Hong Kong and wealth management: A changing landscape
Bloomberg Professional Services
As Hong Kong seeks to reclaim its luster by shifting its focus toward China, an older generation gives way to digital natives with global ambitions. At a recent Women in Private Wealth event held by Bloomberg in Hong Kong, panelists discussed the city’s evolving role as the financial center and the role women play in reshaping the wealth management industry.
Hong Kong: The appeal of an evolving city
From the 3,000 financial business leaders who attended the Asian Financial Forum last January to the success of Art Basel and the Rugby Sevens, Hong Kong has recently demonstrated that it can still attract diverse crowds. However, lingering market jitters and investor caution temper this positive momentum.
Yet, Hong Kong’s core strengths remain undimmed. Proximity to China is an unparalleled advantage, especially since, as per Private Wealth Management Association (PWMA) surveys, over 90% of banks regard China as the No.1 growth market for private banks. With an estimated $1.9 trillion wealth transfer underway as China’s older generation entrepreneurs cede control to their children, Hong Kong’s role as a financial gateway becomes even more crucial.
While Hong Kong’s role as the financial center is often compared with Singapore’s, concerns over competition with its old rival are overblown. In today’s geopolitically fraught environment, diversification is key. Interestingly, many Chinese family offices that migrated to Singapore are now gravitating back to Hong Kong, particularly those still operating businesses in Mainland China. In such an environment, firms catering to high-net-worth individuals need a broad geographic reach to attract and retain clients.
Hong Kong’s allure is also underpinned by its robust foundations, comprising a deep financial ecosystem, top-tier infrastructure, a well-established legal system, low taxes, advanced healthcare facilities, and a reputable education system. In addition to boasting a sizeable population with investable assets exceeding HKD 10 million, the city’s vast array of financial products and its deep pool of service providers further support its position in global wealth management.
Challenges and opportunities: From the China factor to Gen Z
Amidst global efforts to bolster the wealth management sector, the future of Hong Kong wealth management firms hinges on China. This strategic advantage is best exploited via integration with the Greater Bay Area (GBA), an economic powerhouse of eleven major cities with a population in excess of 80 million.
Hong Kong’s many “Connect” programs – Wealth Management, Bond, Stock and Swap – and a wide array of financial products solidify its role in facilitating cross-border wealth management. With Mainland China’s onshore market accounting for more than 80% of the country’s total financial assets, however, the China opportunity remains compelling, especially as other potentially attractive regions like the Middle East require staff well-versed in the nuances of the region’s practices and culture.
Still, challenges remain. Geopolitical uncertainty fuels investor preference for diversification, while high interest rates and widespread risk aversion see clients favoring deposits over more dynamic investments. Meanwhile, family offices struggle with talent acquisition, as the skill set differs from traditional banking or private equity, though universities are beginning to address this gap by introducing specialized wealth management programs tailored to the unique demands of family offices. The rising asset requirements for establishing a single-family office, typically exceeding US$500 million, have spurred a growing demand for multi-family offices. These firms, which serve the needs of multiple families, remain largely unmet or underserved.
Meanwhile, the rise of Gen Z presents a double-edged sword for the industry. Shunning traditional products, this demographic insists on integrating ESG considerations in their decision-making and is on the lookout for alternative investments like digital products, private equity, and private credit. They also demand digital solutions and are keen to distance themselves from “mom’s banker.” This makes it necessary for firms to develop multi-generational relationships and train Gen Z-savvy relationship managers.
Technology: An enabler, not a replacement
Technology is disrupting the wealth management industry, with firms embracing AI-driven innovations throughout their operations.
On the front office side, AI empowers relationship managers to optimize client service delivery by meticulously analyzing data to discern individual styles, preferences, and biases, allowing for the development of tools like personalized dashboards and electronic execution forms. By advising on markets, introducing digital investments beyond volatile cryptocurrencies, developing ESG scoring systems and robot-advisor solutions, putting safeguards in place, and providing attractive lending solutions, relationship managers can successfully cater to the needs of this emerging generation of investors.
Meanwhile, on the operational side, AI can substantially accelerate and simplify execution while also allowing banks to automatically identify order size and perform execution at the lowest possible costs for clients. As a result, relationship managers can deliver a seamless journey for their clients, fostering deeper engagement and satisfaction.
Notably, according to a survey taken during the event, 60% of respondents indicated that they wanted advanced management tools to automate trade execution so they can provide better client services.
However, with the emergence of AI-powered solutions, it’s imperative to address the persistent skepticism surrounding AI and prioritize trust-building measures. Technology still falls short of replicating the indispensable human qualities of empathy and creativity, which are particularly crucial in wealth management. Considerations such as accountability, support and privacy also remain paramount to helping clients navigate an increasingly complex investment landscape.
Women: Shaping the future of wealth management
Over the past three decades, the wealth management landscape has undergone a significant transformation, spurred by both its rapid expansion and the increasing prominence of women across all facets of the industry, from the back office to the executive suite.
The growing significance of technology and the emergence of Generation Z are poised to fortify their influence further. As younger generations increasingly reject traditional gender norms, technology emerges as a pivotal enabler of multitasking. By facilitating long-distance communications, reducing travel expectations, and accommodating flexible work arrangements, technology also affords women greater flexibility in balancing familial responsibilities with professional aspirations.
Meanwhile, the industry is witnessing a notable influx of women. Initiatives aimed at achieving pay equity and enhancing female representation on boards are also gaining traction, underscoring a broader commitment to fostering diversity, inclusion, and equity within the wealth management sector. This influx of women is also changing the working practices of many companies, as firms look at everything from longer maternity leaves and daycare support to more flexible working hours and enhanced mentorship opportunities to attract and retain the best talent.
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