Offshore Financial Services in Hong Kong 2010

Introduction

With money leaving traditional European offshore centers in the billions, understanding the nature of the rising offshore centers of Asia Pacific is critical. This report explores the offshore clients of Hong Kong and what strategies are best to attract and retain them making it a critical read, not just for offshore bankers, but also for their onshore operations.

Features and benefits

• Benefit from the findings of the unique Offshore Banks Survey 2010 conducted among banks in six offshore centers, including Hong Kong.
• Understand the source of offshore funds held in Hong Kong.
• Learn about the key product and service needs of offshore clients looking for an Asia Pacific booking center
• Find out who the offshore competitors in the local market and understand strategies of the key competitors through case studies.

Highlights

High growth in the Greater China region is attracting offshore investors. According to the 2009 survey by the Hong Kong SFC, 81.3% of the assets managed from Hong Kong are invested in Asia Pacific. Of the AUM invested in Asia Pacific, 64.0% was devoted to China and Hong Kong.Hong Kong's AUM has a distinct bias in favor of equity investments, above and beyond that seen in the wider Asia Pacific, while its preference for alternative investments is considerably less pronounced. It is important to note that the steady stream of large Chinese IPOs coming onto the Hong Kong stock exchange.

Your key questions answered

• How have Hong Kong offshore clients acquired their wealth?
• What products and services will best attract new offshore clients?
• Who are the key offshore competitors active in the Hong Kong market?

Table of Contents

Executive Summary
 Hong Kong offshore clients are likely to be more drawn from Asia in the future
 Europe was the top source of AUM for the Asian offshore centers but this is likely to change
 Hong Kong has risen in prominence as a global financial hub, driven by access to mainland China
 Offshore clients in the region are highly knowledgeable, yet demanding
 Offering offshore clients premium service should help with client retention
 Excellent customer service is the top reason for choosing a bank in the Asia Pacific offshore market
 Clients will leave their offshore providers if tax policies change
 Investment products, predicted to be the most in demand among offshore clients should keep clients onboard
 Banks from around the world have targeted the Hong Kong market for growth
 The Hong Kong offshore wealth market is fiercely competitive
 Client retention will be a challenge in such a competitive market

OVERVIEW
 Catalyst
 Summary
 Methodology

OFFSHORE CLIENTS OF ASIA PACIFIC OFFSHORE CENTERS
 Introduction
 The clientele of Asian international offshore centers are mainly drawn from Europe and Asia
 Western Europeans still constitute the largest portion of the Asia Pacific offshore client base
 The Western Europe client base is dominated by money from French clients
 China has been a key source of business for the Asia Pacific offshore centers
 Offshore clients have turned to Asian financial centers to take advantage of regional growth
 Western European clients are most attracted to the unique investment opportunities available
 Asian clients are most interested in better tax efficient investment opportunities available offshore
 The typical portfolio of an offshore client in Asia Pacific is more risk tolerant than other markets
 Alternative investments and equities have the highest weightings in most clients' portfolios
 Alternative investment products and equities are expected to be more in demand in the coming years
 Offshore clients in Asia Pacific are sophisticated and open to new investment ideas if communicated properly
 Risk appetite is growing among Asia Pacific offshore clients, recovering rapidly from the GFC
 The client base of Asia Pacific derives its wealth mainly from entrepreneurship
 Offshore wealth managers need to note the entrepreneurial nature of the client base and target products accordingly
 The Hong Kong offshore market has been more exposed to clients earning their income

OFFSHORE CLIENTS' NEEDS IN ASIA PACIFIC AND HONG KONG
 Introduction
 Offshore clients of Asia Pacific offshore centers are looking for premium service from their banks
 Excellent customer service is the top reason for choosing a bank in the Asia Pacific offshore market
 Offshore clients are not looking for flashy financial institutions but stable partners
 Government crackdowns and amnesties are having an effect even in Asian offshore centers
 Evolving government policy is the number one threat and opportunity for offshore banking in Asia Pacific
 Banks need to ensure that their product range and services evolve to reflect changes in personal circumstances
 Few offshore investors require continual use of a bank's online services but it is an important element of the overall package
 The majority of Asia Pacific offshore clients use their banks' websites to regularly check up on their investments
 One third of offshore clients do not use their banks' online services at all
 Only a small minority of clients will have continual contact with a bank's site, making ease of use vitally important
 In two years' time demand for investment products, rather than services or credit, will be highest
 Investment products are predicted to be the most in demand among offshore clients
 Only asset and cash management are predicted to have enduring demand from clients in the future
 Credit products are not anticipated to be much in demand in the future
 Quality investment products are seen as the best way to attract new clients
 Direct equity investments are expected to be the biggest lure for new offshore business
 Customer service is important but individual services are not likely to attract new clients
 Offshore consumers are not as keen to join a bank over credit products
 Basic accounts only need to compete on return, with high interest rates a priority
 Banks can offer stripped-down accounts lacking in functionality so long as interest rates are high
 Savings accounts are equally commoditized in the Asia Pacific offshore market

COMPETITIVE DYNAMICS
 Introduction
 Expansion into Hong Kong has seen relentless increasing competition for offshore clients
 The Swiss avalanche has brought a multitude of high caliber private banks to the offshore center
 Banks from other regions have also targeted the Hong Kong market for growth
 Citibank revamps its full spectrum wealth management in Hong Kong with new personnel and offerings
 Not all players in the region have planned organic growth as the credit crunch has presented some opportunities to exploit
 Major players in the Hong Kong offshore market opt to become fully licensed even if not operating as a retail bank
 The Hong Kong market contains over 140 licensed banks that make the market a tight one for talent
 Becoming a leading wealth manager in Hong Kong usually entails becoming fully licensed
 Competitive focus: HSBC Private Bank in its element
 Despite a long dominant role in the onshore Hong Kong market, HSBC leads as a offshore bank too
 HSBC Bank International
 HSBC Trinkaus is a classic European private bank looking to expand its client base into Asia
 Its access to the Chinese market is a key investment strength
 Case study: ANZ Hong Kong is making a rapid return to the region
 ANZ: a bank on its way to becoming an Asia Pacific power in wealth management
 ANZ Signature Priority Banking (ANZ International Banking) gives the bank wider exposure
 ANZ Private Bank Hong Kong focuses on a relationship led offshore proposition

STRATEGIES FOR SUCCESS IN ASIA PACIFIC
 Introduction
 Giving clients high returns and confidentiality are the best strategies for growth in Hong Kong
 Frequent and effective communication with clients gives them the knowledge to be comfortable with their assets offshore
 The clients of Hong Kong banks will keep their wealth offshore to pursue international opportunities
 Obtaining higher returns than those available onshore will keep clients offshore
 Tax amnesties and regulatory changes are the greatest threats to the offshore client base
 Wealth managers need to monitor developments in home country tax policy
 Hong Kong regulators have to walk a fine line between deft regulation and laissez faire
 Datamonitor has identified seven key strategies for successfully servicing offshore clients in Hong Kong
 Strategy one: promoting high returns for fixed-term savings accounts
 Strategy two: stick to offering core banking products and services
 Strategy three: ensure product and service range accommodates entrepreneurs and business owners
 Strategy four: develop stronger links to onshore Asia Pacific markets
 Strategy five: ensure equities form a central element of any investment offering
 Strategy six: ensure investment products have a wide international coverage but a deep China exposure
 Strategy seven: provide ample information and tools for assessing the performance of investments

APPENDIX
 Definitions
 Methodology
 Further reading
 Ask the analyst
 Datamonitor consulting
 Disclaimer