Singapore's wealth management business dominates Asian competition

It’s favoured for its stability, but Hong Kong could beat it soon due to the growth of Chinese wealth in the area.

Singapore’s wealth management competitiveness continued to trail behind Switzerland for another year in Deloitte’s rankings of wealth management centres. It also continued to beat Hong Kong.

For many years, Singapore has been Asia’s “most mature and respected” wealth management centre, benefiting from international clients (representing about 80 % of assets under management and administration, or AMA) who value its stable environment.

According to a report, Singapore and Hong Kong both rank well for competitiveness but have slight weaknesses in ’provider capability’ and also, in the case of Hong Kong, in ’stability’. The lion city has high scores in tax and regulation (23.9) and stability (20.5) and also not-so-high ones for provider capability (23.3) and business environment (6.8).

“Singapore’s regulatory regime (one of the world’s most prudent) causes a high level of stability which, in turn, supports growth; measures by the authorities to ease ways of doing business, together with low tax rates, additionally attract clients,” Deloitte said.

The amount of net new assets in Singapore grew 2% to US$9b, indicating an improved performance from the 8% reduction to $-39b.

Moreover, the Singapore wealth management clientele is – in comparison to other Asian locations – particularly international: The centre attracts significant funds from Europe and North America (17 % and 19 %, respectively, of total AMA) and is a prime location for clients throughout the Asia-Pacific region.

Covering such diverse markets, however, requires major efforts from both compliance and offering perspectives, and the centre’s average cost margin is the third-highest (66bps in 2017E). Meanwhile, cost margins have increased at a CAGR of only 0.3 % in recent years, which exemplifies Singapore’s maturity with regard to infrastructure and regulation.

“Some reasons for the high costs are: heavy investment by banks in the capabilities to serve clients digitally, and typical drawbacks of a mature sovereign microstate such as high prices and limited pools for talent and real estate,” Deloitte said.

On the revenue side, Singaporean banks have achieved the second-highest margin among the wealth centres (92bps in 2017E, with CAGR of 1.5 % in the revenue margin 2013–2017E). A noteworthy driver is the comparatively good capitalisation of the local banks – their capital provides room for investment and, therewith, growth.

Singapore has managed to capitalise on its yet unmatched reputation – in Asia – as a stable wealth management hub, enabling the centre to expand following the strong local (U) high net worth individual (HNI) wealth growth (14 % in APAC, compared to 1% in the rest of the world). Clients have become acquainted with private bank offerings and now demand more sophisticated, higher-margin services (illustrated by a growth of 9% in discretionary mandate volume in 2016), and they are willing to pay a price premium for the capabilities that Singapore offers.

However, the report has revealed that Hong Kong has grown much faster than Singapore. In 2016, Hong Kong became the fourth largest international wealth management centre with a market share of 9%, overtaking Panama and the Caribbean.

“Hong Kong seems to have benefitted more than its neighbouring competitor Singapore from the increase in the number of millionaires in the region (including mainland China),” Deloitte said.

It added that Hong Kong benefits from the growth in Chinese private wealth and the changing behaviour of Chinese HNWIs. “Younger HNWIs increasingly seek professional advice and the share of Chinese HNWIs investing outside the mainland has risen from 19% in 2011 to 56% in 2016. Hong Kong rates highly as the preferred destination due to its proximity to mainland China and the absence of taxes on capital gains, interest deposits and dividends,” the report said.