Two core questions can be asked of the Asian wealth management market. First, and most importantly, how are the future clients of wealth management doing? Second, how will wealth management fare in the post-Armageddon world?

Gloom, crash and doom!

Just three simple words that appear to describe the sequence of world events since early 2008.

Indeed, if we believe that the press is the trusted authority of global sentiment then there is practically no corner of the world which has escaped the shadow of the financial turmoil. In fact, the negative state of mind can become addictive and it is very likely that our perception of recession last longer than the reality of the recession.

However, how true is this in the world of wealth in Asia? Now as economic darkness turns to light, many of the current captains of industry, as well as their ambitious lieutenants, are now trying to make sense of what has happened and what will happen next.

In that context, the future of wealth in Asia comes to mind and two core questions can be asked. First, and most importantly in my mind, how are the future clients of wealth management doing? Second, how will wealth management fare in the post-Armageddon world?

In this brief article I will try to focus a little light on both issues and pose additional thoughts that the industry may need to think about answering if it is to realistically consider a productive way forward.

The research light I am using is based on a novel source called Futurewealth which is a project we are privileged to have initiated with the support of The Standard Chartered Private Bank earlier this year. Futurewealth’s ambition is to globally determine what the world of wealth needs next – from the client perspective.

The project is the largest of its kind aimed at developing a deep understanding of a specific community of customers - the wealth-holder. 35 per cent of the first feedback sample of almost 1,500 wealthy people were based in Asia, the Indian sub-continent, the Middle East and Africa. In addition to this insight, I will be drawing on projects undertaken by our team in the Asia Pacific wealth management sector to suggest guidelines on what wealth needs next - from the industry perspective.

So, exactly, how are the future clients of Asia wealth management faring?

Those clients already in the international private banking system may want to look away now.

For clients of the private banking and wealth management it has not exactly been what the package promised. There is no blame implied here - these were market conditions beyond even the most warped mind of a financial scenario builder. Arguably, even the industry was powerless. Nonetheless, many active clients saw fortunes tumble faster than express elevators dashing to the ground floor. For those on the receiving end it has been brutal and life changing - we know, we interviewed many of them. The tears were real.

In addition, a series of highly publicised product blow-outs, which have since followed in litigation against several institutions including private banks, showed how widespread the consumption was of a very limited range of financial instruments, particularly in markets such as Singapore and Hong Kong. When these products turned sour the odour percolated into many clients portfolios.

Indeed, it is somewhat ironic that an industry which boasts thousands of product solutions and individually tailored approaches for clients should harbour most of its hopes on such a limited few products. But then perhaps that is just human nature. Why hunt when you can harvest?

Overall, wealth held by the already wealthy dropped by as much as 40 per cent - on average. In the words of one private equity specialist I met a month ago, these are hard times for the first class traveller as they increasingly have to turn right on boarding the flight.

And yet this drop in wealth has not been consistent across all Asia Pacific, or even across the globe. Naturally, while some industries and economies fall, others prosper. For instance, Australia appears to have been a stable economy during the entire period while other commodity rich and cheap labour economies such as China and India have also chewed up the distance between them and the old world. It is notable, for instance, that we have now entered a world where the G8 is the G20 and it is clear that the 12 new entrants have had a stronger case made for them in the past 18 months.

In fact, many new wealth individuals in the Asia Pacific region who may not yet be clients of the private banking industry did not see their wealth tumble. Quite the opposite. And they are pushing ahead and seizing the opportunity to develop fortunes amid the current market conditions.

The next generation

Notably, from the Futurewealth research just completed, the next generation of wealth holders - the ones we like to call today’s lieutenants-of-industry – have a plan to quadruple their wealth within the next 5-10 years. Crucially, 66 per cent of those in the Futurewealth community indicated that during the entire period of the financial crises their absolute level of wealth either stayed the same or increased. This positive ambition is encouraging and shows the spirit of wealth creation was not extinguished by the financial crises.

But there is a significant difference among this community of future wealth customers which should be understood, particularly in Asia. Their ambition does not immediately imply a high propensity to risk. Indeed, this is not just another wave of clients willing to trust the industry’s promises of a sure bet.

As the so-called lieutenants-of-industry this is a community broadly rooted in the professions - which is often, incidentally, the core of the private banking customer base - with a solid grip on their career direction and capabilities. These are steady eddies with a sense of purpose. In many ways, in Asia we are seeing this community possess strong similarities to the community of the 1950s and 1960s in the US who were pursuing the American dream. These individuals are the engine room of the next wave of industrial growth in the region – they are the Asian dream.

At this stage in their wealth creation cycle it is also notable that many are not yet accepting the support of a private banker although more are leaning toward a financial advisor which I will come to later. Overall, for some, they argue the lack of consumption of a private banking solution is a question of priorities while for others they argue they have not yet been convinced of the value or merits of the solution.

This latter point, which is consistent across the globe, is an alarm bell for the financial services sector given that this client group is ostensibly a major driver of their future success. After all, our estimates are that there is over $7 trillion of investable assets held by high net worth individuals worldwide which is not currently managed by the private banks or wealth managers. This is the potential size of the future wealth community.

So, this comes to the heart of the question of how this community are faring. The reality appears to be in Asia, as elsewhere, the client community has gone through a process of re-assessing priorities. Family, well-being, financial security and a sense of purpose have moved above the absolute pursuit of fortune making. This shift in balance is significant.

