New strategies to lure millionaires

ASSET MANAGERS will have to adopt new strategies to face competitive challenges and exploit opportunities arising from interest rate deregulation in July, a partner of the business consulting practice at Arthur Andersen, says.

Further deregulation in Hong Kong's banking sector may mean financial services firms must find ways to differentiate their products and advisory services, as studies have shown that high net worth individuals want a greater variety of complex investment products and a range of advisory services in addition to having high expectations of performance in terms of wealth creation and administration from their asset managers, said Stephen Cheung, partner of business consulting at Arthur Andersen.

High net worth individuals are defined as those with US$1 million in liquid assets. This group of customers is typically served by the private banking department of a bank as opposed to 'premier banking', the second tier.

High net worth individuals are increasingly seeking wealth creation, not just wealth preservation, Mr Cheung said.

While specialised investment products and technological bells and whistles are important, he cautions that technology 'can not replace the close personal rapport', asset managers have with their millionaire clients. Strong personal relationships are considered to be the foundation on which private banking is built.

'A single point of contact is important. A lot of private banks and others providing premier banking services are looking at creating a mechanism which allows one dedicated person to look after these wealthy individuals,' Mr Cheung said.

This could mean a relationship manager providing services to 200 wealthy individuals at the premier banking level or a banker serving the wealth management needs of a US dollar millionaire.

This is where customer relationship management has a role to play. Customer relationship management (CRM) systems assist banks identify the specific needs of a customer while allowing for cross-selling of financial products and services.

Besides, by using Internet- based technologies, banks could provide high net worth individuals access to a whole range of best-of-breed products from other specialist financial services providers, Mr Cheung said.

A global study, which also surveyed Hong Kong, done by Arthur Andersen found that understanding the customer is essential in delivering the right information to help clients make investment decisions and also in anticipating their needs more precisely. The study was done in association with Research International, an independent research company. The survey interviewed board- level directors of about 250 asset managers worldwide.

Mr Cheung said call centres would also play an increasingly bigger role. Financial products could be marketed to target customers via telephone. This is also cost-effective.

'Within six to nine months, banks in Hong Kong will have to offer better products and services, because the only new competition is in wealth management,' he said. 'This business will be a source of fee-based income.'

A number of banks in Hong Kong have undertaken studies while others have already launched trials to test new products and services. Financial institutions are sharpening up their offerings in this high-margin business as the number of high net worth individuals are increasing at double-digit rates.

A study by Merrill Lynch and Gemini Consulting found that in 1999, the number of high net worth individuals in Asia increased to 1.7 million and that their wealth grew by 22.7 per cent, higher than the rate of growth in North America and Europe.

The World Wealth Report, notes that one million millionaires have joined the elite ranks. Their wealth increased by 18 per cent to US$25.5 trillion compared with US$21.6 trillion in 1998.

Most of this is inherited wealth, accounting for 22 per cent of the total, while in the past decade, most of the high net worth individuals have earned their wealth. These include hi- tech entrepreneurs, senior corporate executives who benefited from performance-based share options and pay packages, business owners who sold out to globalising companies and professionals who are high-earners, among others.

The wealth of Europe's 2.2 million millionaires increased by more than 19 per cent while that of North Americans grew 17.4 per cent. The study says there are 10 million millionaires worldwide.

In the past decade, more millionaires have joined the ranks than at any other time in history, the study shows.

Merrill Lynch estimates that assets of high net worth individuals will grow at a rate of 12 per cent a year to US$44.9 trillion by 2004. The projection assumes that these millionaires will invest a bigger proportion of their assets in higher-risk, higher-yielding financial instruments.

The business of asset management can only get tougher for established players and new entrants, considering that the ranks of millionaires are continuing to swell.

As the number of Asia's millionaires also increases, asset managers have to create competitive advantages to attract and retain customers in this dynamic market, Mr Cheung said.

At the same time, whether they are millionaires in Hong Kong or around the globe, their expectations and preferences in terms of financial products and services are similar, he said. Also, especially in Asia-Pacific, high net worth individuals are seeking geographical diversification of their portfolios.

To meet the exacting requirements of these individuals, asset managers must do more than give investment advice and execute strategies, he said. To draw more clients and make the business grow, asset managers must also find out what customers want before they themselves know what they want.

'Bankers must be proactive. Tell the customers before they ask,' Mr Cheung said. Internet technologies will be important in allowing banks to be proactive, in terms of providing financial information and straight-through processing, he said.

Technology will also bring operational efficiencies, Mr Cheung said. As they gear up for new competition, asset managers in Hong Kong will have to take into account the lifestyle of their customers and provide superior customised products. Overall, the biggest challenge will be to meet customer needs, he said.

PRIV22gsp