trying to get the most out of the wallet of the same customer,' Gapgemini's Sundaresan said.

But the differentiation may also be a natural evolution of bankers coming to understand their clients better given the relationship-driven business model of private wealth management.

'These levels of segmentation allow us to differentiate the value proposition for clients, and that makes the process of evaluating the suitability and managing the risk of the offerings better,' said Anuj Khanna, head of private banking for North Asia at Credit Suisse. 'That's the future of where things are going.'

Credit Suisse has been able to draw more distinctions between investment profiles by improving the documentation process during interactions with clients, Khanna said.

Barclay's Wealth has also allocated resources towards improving its segmentation research. It unveiled a sophisticated behavioural survey last month in Asia that is designed to assess new and existing clients' financial personality so it can better inform bankers how to match them with the most suitable type of investments.

'We are trying to put the humanity back into investing and recognise that our clients are real people,' said Greg Davies, head of behavioural finance at Barclays Wealth.

'You could have two individuals who have exactly the same degree of risk tolerance and yet are fundamentally different people in a number of other dimensions and as such should have different portfolios.'

But regardless of the private banks' innovative and tailor-made strategies, the final call on an investment will still remain with the client. And with financial markets roaring once again in the current low-interest rate environment, some investors may be tempted to throw caution to the wind and ride the wave again.

'History unfortunately has a habit of repeating itself,' said Yim.

'But it's our job to see that it won't for a long time, and so we have to be better about giving sober analysis to clients, saying that if you are making money you should think about your portfolio and your hedging.'