Asian clients tend to take bigger risks with their money than their European counterparts and they prefer to keep the reigns in their hands. Having been hit by the Chinese market upheaval, the tide is turning: Private banks see their mandates soaring.
Swiss private bankers love the stories about Asian clients and their penchant for risk taking: The Asian customer expects his advisor to present him with investment proposals promising above-average rates of return and tends to accept these proposals merrily. Often, the proposals include leverage products individually designed for the client
To explain this attitude with a gambling nature of Asian customers would be overly simplistic. It is at least as much the product of an economic boom with growth rates at companies frequently reaching 20 percent and more. The lionshare of Asian customers at private banks are business people, who've taken risks and built their fortune.
Paying the Price
And they expect the same margins as they deliver with their companies from their bank managers. Which in turn is only possible with a certain degree of risk.
Some clients are now paying the price for their risk taking, making them to rethink their strategy. Until a few years ago, asset management mandates were hard to get, while today private banks are attracting more and more customers with this product.
Increase of 200 Percent
The recent troubles in Asian markets have further fuelled this trend: Asian clients more than ever leave their asset managers a free reign, an asset management mandate at their discretion.
Credit Suisse has seen the number of management mandates increase by 200 percent in the Asia-Pacific region in first half of 2015, Tan Wei-mei (picture), head of portfolio solutions in the region told the «South China Morning Post».
«As equity markets became more volatile this year, we have seen more high-net-worth clients opting for mandate solutions,» Wei-mei said. The markets were more challeging for individual clients, who changed their wealth allocation accordingly. CS anticipated this change and substantially expanded the portfolio solutions team in the past year.
More Lucrative Mandates
The mandates are more lucrative, because clients have to pay more and because they allow a more efficient management of the portfolios. Increasingly, private banks offer their clients an «all-in-fee»: A one-time annual fee, which covers the costs of the portfolio management, with no more extra charges for transactions.
On average, the number of asset management mandates at private banks is smaller than the number of «normal» mandates, whereby advisors discuss each investment decision with the client.
The mandates giving free reign to the portfolio manager may be about a quarter in Switzerland and in Europe in general, while the average in the U.S. probably stands at about 45 percent.
Number of Mandates Below Average
In Asia, the share until very recently was below five percent, according to a study by BNY Mellon. Swiss private banks long ago tried to convince their customers to choose a free-reign mandate.
Julius Bär has been able to increase its share to well over the 10 percent mark. Five years ago, the share was 10 percent.
Gold Course Call
The change of trend has demographic reasons too, CS manager Wei-mei said: «We also see more clients who have retired and want to spend more time on the golf course rather than trading in the financial markets.»
The banker will naturally discuss the investment strategy with the client. Before, Asian customers chose primarily portfolios with a high share of stocks, where potential rates of return are higher, today, they opt for more balanced allocations.
