Shaping the wealth
DBS is ready for more wealth management challenges in Asia as families prepare to pass assets to a new generation.
These are exciting times for Asia’s wealth market. The global economic centre of gravity has shifted to the region, which has now become the wealth creation centre of the world. A report issued in June by Boston Consulting Group (BCG) projected that wealth in Asia excluding Japan would expand by 9.4% from 2018 to 2023.
Another growing trend is intergenerational wealth transfers in Asia, where some US$2.7 trillion is expected to change hands within the next 10 to 20 years, according to Singapore-based DBS Bank.
“With much of Asia’s wealth still held by family patriarchs and founders, we’re seeing growing concerns around how to leave a meaningful legacy to one’s heirs,” Sim S Lim, group head of wealth management and consumer banking at DBS, told Asia Focus.
Many first-generation high-networth individuals (HNWIs) are now looking to formalise or set up family offices to better manage assets and handle the impending transfer, sparking a rise in the number of family offices in the region in recent years, he added.
“We’re also seeing growing interest in sustainability and ESG (environmental, social and corporate governance) investments, especially among next-generation wealth clients,” said Mr Lim. “Millennial investors view wealth differently from their elders and are increasingly keen on investments that create both financial returns and positive societal impacts.”
By way of example, he says, much of the wealth market in Thailand is held in family businesses, which account for 66% of companies listed on the Stock Exchange of Thailand. Increasingly, these families are seeking a trustworthy “one-stop provider” that understands their personal and corporate investment needs and can provide access to holistic opportunities beyond what’s available in Thailand.
The Bank of Thailand, meanwhile, has adopted a more encouraging regulatory stance and now makes it easier for Thai investors to invest abroad, Mr Lim noted.
“Thai wealth investors are relatively conservative with offshore investments, but this is beginning to change,” he said. “As they get richer, they’re becoming more sophisticated and receptive to investment ideas, and are seeking holistic wealth management services and global investment strategies.”
According to the French consulting firm Capgemini, Thailand had over 122,000 HNWIs as of 2017. That is almost equal to the number in Singapore. Thai wealth assets under management (AUM) grew at a robust compound annual rate of 12.7% between 2010 and 2017. DBS defines the HNWI market as people with at least S$1.5 million ($1.1 million) in investible assets.
“We’re bullish on Thailand, where we see great potential in the higher spectrum of the wealth segment,” said Mr Lim. To serve this segment, DBS recently announced its commitment to serve Thai clients via DBS Private Bank in Singapore. Along with DBS Vickers Thailand, a 100% owned local subsidiary, the group is now offering the full breadth of its services to Thai customers.
“Beyond our home market Singapore, where we continue to see room to grow, we’re also seeing opportunities in other parts of the region,” said Mr Lim. “Last year, we rolled out Treasures Private Clients offices in Indonesia and Taiwan to cater to the emerging wealth in these markets. We also see opportunities in the Middle East and London as interest in Asia continues to grow.”
With a presence in 18 markets, DBS’s wealth management business has grown five-fold over the past decade, and continues to perform well despite today’s challenging environment. In the first half of this year, wealth management income made up around 21% of DBS Group income (compared with 13% in fiscal 2015), and wealth assets under management reached a new high of S$234 billion.
The wealth management business comprises three client segments, which the firm collectively refers to as the “DBS Wealth Continuum”: DBS Treasures (minimum threshold of S$350,000), DBS Treasures Private Client (minimum of S$1.5 million) and DBS Private Bank (minimum of S$5 million).
DBS, with over 27,000 staff representing over 40 nationalities, was born and bred in Asia and has a presence in the three key Asian axes of growth: Greater China, Southeast Asia and South Asia. Its “AA-” and “Aa1” credit ratings are among the highest in the world.
“We are the first in the market to provide a ‘one-stop’ wealth management proposition for Thailand’s investors to conveniently access and manage their onshore and offshore investments in one place,” said Mr Lim. “This is in contrast to existing market practices, which require investors to go through separate entities for their investment needs — one for onshore and another for offshore.
“Wealth clients in Asia are largely business families, which generally prefer working with a bank that provides solutions for both their personal wealth and business needs. To this end, our ‘One Bank’ proposition — bringing the whole bank to bear for our clients across wealth management, retail, investment and corporate banking — remains key.”
With a clear strategy, Mr Lim said DBS expects to increase its wealth AUM to S$300 billion by 2023, from S$234 billion in mid-2019, with a compound annual growth rate (CAGR) of 7%.
ON TOP OF TRENDS
Asked about investment trends in Asia, Mr Lim sees a growing trend of wealthy Asians investing in “lifestyle” assets such as artworks, cars, yachts, watches and wines. “However, these aren’t viewed as real alternatives to traditional investments such as stocks or bonds and are mainly done as a hobby or passion, in hopes that they could be potentially lucrative.”
Wealthy people in Asia are also becoming more conscious about sustainability. This sentiment is driving greater involvement in areas such as ESG investments and venture philanthropy, and is also shaping the sectors in which they’re investing.
“As for core holdings, we believe cash levels are still high among Asian HNWIs,” he said. “In this new normal of ultra-low interest rates where cash is due to depreciate and lose its value in due course, it may be more prudent to diversify into other higher income-generating assets.”
He points out that age also has implications on an individual’s needs. “Taking multi-generational families as an example, each generation is in a different stage of life and would have varying needs across wealth creation, wealth growth and wealth preservation.”
As the world is becoming more volatile, emotions can come into play when markets are jittery, and investors may be tempted to cut positions even though there may be value in staying the course. However, investors need to recognise that volatility should not stop one from continuing to save and staying invested.
“We believe having a well-structured portfolio and a long-term view enables resilience even in times of uncertainty,” said Mr Lim. “The ‘barbell’ strategy, as devised by our chief investment officer, seeks to help investors through such times and maximise risk-return by constructing portfolios that are heavily weighted at both ends of the risk spectrum — with stable income-generating assets on one end, and secular growth themes such as ageing populations and millennials at the other.”
Looking at banking industry trends overall, he says the growing middle class, urbanisation and the rise of technology have played key roles in shaping consumers’ behavioural habits, which in turn affect the banking industry.
“Banking is a fast-changing industry, and especially so with the advent of technological advancements. In this age of digitisation, traditional sectors are facing unprecedented disruption,” he said.
“Even within the same industry, the difference between companies that are fast or slow to adapt will become especially stark. It is imperative for companies to be future-ready and adapt to the new world order to stay relevant.
“Today’s consumers increasingly expect convenience in their daily lives — especially the millennials, who grew up in the digital age and expect banks to engage them on the platforms they’re already on.”
To this end, DBS has consistently invested in digital transformation to improve efficiency and employee productivity, create more seamless customer experiences, and ultimately add value to customers’ lives.
“We’re seeing our efforts pay off,” he said. For instance, DBS iWealth, the integrated wealth management platform, was ranked first globally for wealth apps by Cutter Research.
“We continually refine our digital proposition and look to big tech companies such as Google, Amazon and LinkedIn, not the banks, to further inspire our technology infrastructure, architecture and teams,” said Mr Lim.
“We also continue to ready ourselves for pertinent themes of the future such as sustainability, which is a topmost priority for the bank.
“Beyond strengthening our ESG suite and educating clients on this front, we’ve also been identifying other opportunities through which clients can do good, such as through closer engagement such as mentorship and funding, with social enterprises.”
Millennial investors view wealth differently from their elders and are increasingly keen on investments that create both financial returns and positive societal impacts
SIM S LIM
Group head of Wealth Management and Consumer Banking, DBS