Asset managers in the Asia-Pacific region are falling short of their potential by failing to satisfy high net-worth individuals, with more firms employing multiple managers in Hong Kong than anywhere else in the world. 'It is clear that the focus on high net-worths and the amount of money that asset managers are taking from [this segment of the] population in Asia is significantly down on the rest of the world,' said Mark O'Sullivan, partner at Arthur Andersen, which last week released a research report on high net-worth asset management. The research was based on a survey which polled 289 high net-worth individuals, defined as those having more than US$1 million in investable assets, and 270 asset managers in the latter half of last year. Asians use an average of three managers at any given time, the report states. It also notes a high churn rate in Latin America, where the average length of asset manager relationships is 5.5 years. In North America and Europe, high net-worth individuals have relationships lasting a decade or more on average, and use fewer managers, at an average of 1.72 per person. 'From a potential perspective, [Asian] asset managers are underachieving in terms of assets under management and fees,' Mr O'Sullivan said. 'The opportunity exists for regional fund managers to grow what they manage on a per high net-worth basis. If you can provide the right service, the opportunity is there to really leap up your share of the pie in this part of the world.' One of the reasons given for the regional lag is that the focus on the high net-worth sector is newer in Asia. Older wealthy generations have preferred to invest directly in property or equities, rather than using asset managers. In addition, more millionaires are younger and self-made, meaning they demand higher levels of service, greater access to technology and personal involvement in their portfolios. Employing more investment advisers also reflects the global nature of Asian portfolios, providing opportunities for managers to offer a wider range of products, the report states. 'Because these individuals tend to employ regional specialists, asset managers that can demonstrate global capabilities and expertise stand a better chance of winning business when mandates change,' it said. On a global basis, the survey found that 32 per cent were unhappy with their asset managers, showing a 'growing disconnect' between the two parties. Sixty-eight per cent of asset managers believed their clients were becoming more conservative in investing, against 62 per cent of millionaires who said their risk appetites had stayed the same (52 per cent) or increased (10 per cent) in the past 12 months. Twenty-five per cent also indicated they would place funds with secondary advisers in the next 12 months. Managers who offered access to alternative investment classes such as hedge funds, private equity funds and individually tailored portfolios would stand to increase their market share, Mr O'Sullivan said. High net-worth individuals also 'remain highly dissatisfied' with static fee structures. According to a recent Financial Times survey of Swiss private banks, managing a US$1 million account can cost as much as US$16,000 per year. Fund management charges, commissions and trading costs can push total costs higher. Despite this, Arthur Andersen found the wealthy elite were prepared to pay more in performance-based fees or for value-added services, rather than being charged a flat fee based on assets under management. Sixty-five per cent of Asian respondents said they used the Internet to manage their financial affairs, second only to the United States with 71 per cent. Although rates of Web-use were down compared with 2000 in some areas, most respondents said they planned to increase their use of online tools in the next 12 months. Managers could, therefore, not afford to ignore the Internet as a platform for deepening client relationships. The rate of growth in high net-worth numbers has slowed due to the market downturn, but conservative estimates are that 180,000 people joined the millionaires club in the past 12 months. As a group, they added about US$2 trillion to the global asset pool last year. An estimated 10 million individuals now fit into the high net-worth category, according to the 'Merrill Lynch/Cap Gemini: World Wealth Report 2001'. With growing interest in this market segment and tough economic conditions, asset managers needed to work harder to stay in tune with the needs of their clients, Arthur Andersen said. 'High net-worth asset management remains a high-touch business,' the report said. 'Balancing the tradition of high service with the client's demand for higher risk, higher tech and higher quality products will be the fundamental challenge in this market.' Raymond Yung, financial services partner at Arthur Andersen, said many managers were looking to China as the next pot of gold, with its limited asset management industry and the growing wealth factor. 'Traditionally, fund managers in Hong Kong have followed the North American and European model,' Mr Yung said. 'We need more fund managers that cater to the Chinese-speaking community. There is a personal touch involved and it helps if you speak the same language.' Mr O'Sullivan said fund managers had in the past few years used Hong Kong as a base to move into Taiwan, with many wealthy individuals seeking to move their money offshore due to political concerns. Managers were now looking to replicate this process on the mainland.