Wealth-management trends in Southeast Asia
Few places in the world are as important to global wealth management as ASEAN. The ASEAN region pulls its weight in the global economy and several developments have caught the attention of financial institutions and fintech innovators. This includes the fact that:
- The ASEAN region has one of the strongest economic growth rates in the world
- ASEAN is home to a large pool of sophisticated high-net-worth and mass-affluent investors
- ASEAN offers responsive regulatory regimes
- ASEAN offers a growing number of global and sectoral cross-linkages.
Based on current growth forecasts, ASEAN’s combined GDP could make it the fourth-largest economy by 2030, behind the US, China, and Japan. As of 2019, it was already the sixth-largest economy in the world, with a GDP of about USD3 trillion1.
But perhaps what’s most important in the wealth management sector, is that according to Knight Frank’s research in 2020, the number of ultra-high-net-worth individuals (UHNWI)2 in Asia will grow at the fastest clip in the world – 44% compared to 27% globally.
At this rate, ASEAN is expected to overtake Europe as home to the world’s second-largest population of UHNWI, behind the US.
Alongside the growth of HNWI’s, the mass-affluent population is growing.
A 2018 report by the Boston Consulting Group3 estimated that the mass-affluent populace in ASEAN numbered 57 million, or 10% of its total population.
By the consultant’s estimates, this demographic could more than double to 136 million by 2030, making up 21% of the population. Over the next decade, the 75 million of additional consumers of digital wealth management products will have powerful ramifications for the sector.
What’s more, over 40% of the high-net-worth families in this part of the world are actively planning to hand over their businesses and wealth to the next generation4.
This will further propel a young generation of digital natives to the forefront of wealth-management consumption.
Further evidence of this can be seen across most Southeast Asian governments who have created schemes to support innovation in their wealth-management sectors.
- Sandbox schemes for fintech development
- The licensing of neobanks and virtual banks
- A growing focus on cybersecurity, and,
- Deregulation of cross-border transactions.
Here’s 7 ways that the industry is changing:
- The ecosystem is growing
- Partnership models are changing
- Digital transactions are increasing
- There’s easier access to offshore products
- Democratisation continues
- Investors demand fast and easy onboarding
- Access to market insights and performance tracking is key
1. The ecosystem is growing
Wealth management was once the monopoly of a select group of institutions that tapped their deep personal relationships with the UHNWs. However, as technology enhanced scalability, upper-middle-class, and mass-affluent clients became an attractive target. Digitalisation has drastically reduced the cost of acquiring and servicing customers in these segments, allowing providers to serve increasing volumes of clients.
As a result, wealth management today has a rich array of participants, from well-entrenched local banks, global banks to newer fintech and wealth-tech innovators, and even cross-industry players. New entrants to the market include neobanks, telecommunications companies, and technology juggernauts.
The numbers further demonstrate the rising importance of wealth tech in Asia’s financial-service universe.
In 2019, 57 fintech firms started up in Hong Kong. About 20% of these were in the wealth-tech space, the second-highest category of new launches, behind blockchain.
Wealth tech is also the second-largest fintech segment, contributing 22% to fintech start-ups5. Wealth management and capital markets was the largest single category to receive funding by number of deals in 2019. This is a significant finding, as Singapore accounts for 40% of all fintech ventures in the ASEAN region6.
2. Partnership models are changing
The advent of new technological capabilities has shifted the scales from competition, to collaboration as many fintech startups have zoomed in on the B2B space and offered their innovative tech solutions to the larger banks. For most, the objective of this multi-pronged approach is to address gaps unfulfilled by traditional financial institutions and help create a more comprehensive banking, transaction, lifestyle, and investment platform that can benefit the entire ecosystem.
How exactly these partnerships work differ across financial institutions. There’s no one-size-fits all as the interest from banks and traditional financial services varies based on their current assets and capabilities as well as digital transformation needs. Regardless of which partnership approach is taken, it’s been seen that traditional financial organisations have an opportunity to forge a new future by partnering with fintech companies.
3. Digital transactions are increasing
The widespread pandemic has totally transformed how customers interact with digital services.
Confirming this, 81% of the CEOs in the financial-service sector surveyed by KPMG for its 2020 CEO ,believed that the pandemic had permanently hastened the digitalisation of operations. About 76% of these CEOs also believed that the pandemic has led to the advent of entirely new digital-first business models7. Many of the changes are expected to become more entrenched even after social-distancing norms recede.
