Digital dividends

HSBC’s commitment to becoming the leading wealth manager in Asia by 2025 has seen Trista Sun, an 18-year veteran at the bank, return to her home country as Head of Wealth and Personal Banking in China.

WiC talked to Sun about the wealth management opportunity in China, with a focus on Pinnacle, a new platform that she is pioneering in China but which could soon be extended into other markets in Asia-Pacific.

How does HSBC’s Wealth and Personal Banking business fit together in China?

HSBC is the largest and most-licenced international financial institution in China with multiple licences across different entities. We place customers at the heart of our operation, with a comprehensive model that combines the expertise of our people with innovative digital solutions. We also have an asset management company, an insurance company, a securities company, and a fintech unit. We are bringing together the synergies of these licences to offer the most suitable solutions to our customers, serving the wealth-and-health needs of clients across the whole continuum from mass affluent to high net-worth individuals and their families.

What’s the role of Pinnacle, HSBC’s wealth management platform?

Launched in July 2020, Pinnacle is a relatively new venture offering a digitally-enabled financial planning and insurance service for clients outside our branch network to tap the growing protection, health and wealth needs in China.

In terms of our workforce, we have grown from zero to around a thousand wealth planners in just two years across Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou and Foshan. These six cities combined are home to more than 40% of China’s high net worth and mass-affluent population.

We’re aiming for 3,000 wealth planners in China within five years, which will give us the reach we need for perhaps ten cities in total.

So you see this as a major opportunity for HSBC?

Yes. HSBC is already the leading international bank in China but its market share is pretty small compared to the local banks. But the market has been opening up in ways that offer new opportunities, including changes that allow international companies to own 100% of their insurance and asset management businesses. HSBC took full control of its Life business recently and we were the first foreign institution to get a fintech licence in China in 2021. These two components are core to the Pinnacle venture in giving us a new way to offer investment and insurance choices to customers.

Strategically this business model is a good fit because it gives us a chance to gain scale away from the older constraints of the branch network. For instance, I can cover large parts of Zhejiang province from a single office in Hangzhou with a wealth planning team that is mobile. That wasn’t possible when we were relying more heavily on branches for our network.

Chinese consumers are known for being digitally savvy. How does that support Pinnacle?

This is an example of where the fintech licence has been important in opening up opportunities. We have built a health-and-wealth tool called the River app that already has 400,000 registered users. It provides valuable market insights to customers through HSBC’s financial planning services and wealth tools. On top of that we offer the River Matrix, which supports mini-programmes on other apps like WeChat. This allows customers to choose to do some ‘DIY’ financial planning of their own via the platform, if they want. But if they need more specific information or more personalised advice they can request meetings with our wealth planners.

Digital is crucial in enabling us to provide personalised solutions to clients and in bringing more innovative solutions to market in a timely fashion. And we continue to pioneer new tools for our digitally-savvy clients. For example, with Wealth Navigator we’re helping them make more optimal investment decisions, alongside our relationship managers, who can gain a better understanding of their needs.

In Global Private Banking, we were also the first international bank to enable clients to manage their wealth and investments via the bank’s mobile banking app, including structured products, local funds, Qualified Domestic Institutional funds products and Recognised Hong Kong funds.

Why not opt for a digital-only model at Pinnacle that gives you national scale?

A purely digital model wouldn’t work for our customer segments. Across our client continuum – from mass affluent to ultra-high net-worth – it needs to be a hybrid approach that combines the reach of a digital platform with the personal contact of our wealth planners and relationship managers.

We studied the insurance and investment platforms in the local market and although larger scale can bring in higher sales volumes, the average ticket sizes of many of these sales is typically rather low. Not many mutual fund purchases extend beyond Rmb10,000 in value, for example. It’s similar in insurance, where most ticket sizes are Rmb700 or less. So a digital-only model might work as a business model for the mass-market but it doesn’t fit with our focus on mass-affluent and urban-affluent groups.

The research also indicates that almost everybody in our customer segments wants some kind of human contact – perhaps not in making every investment choice but definitely for the larger financial commitments to more meaningful wealth products, insurance solutions or private funds. Customers want to talk to somebody in this context, especially here in China where much of the market is still relationship-driven and trust-driven.

Has it been straightforward to hire the new team of wealth planners?

Wealth planning is a relatively new role in the Chinese market so there isn’t a readily available supply of recruits – or at least not in the numbers that HSBC needs. But we are managing to build an effective team by hiring relationship managers from other banks, as well as staff from specialist insurance companies and third-party wealth managers. We’ve had some success in finding people with sales experience from non-financial backgrounds as well, including the luxury goods and real estate sectors.

My personal view is that direct experience is less important for our recruits than factors like IQ and EQ. There’s an intelligence factor we need and the large majority of our hires have bachelors or masters degrees. It’s not just about sales – we are asking our planners to learn new skills and to be comfortable with data. We also need them to be responsive to changing trends in the marketplace and to show empathy with customers.