Indeed, while ambition to fulfil financial dreams is highly relevant, the Asia-based future wealth community rate at the top the desire to be a good person and a leader in their chosen field. This attitude was, notably, very consistent across the globe but it is significant for Asian clients which has historically had a profile characteristic, which was always incorrect in our view, of being money-focused and risk-taking to the point of distraction. The financial institutions have played this card very well to their corporate gain. But perhaps that trick is now coming to an end.

In addition to this wealth personality shift that has been underway in recent times another answer to the question of how the future client is faring is that they are willing to express their financial objectives coherently and also share their views with others. In essence, the future wealth clients are prepared to challenge the status quo and will discuss this openly.

This point is a challenge for the industry, as the future clients of wealth services in Asia and elsewhere are getting a better grasp of their sense of value and buying power among financial services. Furthermore, these clients are much more aware of their ability to switch providers. So much so, that a wealth manager is no longer for life but may just be for the season.

How will it fare?

And so, with this point ringing in your mind we move to the second question of the article - how will wealth management fare in Asia in the post Armageddon world? You might think that based on what you have read to this point my answer is going to be negative. In fact, the opposite is the case. The industry could fare very well, particularly in Asia.

Firstly, Asia remains a burgeoning economic region. Moreover, many of the economies that have actually thrived in the market conditions have been in the region. Moreover, the region is the most fertile ground for economic wealth creation in the decades to come if you believe the statistics and while double digit growth rates from some economies will need to be rationalised, the gradient of growth remains upward. All sweeping statements, naturally, but as a starter, yes the region offers a positive reflection for wealth management and private banking institutions.

The issue will be if the industry is prepared to adapt, much in the same way as private investors have been forced to adapt in the past 24 months. The paradigm of “build products and then find buyers” is rapidly wearing thin, globally. However, we have a strong sense there are still many operators in Asia that believe this concept will work for longer than anywhere else in the world. They are mistaken.

Indeed, if there is one characteristic of Asia that is sharper than anywhere else in the world it is the ability to grasp concepts quickly and then consume them at a fast rate. Any financial institution that thinks this region is going to be “easy margin” region based on product buying ignorance, then I suggest for them its time to wrap up their spreadsheets and move on.

So, in Asia, as underscored by Futurewealth, there is an opportunity to transform the way in which the wealth management industry approaches its clients. The days of the continued roll out of complex investment instruments sold to the unaware are numbered. The days of the broker hawker is also numbered.

Both of the above may not be popular statements among the current cognoscenti in the industry and they may even suggest I am an idiot. But I think this is as good a place as any to go on the record with such a statement. Moreover, let us stop and think about it for a minute in the context of the wealth management world.

Overall, the future relevance of the financial advisor is on the increase when it comes to guiding on wealth planning, preservation and creation. In fact, it is notable that in Asia, more individuals nominated the financial advisor as their most trusted input after family and friends when it came to wealth matters. It was the first professional they would call upon. And I stress, more than anywhere else in the world.

This is very interesting given that the concept of the financial advisor remains a relatively novel concept in the region. Could this be a client-led pointer for the industry? Perhaps, the broker model is not so attractive to clients and with this insight statement there is a chance to listen to the customer first and then develop a solution that they want.

In fact, the issue gets stronger as less than half of the Asia Pacific future clients indicated they were confident to set their financial course independently – again, this was substantively lower than in other regions across the globe. Perhaps the idea that Asia-based clients are self-directed is now slightly misplaced? At least here is some evidence to challenge the view.

Aside from the advisor requirement, there is also an opportunity for wealth management pioneers to consider the fact that the ambition of the future clients to generate wealth is one which they can tap into. Indeed, in Asia the viewpoint of the future clients is that 80 per cent stated listed securities will remain a major contributor to their ability to achieve their financial ambitions.  In contrast, less than 10 per cent felt that they would achieve their objective through the sale of a business. Indeed, this is a community that is relying on the markets to achieve their financial objectives. An open door for wealth management if there ever was one.

So, this latter point underscores my view that the outlook is positive for the industry of private banking in Asia. But the real winners are likely to be those that accept that they will need to nurture the clients of the future. Moreover, the winners will also need to reconsider the approach of their sales force to be better positioned with the client demand. Crucially, upskilling the labour to become talented advisors is a key feature for this market and it gets repeated in virtually every regional survey but up to now we have seen little real evidence of a move to address this.

Our suspicion of the inaction to this point is that many institutions believe they are satisfying their current client base so they question the need to invest. To an extent they were right although the recent litigations I referred to at the start of the article suggest this stance may need to be reviewed. Notably regulators in several markets including Australia, India, Singapore and Hong Kong are all now taking a closer look at the capabilities of financial salesmen – in what ever market segment they operate including wealth management.

And while I can hear that a strategy should not be based on the comments of so few, which is true, these comments are based on a lot more than when previous strategies were decided in the region. I recall many previous market commitments by wealth managers based on either the client feedback of less than a handful if you were lucky or more likely no clients at all. It strikes us as very strange that in a business that proclaims customer centric values there is little attention given to listening to the client when making a strategy. Asia is no exception.

So, there we are. The future of wealth in Asia is looking solid but perhaps not in the way many current financial professionals think. The industry will need to roll up its sleeves, rather like its clients are doing, and start to refashion its proposition. It will need to accept that getting closer to the client is a good thing rather than a costly endeavour. It will also need to accept that the client’s attitudes are changing and this change is going to effect the industry players radically.

After all the future of wealth is not a static statement. The future of wealth is evolutionary. If it wasn’t, we would all most definitely be stuck. Good luck and I trust that you will value both this research as well as the subsequent articles in this journal from more learned professionals than ourselves.

This article was originally published by IFR Asia.