Discretionary Accounts Gaining Popularity Among Asia's Millionaires

Discretionary Accounts Gaining Popularity Among Asia's Millionaires

Private banks in Asia are reporting an increase in wealthy clients outsourcing managing their money to professional investors and giving them discretionary mandates.

Asia's wealthiest are becoming more open to giving banks discretionary mandates in managing their wealth, Bloomberg reported Thursday (behind paywall), citing representatives from UBS, Credit Suisse and Julius Baer.

This arrangement, in which clients hand over lump sums for the banks manage for a flat fee, is far more lucrative for banks as it provides them recurring income, as opposed to taking a fee per trade.

Room For Growth

Asia's wealth market, worth $22 trillion, is much younger compared to Europe and the U.S., which mean that individuals largely retain control of their money, but this is changing.

Currently, only 8 percent of portfolios in Asia are discretionary compared to about one-third in Europe, Bhaskar Laxminarayan, Julius Baer’s chief investment officer for Asia, said. The share of Asian client assets in mandate accounts at UBS is 13 percent, though the firm hopes to grow this to 18 percent by 2021.

Heightened Market Volatility

Credit Suisse’s bespoke mandate business, which customizes investments for clients, has been growing by about 20 percent a year in Asia since 2014, a similar pace to UBS' mandate business in Asia Pacific, Bloomberg reported. Julius Baer has seen even stronger growth in Asia, with its discretionary portfolio doubling over the last two years, Laxminarayan said.

The private bank representatives cited the stock market meltdown at the end of 2018, heightened volatility on the S&P 500 Index and in the Eurozone, as well as concerns about the impact of Brexit and slowing economic growth amid the U.S.-China trade war as reasons why wealthy clients are increasingly giving banks discretionary mandates.

They «realize that they can’t beat the market in such a fantastic way as their egos might tell them,» Steven Fong, head of mandate solutions for Singapore at Credit Suisse Group's Asia Pacific private bank was quoted as saying.

More Profitable

According to Stefan Lecher, head of global mandates investment solutions for Asia Pacific at UBS, discretionary accounts can be more profitable for clients, with 85 percent of discretionary accounts outperforming self-directed accounts. For the bank, it benefits from 0.4 percent wider gross margins from its mandate-based offerings, Bloomberg said, citing a UBS presentation from October 2018.