Wealth and asset managers in Asia ex-Japan face the challenging task of managing the expectations of retail investors who are prone to poor investment habits, yet look for high returns on their investment portfolios. These findings and more are from a new report by global research and consulting firm Cerulli Associates, Asian Wealth Management 2016: Tailor-Made for the Wealthy.
According to the report, common investment habits among investors in the region include timing the markets or focusing on the short term, having a late start to investing, and lacking in portfolio diversification.
In Cerulli’s proprietary survey of a total of 1,800 investors in six countries in Asia ex-Japan–China, India, South Korea, Taiwan, Hong Kong and Singapore–more than 50% of respondents cited timing markets as their most common practice. While this practice is observed across the region, it is especially evident among Chinese and Indian investors. In terms of wealth tiers, this is more prevalent among high-net-worth investors.
One positive takeaway from Cerulli’s survey is that retail investors in the region intend to diversify their portfolios in coming months. However, the real dilemma for wealth managers is that they aspire for high returns with low-risk products amid volatile global markets.
A majority of respondents in Cerulli’s survey (barring those in Korea and Singapore) said they are looking for returns that are 5% higher than their respective country’s one-year deposit rates. In Singapore and Korea, a majority of investors’ desired returns are 3% higher than the one-year savings deposit rate in their country.
Yet, these investors have turned conservative and have significant allocation to cash and deposits in their investment portfolios. As such, wealth managers will need to convince these investors to look at other investment products to enhance portfolio returns over the longer term, given the low-yield environment.
As for wealth managers, they are striving to increase the risk profiles of investors by advising them to invest in liquid alternatives. However, Cerulli’s survey shows the percentage of retail investors who are willing to invest in alternatives, including the liquid versions, is low even in markets such as Singapore, Hong Kong, and Taiwan.
Further, new product launches have been mostly plain-vanilla funds across the region, while new product ideas have been limited except in Korea, which has seen the launch of robotics, water and clean-energy thematic funds, as well as a mutual fund sub-advised by a robo-advisor.
Meanwhile, product differentiation is one of the strategies private banks in Asia are adopting to stand out among the competition.
“Compared to improving on client service through the training of relationship managers or digitalization, which is often difficult to implement and measure, providing exclusive access to investment solutions is a more direct way of capturing and retaining investor loyalty,” said Shu Mei Chua, an associate director at Cerulli, who led the report.
Another finding from the report is that affluent Asians are gradually warming up to discretionary portfolio management (DPM) services, and this potentially offers opportunities for asset managers as well as wealth managers. “DPM is gaining traction as it has become increasingly difficult for clients to make their own decisions amid the volatile market conditions, leading them to seek professional services,” said Leena Dagade, senior analyst at Cerulli.