Private banking

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It is part of a greater plan to move towards a closer ASEAN economic partnership, lower transaction costs, and the enforcement of similar financial standards in the region. In 2013 The Philippines Stock Exchange agreed to take part in it, while the Ho Chi Minh City Stock is still holding talks about whether or not to join (Citibank, 2013, p. 2).

2.5.3 Private banking and wealth management in Singapore

An area where Singapore has undeniably succeeded in is the overall asset management industry that includes private banking and wealth management. With around 1 trillion USD under management it will soon surpass Switzerland (DBS Group Research, 2013, p. 62)

2.5.3.1 Private banking

Private banking especially caters to HNWIs. It aims at providing these wealthy individuals or families with investment advice, financial products, and portfolios and trust management.

Singapore has long been the world’s leader in that sector. Over the recent years, Singapore has bulked up its capacities, and is predicted to take over the Swiss before the end of 2015 in terms of the amount of assets under management (PwC, 2013, p. 18).

To a certain extent the old assumption that private banks, such as in Switzerland, exist simply for the reason that they help for tax-evasion purposes is still true. However, following the 2008 financial crisis private banks all around the world have faced growing pressure from foreign governments to stop their illegal activities.

The most famous example being employees of UBS (Union Bank of Switzerland) being advised for a time not to travel to the USA as they faced the possibility of being detained at their arrival on the US territory.

Of course, it cannot be denied that among wealthy individuals belonging to a private bank in Singapore stands for a social status symbol. However a worrying trend in Asia seems to emerge. More and more wealthy individuals consider private bankers as mere salespersons; this is apparently linked to the fact that many Asian millionaires have made their fortune in the real estate market, where traditionally a bigger daily

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involvement is needed on the side of the investor. As real estate is two times more important among Asian HNWIs compared to their European counterparts, there is no doubt that private banks will have to increasingly prove convincing to retain their customers (Vallikappen, 2012).

Singapore’s answer to this problem, as previously seen, has been to build a strong culture of banking secrecy. Moreover, it has also been able to capitalize on its central position in the Asia-Pacific region to attract HNWIs from the region, by providing them with state-of-the-art financial advice.

Overall Singapore is well positioned to face future evolution, Deloitte (a consulting company) ranked it as the second best private wealth management center in terms of “success area”. It was number one in “tax regulating” and “stability”, but it was outranked in terms of “business environment” and “provider capability”. Its most problematic area was in “capital market”, as has previously been shown in this thesis, as Singapore lacks critical mass (2013).

“Provider capability” while not the worst in the ranking, shows that the city-state needs to upgrade the human capital of its private bankers, the service quality of its wealth management, the efficiency of wealth management institutes (low return on investments, and high cost ratio). In that field Switzerland, the USA and the United Kingdom did better, showing that there is room for improvement in Singapore (Deloitte, 2013, p. 11-13).

2.5.3.1.1 The importance of HNWIs

Most people are not worth the time of private bankers, HNWIs who have assets of over 1 million USD are actually considered as the bottom of the food chain of the industry. Ultra-high net worth individuals who have more than 30 million USD worth of assets are those who catch most of private banks’ attention. As Asia has witnessed tremendous growth over the last decades, Singapore is well positioned to attract these ultra-HNWIs (Chan, 2014).

One of the most interesting features of Singapore is its high percentage of millionaires (USD) on the whole population. As can be seen on Table 8, It was the highest in the world in 2012, with 17.1% of the total population, faring way higher than Hong Kong with only 8,8% (Tencer, 2012).

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Figure 8

Top 10 Countries with the most Millionaires per Capita (% of total population).

Source: Tencer, 2012.

This impressive amount of HNWIs is partly due to the attractive immigration policy targeting wealthy foreigners. The most famous case being Eduardo Saverin, one of Facebook co-founder and now a billionaire, who moved to Singapore and gave away his American citizenship to avoid taxes claimed by the American government (Frank, 2012).

Singapore with its competitive corporate tax rate of 17%, and low income tax, among the lowest in the developed world, provides entrepreneurs with the tax environment that allows them to protect their wealth (SBS Consulting, 2013).

3.2% 3.2% 3.6%

4.3%

5.0%

8.8%

9.5%

11.8%

14.3%

17.1%

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2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

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Wealthy Chinese millionaires are also a leading factor in the rise of HNWIs among the Singapore population. It is estimated that in 2014 64% of them are planning to move abroad. Foreign citizenship, less pollution, better and less competitive educational system for their offspring, and safe business environment are aspects where Singapore ranks very high. Singapore thus ranks fifth in term of preference of place to migrate to among Chinese millionaires, after the USA, Europe, Canada and Australia (Miao, 2014).

Nearly all of HNWIs who migrate to Singapore do so through the scheme for entrepreneurs to gain permanent resident status. The main criterion to apply is to deposit at least 1.5 million SGD with the Singapore Government. Furthermore family members can apply at the same time, allowing whole families to move in the city-state. This scheme brings huge benefits to Singapore, as the birth rate is among the lowest in the world, and those rich individuals do not bring strain to the welfare system (Consulate-General of the Republic of Singapore, n.d.; Elma Global, n.d.).