Wealthy Asians stuck in bad investment habits

Asset managers' new challenge in Asia: managing the expectations of wealthy retail investors that won't quit bad investment habits, yet expect high returns on their portfolios.

Common investment habits among investors in the region include timing the markets or focussing on the short term, having a late start to investing, and lacking in portfolio diversification, says research firm Cerruli.

In a survey 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 the survey is that retail investors in the region intend to diversify their portfolios in the 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 the survey (excluding 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, the 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-adviser.

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 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," says Leena Dagade, senior analyst at Cerulli.