From our experts: Why APAC investors still hold cash, and what’s next?

As APAC wealth grows, investor expectations are shifting

[HONGBIN JONG]
APAC’s wealth market is expanding rapidly but what are the biggest shifts you’re seeing and how investors across the regions are engaging with wealth management today?

[JAMES VERNER]
I think that’s a great question to start the conversation. I think the biggest thing we’ve seen over the last couple of years is a heightened degree or expectation by end investors for personalized experience, personalized recommendations, personalized content, really getting onto their iPad, or tablet, or whatever devices they are using in real time and so you got heightened expectations, at the same time there are more choices being available in terms of investment solutions, so bringing that together there’s complexity for the bank or the wealth manager to offer, but at the same time more demand and expectations from the end investors.

[HONGBIN JONG]
But when you say personalize right, What kind of personalization are they looking for? Are there any similar characteristics amongst these affluent clients or are they really differing?

[JAMES VERNER]
When it comes down to it, a lot of it is around individual goals, so ultimately some of the underlying investment recommendations may be quite similar but the journey to get there how they engage with the platform all that is typically a digital or hybrid experience, will differ according to perhaps age, interest, levels of wealth which parts of Asia we’re talking about and how much hand holding, or otherwise the client may want to get from their relationship manager or some form of banking relationship.

[HONGBIN JONG]
Interesting. Well, we know the affluent segment in APAC remains deeply underserved, but what’s holding back broader wealth management penetration even with such a strong growth potential?

[JAMES VERNER]
There’s two parts to this answer. Part of it is the scalability of the wealth managers themselves, there’s a lot of investment now going into technology, processes, or technology and processes to be operated at that scale level, so I think that’s holding it back a little bit as that investment really comes through and the benefit of that investment has seen, but by the banks and wealth managers across the region. And then connected to that there’s a level of confidence that still needs to be built with the end investors, that they are making the right decisions so they go hand-in-hand: the scalability is going to help educate and tell the story, the storytelling to the end investor is important to build that confidence to then start seeing more of that that segment to begin feel more comfortable making those investment commitments.

[HONGBIN JONG]
Okay but overall, how do APAC markets differ in their wealth tech adoption journey?

[JAMES VERNER]
So wealth is clearly a local - a very much a local topic. I think a broad-brush definition for APAC is sort of a risky approach. If we look at markets such as Singapore – there’s a huge amount of flow into Singapore which is being supported by the large banks private banks wealth managers, and there’s a shift towards from product delivery to more of a portfolio conversation. Whereas say for example in Australia there’s a hugely successful and valuable private retirement system, so the market is really constructed their around providing valuable advice to people approaching and in retirement. And in Japan, for a country well known for its high cash deposits, but with ageing population and inflation begin making an appearance in that local economy, that has meant a shift over the last 18-24 months, a slow shift, but people beginning to put more money to work to help them through the change of their society and so I wouldn’t say there’s one particular thing that characterizes wealth trend or drive in APAC you really have to look under the hood and look at each of those markets to understand what’s going on but I’d say the ultimate goal is the same - it’s to help people invest with confidence with a particular goal or objective in mind across to increasingly of a more portfolio-based approach.

[HONGBIN JONG]
But it’s very interesting to see how, you know, different countries have a different way of, you know, investing or growing their wealth but at the end of the day everyone wants to get richer right?

[JAMES VERNER]
That’s often the objective.

[HONGBIN JONG]
Well with 40-45% of assets still sitting in cash across APAC according to the McKinsey Wealth Tech report, what needs to change then, for more investors to move into real portfolio conversations?

[JAMES VERNER]
So I think coming back to the confidence point, I think it’s partly about providing tools to the bankers, the advisors, to the relationship managers, to explain a recommendation as to why this portfolio, or why this action makes sense. I think it’s equipping the banks and wealth managers with those tools to help with the client conversation. And once that begins to happen, what we see is typically more confidence in the investors, and more trust between the investors and the clients and the banks. And a lot of the data we can see in a market such as Asia where typically end clients can we 3 to 4 banking relationships. The primary bank, the primary relationship, tends to manage about 65% of someone’s assets so I think one part is about tools for the advisors to build confidence and trust which then leads to more activity.

[HONGBIN JONG]
Well then how do wealth managers respond to the rising cross-border flows into the region especially Singapore?

[JAMES VERNER]
I think that’s for us, our view, BlackRock & Aladdin Wealth is very much about positioning the RM in the bank as the primary bank and comes back to the point of it’s not just about a range of products it’s a deep understanding of the end investor having that diversified portfolio approach across both public and private markets so that they can meet the ever increasing demand and expectations of their end client.

[HONGBIN JONG]
Speaking of which it looks like investors in Asia today hold more complex portfolios than even 5 years ago so why has whole portfolio visibility become so essential for advisors?