“In the aftermath of the pandemic, Southeast Asian consumers will seek to leverage digital solutions for wealth management. Providers must adapt quickly by rethinking distribution, moving into wellbeing and embedding purpose at the heart of transformation.”
EY, April 2020, Three Key Issues Wealth Managers Must Address Post COVID-19
4. There’s easier access to global products
Amid heightened risk in the post covid era, investors who are seeking excess returns must focus on diversifying their portfolios to include geographies that have asynchronous market cycles. This is possible in today’s environment where the flow and availability of information is abundant, and a new class of digitally savvy investors emerges. The widespread availability of globally diversified products will be a key differentiator for wealth management participants.
In terms of performance, the MSCI Emerging Markets Index returned an annualised 9.72% in the six months ended 30 June 2021, compared to 6.5% for the MSCI World Index8. The International Monetary Fund (IMF) in April 2021 also released its forecast for emerging markets which predicts economic growth of 6.7%. This forecast is led by Asian emerging markets at 8.6%. Given the strong growth potential and performance, exposure to these such economies iscan be considered vital for a well-constructed portfolio.
5. Democratisation continues
Another area that is increasingly attractive to digital investors is the growing universe of private debt. From an AUM of US$575 billion at the end of 2016, private debt ended 2020 with an AUM of $848 billion. Further, Preqin predicts that private debt AUM will increase 11.4% annually, to $1.46 trillion at the end of 20259.
Interestingly, retail investors only account for 5% of private credit AUM, and HNW investors another 16%.10 However, with the rise of digitalisation that brings a measure of liquidity, flexibility and transparency, it is expected these numbers will grow.
As investors look towards wealth tech to offer much more than listed securities, they seek flexible solutions that bring ease of access. Multi-asset class fintech platforms allow investors to diversify their portfolios by using technology to enable fractionalisation and tokenization. By bringing together technology, on the ground knowledge, and deal flow, a gamut of asset classes can be made available to a growing pool of investors.
6. Investors demand fast and easy onboarding
Investors have come to expect nothing less than fast and easy onboarding using digital account opening. While this is native to the new digital platforms and virtual banks, traditional banks and wealth managers are also catching up. The use of artificial intelligence (AI) has been a game-changer for wealth tech, by speeding up account opening and enhancing account security.
7. Access to market insights and performance tracking is key
Once on board, digital customers expect to be given easy and uninterrupted access to market insights and portfolio tracking. Questionnaires, screening tools, and smart AI bots can gather client information on risk appetites, investment goals and preferences, and provide appropriate portfolio recommendations.
Investors are also seeking statistics on their investment exposure and portfolio performances on personalised dashboards. The most customer-centric platforms bring quality visualisation tools to clients using real-time data processing. Access to such live information gives investors the advantage of agility in their decisions as well as time and cost savings.
The bottom line – partnerships are critical
A growing number and variety of participants are snowballing innovation and cooperation in the wealth management sector. Investors are benefiting from this via broader access to investments, convenience, and security. This is a win-win proposition for the sector, as it lowers costs and introduces scalable products and well-conceived platforms.
These developments are rapidly blurring the lines between technology and financial-service companies. A new hybrid model is emerging that leverages their combined expertise to create a new paradigm for customer experience.
The model that appears to supercharge the ecosystem is one where technology and personal interaction work in balance to offer clients an omnichannel experience and bespoke guidance.
At LU Global we believe this balance is best achieved through partnerships between fintech, wealth advisories, banks and financial-service incumbents. To discuss partnership opportunities with LU Global, reach out to <email>.
- ASEAN, 2019/20, Investing in ASEAN
- Defined by Knight Frank as individuals with over USD30 million in assets. Knight Frank, 2020, The Wealth Report
- Boston Consulting Group, 2018, Beyond the Crazy Rich
- Finews Asia, 11 March 2020, Wealthy Asians Post All-Time High Demand for Succession Planning
- Oliver Wyman, Singapore Fintech Landscape, 2020 and Beyond
- SGX, 2020, Singapore’s Fast Growing Fintech Sector
- KPMG, 2020, Digital Wealth Management in Asia Pacific
- MSCI, 2021, Emerging Markets Index
- Preqin, 2020, Global Private Debt Report
- Citywire, 2020, Demand for private debt funds soars