Private Banking Directory

Advisers differentiate services as more banks expand wealth-protection strategies for China's ultra-rich

Advisers are adapting their service to Chinese investors who have increasingly sophisticated plans for international expansion

PUBLISHED : Wednesday, 06 July, 2016, 4:44pm
UPDATED : Monday, 30 July, 2018, 11:43am

The phenomenal growth of mainland China's asset-owning class has created a vast pool of potential investors looking for means and methods to diversify their holdings outside the mainland.

For overseas-based private banks, this presents a spine-tingling opportunity. But with it comes a need for sure-footed strategies and an awareness that mainland banks, with their increasing sophistication and plans for international expansion, are not going to sit idly by while others muscle in on such a lucrative slice of the market.

"Competition is keen," says Francis Liu, UBS Wealth Management's Greater China regional market manager for UHNW (ultra-high-net-worth) clients. "The Chinese banks with a presence in Hong Kong are building their international product and service platform. Some have a very well-structured form of private banking services, which is increasing client awareness about being not just home buyers or only investing in the domestic market."

In reaction to those moves, UBS has geared up its own push for mainland customers and sought to differentiate itself in specific ways.

One is by stressing the bank's research-based investment advice, due diligence, and robust internal controls regarding any recommendations made. Another is its commitment to training frontline staff to understand and rationalise client needs. A third is offering a built-in alert system on the digital platform to ensure clients know, for instance, when an oil stock drops below a target price.

"We want to sell the ability to put money [to] work in global markets," Liu says. "In general, mainland banks are more familiar with the hot stocks in China, but we can educate clients to look at themes that will gain from growth internationally, asset allocation models, and risk/reward considerations. If a client already has investments in China, we will only focus on other areas that require our support."

For prospective mainland-based customers, a key concern in uncertain economic times is wealth preservation.

Therefore, a typical UBS "starter" portfolio is likely to include a mix of short-, medium-, and long-term bonds - both fixed-rate and floating-rate - to create a stable foundation and optimise regular returns. For a client classified as moderate risk, discussion would then turn to the "technicals", usually equity funds favouring sectors like technology, pharmaceuticals and biotech. Most picks are based on the US equity market as offering clear rules, fairer valuations, and many sector leaders.

"There are opportunities to diversify through different direct investments, including both commercial and non-commercial real estate around the world," Liu says. "But a fund set-up is more efficient in terms of liquidity and tax implications, and it is easier to unwind."

He adds that, if required, clients can also ask the bank to "back-test" their current mainland holdings for valuation and performance. A typical such tool shows the average return on A-shares is negative in the past three years.

"Mainland clients see the advantage of being able to buy global leaders in certain sectors," Liu says. "For them, the overseas market is still in its infancy. Competition for business will be tough, but we have big plans and ambitions over the next five years."

Sermon Kwan, Hong Kong chief executive and global market head for Greater China for Bank of Singapore, also anticipates a boom of sorts, but cautions that expectations should be kept in check.

He notes that one stereotype still portrays mainland investors as speculative, aggressive and chasing the highest returns. However, most of those looking to invest overseas think quite differently.

"In many cases, what they put offshore is 'safety money' for their family, perhaps planning for school fees in the US or UK," Kwan says. "It is for diversification, and they are not necessarily expecting very high real returns, given the current environment."

The basic intention is to reduce overreliance on mainland property and Hong Kong stocks and benefit from opportunities at once removed from the Chinese economy.

Catering to that demand, Bank of Singapore has launched a technology-related private equity fund with a US-based partner and is using its acquisition of Barclays' wealth business in Asia to help clients tap into global markets. It can line up fund managers - external and internal - who are recognised experts in their sectors and manage discretionary portfolios. To build the customer base, there may be a joint venture with an established mainland player to supplement referrals from the group's OCBC Wing Hang Bank, which are already an important source of new contacts.

"At present, mainland banks definitely dominate the onshore market, but offshore is a totally different ball game," Kwan says. "Clients are very smart; they know the relative strengths of Chinese and foreign banks. The mainland institutions are up-and-coming, but it will take time [to] catch up. And, no matter how they improve, they cannot change their domicile. As a result, they will have certain risk elements."