Insurance is one of Pinnacle’s core products. Is it a generalisation to say that many Chinese see insurance as more of an income-generating choice than protection for worst-case scenarios?

You are probably generalising a little but I agree that there is a cultural aspect in how some Chinese see insurance as more of an investment vehicle than customers in other markets.

Remember that insurance products are still relatively new to the market in China and it’s probably fair to say that the way they have been marketed in the past has influenced customer expectations as well.

The majority of insurance providers have been selling insurance through the agency model. Recruitment of agents has often been based on their social networks, where they make recommendations to friends and family. But the agents have often lacked expertise. We see the results of that when we talk to customers: some say that they have bought insurance policies but they’re not sure exactly how many they have or the full extent of the coverage the policies provide.

Another problem is that customers can have a false sense of security from buying these policies. But if you look at the data, Chinese people are still often under-protected in insurance terms compared to other mature markets. And at the other extreme, there are people who have lost trust in the sector because of the way that insurance was sold to them in the past.

So part of our task is about how we can help in improving financial literacy so that people can choose the right products. For instance, sometimes we need to explain the differences between annuities and mutual funds. Or talk with customers about whether their priority is retirement planning or legacy planning. These objectives can be totally different but are not always well understood.

Our job at HSBC is to help in plugging these gaps to enhance understanding of the different solutions on offer.

What is the appetite for Chinese investors in investing offshore? What are their preferred asset classes?

At a wider market level, investors in China generally have about 85% of their investments in onshore assets and 15% offshore. Of course, it depends on the wealth tier of the investor: in the more affluent segments where HSBC is focused, customers generally hold a higher proportion of international assets than mass-market customers, who have almost all of their investment onshore.

Mutual funds and private funds are the favourites in terms of investment choice, although some of our wealthier customers are also interested in trusts, derivatives and hedge funds.

HSBC China offers almost 200 fund products to clients, covering both onshore and offshore strategies, and we are one of the largest distributors of mutual funds among the foreign financial institutions operating in mainland China. We distribute them from HSBC Jintrust, an asset management company in which we own a 49% stake, and we also partner with international asset managers and the most respected local managers to offer third-party funds.

We are committed to connecting clients with global wealth opportunities. Our cumulative Qualified Domestic Institutional Investor (QDII) quota has maintained a leading position among banks, for example. Also, HSBC was one of the first banks to launch cross-boundary Wealth Management Connect investment services in the Greater Bay Area, and it has pioneered investment choices under the Qualified Domestic Limited Partners (QDLP) scheme, which supports the growing demand for offshore alternative investments.

Investors in China have been promised spectacular returns in some sectors of the market in the past. How has that impacted on your strategy?

That was one of the key questions we considered when we were putting Pinnacle together as a venture three years ago. Would our model work when so many people were expecting annual returns of 8-10% or more from their investments? As some investors had actually been getting these returns over the short term, would they see our approach as too academic?

However, we knew that many of the problems about excessive expectations from investors were related to the sale of so-called ‘guaranteed return’ products that were offering minimum returns of 6% a year, as well as further potential upside from market performance. Many of the offers came from trust products and P2P lending platforms, some of which would later go bust.

Of course, this was an unsustainable situation for the financial system. Some consumers were victims of it as well, which has caused them to become more cautious and more rational in their approach to investing now. But what was even more important was that in 2019, regulators started to take action against companies promising guaranteed returns. These practices were banned and you can no longer find them in the marketplace.

Where do you see HSBC’s Wealth and Personal Banking business heading in future?

There are currently about two million high net-worth households in China and the number is expected to reach five million within three years. Another big driver of wealth is the growing middle class. It already numbers 340 million people – more than the population of the United States – and is on track to grow to more than 500 million by 2025. This is a market that offers a major opportunity to HSBC, even if we stay very selective in whom we target.

The pandemic and other global market uncertainties have also influenced the investment behaviours of many investors, driving the need to diversify their investments to enhance and preserve their portfolio’s value. So we are investing to scale up our wealth management capabilities to meet the stronger demand for tailored investment solutions and professional advisory services, as well as international banking services among mass affluent and private banking clients in mainland China.

For instance, earlier this year we also expanded our onshore Global Private Banking business. We will be increasing our private banking footprint to six cities, adding 100 new private banking employees and hiring over 300 staff to serve Premier clients too.

We’re also confident that we are already getting traction through HSBC Pinnacle as we build up the ranks of our wealth planners. We track some of that progress through performance indicators that measure how customers value our offering. Our Net Promoter Scores – loyalty and satisfaction ratings that we measure by asking customers whether they would recommend a product or service to others – indicate that as many as 82% of our clients are likely to recommend our services to friends and family, for instance.

We regard that as a key metric in checking our progress and a clear indication that Pinnacle is on the right path.

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