[JAMES VERNER]
So, I think the keyword is transparency. If you’ve got the transparent view of what’s going on inside a portfolio, it comes back to the point of why you’re recommending to a client the course of action that’s being suggested. That explainability comes back to the other key point I mentioned moments ago which is trust. So if everyone is feeling like they’re working off the same information, there’s ability to compare, the ability to measure against benchmarks, to think about particular individual goals then the whole portfolio view is critical because often you’re not starting from a blank sheet of paper, you do need to understand what you have today, and then once you have that visibility across the whole portfolio, you can make more accurate and timely recommendations and that’s really I think is more choices become available choice often leads to complexity, and that complexity still requires that transparency.

[HONGBIN JONG]
At the same time, data across both private and public markets can be fragmented so what barriers does this create for advisors trying to give personalized advice.

[JAMES VERNER]
If you think about across the whole portfolio and the public markets, public market has data available for a very long time, the private market space has been a little more opaque, a little less transparent, and fragmented in terms of where the datasets sit, so it makes it very hard for an advisor to gather all that together in a simple easy fashion and then turn that into an accurate recommendation for the clients. So, one of the things we’ve done over the last couple of years is investing heavily in the private market space, underpinning that with data. 18 months ago, we acquired a business called Preqin which is one of the market-leading data providers in the private market space and integrating that with Aladdin Wealth Technology has made it easier now for relationship managers and bankers to bring it all together in a single view.

[HONGBIN JONG]
Client expectations today are shaped by consumers tech so how is that influencing what investors expect from their wealth advisors?

[JAMES VERNER]
I think it’s made it a lot harder. I think it’s made a lot harder for the banks because it’s almost as if the job’s never done. The digital experience gets better, more real time, and you bring in GenAI, there are other experiences that means the role of the wealth manager or bank is a bit of an arms race as to how to deliver them to keep them happy and not get distracted by perhaps another bank’s new offering.

[HONGBIN JONG]
We hear a lot about advisor capacity crisis, what’s driving this pressure and how does this affect the banks ability to compete for share of wallet?

[JAMES VERNER]
Most banks in Asia have set very ambitious targets to grow their AUM over the next 3-5 years and historically one of the way to doing this is to hire more and more RMs but of course there’s a finite amount of people you can hire to do this role. And one of the challenge is if you look at much of the market research will tell you that advisors are typically spending half of their time preparing for client meetings, so it’s a very labor intensive process and so if you’ve got finite number of advisors that you can hire, then ultimately the technology needs to take the strain put more efficiency into the business. If we can start cutting down time to prepare for meetings, start cutting down time to prepare proposals if you like, for the end client, that’s going to increase the capacity so there’s a capacity crunch I don’t think the answer in the long term is keep hiring more and more people I do think the answer ultimately is leveraging technology like Aladdin Wealth to basically put more scale into your organization.

[HONGBIN JONG]
At the end of the day, it’s helping advisor to move from transactional conversations to whole portfolio discussions especially in Southeast Asia region, but what needs to happen operationally to make that shift to stick?

[JAMES VERNER]
Fundamentally it’s about putting in processes and infrastructure that can take large amounts of data, so portfolio data, investment data, market data and client data and bring that altogether in a way that systematically can create conversations, recommendations and proposals at the touch of the fingertip or a button so that advisors take 3 mins to prepare for a client meeting not 3 hours. Spreadsheet will only get you so far, right and word written proposals can only get you so far, this has to be about scalable automated technology unifying data, portfolio insights and market data bring it all into one place.

[HONGBIN JONG]
You talk about GenAI earlier in your conversations, in your view what’s the most meaningful way GenAI can change the day-to-day experience of a wealth advisor?

[JAMES VERNER]
So I think, there are two main things GenAI can do for fundamentally changing the way advisors work. One is cutting down significantly amounts of time to prepare for client meetings, so you actually spending more time in front of the clients and not in the office so to speak, and the other one is providing insights and recommendations that are laser focused on that individual. And I think if you bring those 2 things together, so more time in front of the client, with more insightful personalized recommendations, that will fundamentally change the way the advisor works, the way that they can build their business, but it fundamentally changes the customer experience as well.

[HONGBIN JONG]
On that note, I read it in the note that Aladdin Wealth launched an AI commentary tool for wealth advisors and Morgan Stanley is apparently a user. So how does the tool actually work?

[JAMES VERNER]
Yep. So it was really exciting to get that live in the market last year. It’s a core product feature within Aladdin Wealth, made available to all of our clients. But the way the AI commentary designed to work is to take an individual’s portfolio, investment & portfolio holdings, and blend that with market data, so what’s going on in the market, that may be linked to what the end-investor has, and then combine that with the bank’s CIO views, buy lists, by particular portfolio models that might be tracking or working against and effectively coming up with a series of recommendations and talking points. So think about it as your first draft or script for your client meeting, so basically means the advisor walking into the room, well-briefed, accurate, up-to-date, and is able to impress the client straight off the bat.

[HONGBIN JONG]
Amazing. Well thank you so much James for your time and your insights today.

[JAMES VERNER]
Thanks for having me.

[END]