Last year's stock market rally may have prompted some banks to revert to sales-driven approaches but a need to manage conflicts of interest and be open on fees remain important for the long term, the founder of an independent wealth shop in Singapore says.

External asset managers have risen to become an established part of the Asian financial ecosphere, and those firms which genuinely strip out conflicts of interest and product-push habits seen in some banks will flourish, a practitioner, who claims some banks are reverting to old ways, says.

As this publication has noted in research reports, EAMs have risen relatively recently in parts of Asia, and one player in the space Crossinvest, is unafraid to make a noise about its business and the wider issues affecting wealth management. Crossinvest has been operating in Switzerland since 1985 and in Asia since 2005. (The firm doesn’t disclose assets under management.)

But while EAMs can avoid some of the pressures that have led people to become disenchanted with some banking services, they are not yet seen to be an established mainstream proposition, Rohit Bhuta, chief executive, told this publication. Not all non-bank players are as independent as they might appear, as it can be relatively appealing in the short term to continue similar patterns of behaviour as the banks; but pressure is growing from clients - and coming from regulators - for greater disclosure of fees and costs, which would act as the catalyst for change Bhuta said. 

“Independent companies that are completely transparent and have removed all conflict areas, will be the ultimate beneficiaries,” he said. Bhuta has even gone to the lengths of creating a snazzy graphics presentation highlighting how, in reality, clients pay for financial services and how the different industry actors take their cut.

Hong Kong’s Securities and Futures Commission and the Monetary Authority of Singapore are both reported to be looking at ways to force firms to disclose more about fees. Wealth managers in the two centres generally don’t disclose the overall revenues they make from recommending funds or structured products to clients. Such moves have their echo in steps taken in the UK, for example, to push advisors to disclose fees under its Retail Distribution Review reform, enacted in 2013. In the US, the Department of Labor Fiduciary Rule, taking effect in phases, is seen as a force pushing the industry away from trial commissions towards fee-based advice.

The rise of EAMs is part of a broader maturation of the Asia-Pacific wealth management market, partly driven by forces such as inter-generational wealth transfer – and more of a focus on protecting wealth – and technology and rising sophistication of clients. There is also the trend of family offices taking root in Asia, and as reported here recently, competing with banks for talent.

(The publisher of this news service is holding a series of events around the role of financial intermediaries in Asia, touching on the kind of issues referred to in this report. To register and find out more, see here.)

Older bad habits returning?
“There was a window in 2016 when it seemed likely that the banks may look to changing the model on the back of challenging market conditions,” Bhuta said. Bhuta argues that gains in equity markets in recent years - 2017’s strong run being a case in point – have enabled banks to go back to their older habits of pumping out structured products, types of funds and other services that might not actually suit the client and cost fees that aren’t justified.

“Banks keep doing what they are doing but they expect a different result. They continue to focus on revenue generation, transactions and trading ideas,” he said. 

“In a rising market, the environment presents an opportunity for banks to continue this transactional model. And they’re not likely to change any time soon, at least not until the next time we are faced with challenging market conditions,” he said. 

While he sees this as a significant opportunity for EAM’s to establish themselves as significant private wealth management players,  he sees EAMs as complementary to banks, not a threat. “What we are doing is focusing in the medium to long-term on capital preservation and its growth, while the banks continue to focus on short term market opportunities,” he said. 

While there is continued growth potential in the EAM space, he said, there is a shortage of talented professionals for his kind of business.

There is plenty of activity in the EAM space. Last December, for example, Singapore-headquartered fintech investment platform Fundnel has partnered with investment advisory and wealth management group Thirdrock to help mid-stage, high-growth companies (typically Series B onwards) obtain funding more efficiently and quickly.

However, how banks deal with EAMs is not all in same direction. Last year, Deutsche Bank Wealth Management said it was closing its desk servicing external asset managers in Asia. As part of the change, the Frankfurt-listed bank offers the EAM service through relationship managers across the region. On the other hand, some firms, such as UBS, are working with EAMs and seeking ways to engage with these organisations in Asia.

Business lines
Crossinvest has three broad business lines: discretionary & advisory portfolio management services; a private access platform that gives clients access to unlisted, private assets; co-investment with family offices and certain other institutions. Crossinvest is also looking at developments in technology and business offerings around disruption, Bhuta said. 

As reported here late last May, Crossinvest (Asia) built out an offering giving clients access to investment in private assets. The firm has partnered with Australia’s Revolver Capital to bring this proposition to Asia. The Crossinvest Private Access offering sources the private assets through the world’s major innovation centres: US, Israel, UK, Australia and Singapore. These assets are assessed by the Crossinvest team against various internal filters such as relative growth stages, sector, geography, founder team and type of lead investors, competition and disruption elements, risks and underlying correlation within the existing investments. It has until recently been difficult for individuals and family offices to get access to firms before they float on the stock market. For years, the only route was to invest in private equity funds offered through banks or other channels, and often coming with high fees. 

Asked about the co-investing approach, Bhuta said an advantage of this approach is that Crossinvest doesn’t need to be a lead investor, cutting out the need for expensive due diligence on investments, although some necessary checks remain. This means costs of investing can be contained, he said.

The firm does have a “macro” approach to investing – looking at wider economic/political trends – coupled with an asset allocation position for its clients stemming from their specific risk tolerances and the investment choices it makes.  

Crossinvest’s Bhuta said his firm continues to “entrench itself as one of the leading EAM’s in Asia”. “It has issued a challenge to an industry struggling to re-establish the high standing reputation usually reserved for private wealth participants by offering a conflict free, transparent and comprehensive private wealth proposition,” he added.