Melanie Stern is section editor of Families in Business
Fuelled by smart globalisation of business and investment interests, the explosion in family wealth across India and the Far East has private banks salivating and eager to set up shop in this fruitful and burgeoning new territory, finds Melanie Stern
Already the planet's second fastest growing economy, those working in India's nascent private banking and wealth management industries aren't shy about forecasting explosive growth among the client base in next year. "We believe that this segment will grow at 25-50% in India in the next year," Pradeep Dokania, head of wealth management for India's DSP Merrill Lynch tells Families in Business. "Although the market here is small right now, our wealth is growing quickly and the banks are working hard to accommodate it quickly." Dokania's ultra high-net-worth clients are mostly wealthy business-owning families with more than $10 million in assets needing chaperoning through the overhaul of India's investment markets from disorganised fragmentation to greater sophistication.
India is the latest new market to have attracted the affections of European and American private banks, looking to move away from ongoing consolidation and dwindling returns. Fortuitously for them, at the same time as opportunities at home are lacking, record economic growth in the Far East has seen wealth grow to a stage where families now require some assistance in organising and efficiently investing it, looking to the examples of families in the West who have long had access to well developed wealth management service providers.
"The wealth management industry as a concept in India is only now really being talked about as a concept," Dokania explains. "In the last ten years the economy has opened up and that has dispersed a lot of wealth, so instead of just a small group of extremely wealthy families, there are many more." Most of the biggest institutional banks like Citibank, ABN Amro, Deutsche Bank provide wealth management services to wealthy clients in India and have done so for a few years, but others have recently begun forming concerted private banking services, often poaching ready-made teams from rivals due to the lack of adequately experienced professionals in India (Societe Generale recently hired a team from ABN Amro bank in India to enter the business). Some domestic banks like DLC bank operate in this space also, though they face crushing competition from foreign banks who bring to the table many more years of experience across more developed markets, a famous and trusted brand, and the cash to hire the best Indian bankers to create valued relationships with their fellow countrymen. "Many families appoint their own independent advisers, chartered accounts and so on, and try to run their wealth themselves. But the complexity of our financial markets as we globalise means many of them are realising they need the services of an expert," says Dokania.
India's investment markets are slowly opening up, but some key facts – like hedge funds – still remain absent. But private banks are setting up shop early in anticipation of change, and in response to increasing demand from wealthy families for different portfolio risk management products. "The asset classes available to invest into in India are still quite shallow; our investments aren't available in such a structured manner. Families have been putting their money into equities, real estate, and cash, and in India the jewellery industry which in itself is not an organised market. Meanwhile, estate planning services and trusts are beginning to get more attention as a risk management policy; they have not previously been readily available in an organised fashion from the relevant domestic providers, says Dokania.
Although further ahead in financial services and investment choices than India, the Far East remains a developing market for private banking services, having typically attracted this business to offshore locations like Switzerland when domestic institutions weren't able to assist.
"In all the surveys the Far East is predicted to be the fastest growing market on the planet for high net worth family assets with about 10% projected growth, which compares favourably with Europe and the US. In terms of players, just about everybody's there – everyone has an eye on Asia and everyone wants to be there," says Citigroup Private Bank's Peter Triggs, who spent the last six years managing wealthy family clients in Singapore and Malaysia, and who thinks family businesses working in India and China will make those markets leaders in growth for the global private banking industry going forward.
Many wealthy business families in both India and the Far East are first generation, and will face succession in the next 20 years. Foreign private banks are focusing on this as one of their key offerings – advising families on how to pass both control and wealth down – having assisted multi-generational families across Europe and the US with complex succession transfer issues. As this is the first time these issues have come up for these families, market experts see commonly that families do not often see a problem coming before it required cure, rather than prevention. Additionally, deeply-ingrained cultural beliefs around respecting family elders – and particularly patriarchs who typically remain the majority sole owners and controlling forces over their companies – and their reluctance to prepare succession plans before the end of their life present possible cataclysm for families. As such, private banks are getting in early, educating clients about this, and then offering the services to prevent families facing these problems.
"The needs of Asians are a bit different to that of European families. A lot of the basic needs of major families tend to be consistent – caring about preserving wealth and so on. The differences between Europe and Asia; there have been many cases where the patriarch has no plans to give up control and makes no succession plans – he thinks after his lifetime, the family can sort it out," explains Citigroup's Triggs. "The Asian closeness of the family often leads the patriarch to assume that of course all his children will join the business; but the reality is, maybe they don't want to or are not capable. In some countries there are complexities about the role of women or the eldest son. We find that once we've had that very intimate discussion with the patriarch about what his plans really are, it changes our relationship – we get a level of closeness that we would never have gotten to without that discussion."
A staple are of service to wealthy families for private banks, tax is a non-issue for the bulk there is no on any holdings or income from outside the country coming to you if you are living in those jurisdictions, and generally, rates of tax are very low compared to Europe. Setting up trusts, however, is an increasing focus for families as a succession treatment, mindful of high-profile cases such as India's Ambani brothers who control industrial conglomerate Reliance Industries, and whose mother Kokilaben had to step in and split the business in two to placate her sons' squabbling over who would control what. Father and founder Dhirubhai died intestate, or without a will and defined succession plan, three years ago.
Justin Ong, Partner and head of PriceWaterhouse Coopers' wealth management practice in Singapore, concurs that these 'soft' topics are a major issue for private banks to tackle in the region. "Family cohesiveness is a deeply rooted Asian culture. Coupled with the culture of deference to one's elders, there are often situations where significant emotions and ambitions are suppressed within individual members," Ong tells Families In Business. "The lack of communication may lead to strained family relationships, and we note that some banks have been offering dispute resolution and family mediation services to help families get over some of these issues."
Saying that, Asian families are far from unsophisticated. Their knack for globalisation – both of their business and their wealth, with successors commonly being educated abroad and holdings spread across continents – puts many among the richest and most successful individuals on the planet. Their globalisation however, has not always been closely managed and maximised, something foreign private banks are working on. "If you look at US families you'll find a lot of HNW families whose members, investments and businesses are only in the US," says Triggs. "You would easily find in Asia a patriarch holding a Canadian passport, whose children are studying in the US, whose bank accounts are in Singapore, London and Switzerland, they may have residential property in the UK; I've almost never found a family in Asia that didn't have some exposure to at least six different countries, and that's where global planning can really add value."