Lenses on External Asset Managers (EAMs) – An Exclusive Interview with Mr Urs Brutsch of HP Wealth Management

Off the Beaten Path – Charting New Ground for Client Servicing

Disclaimer: This article is purely for educational purposes and should not be misconstrued as promoting EAM.

After being instrumental in building three Private Banks (Credit Suisse, ABN AMRO and Clariden) in Asia from 1986 to 2009, Mr Urs Brutsch decided to build his own business, HP Wealth Management (HPWM) as an Independent Asset Manager / Family Office with a total focus on the client. Urs is a co-founder of the Association of Independent Asset Managers, Singapore (AIAM). This interview focuses on the motivations for establishing HPWM in Singapore and key pertinent challenges he faced as an EAM. We hope that the interview will provide educational learning points for existing and aspiring EAMs.
 

Q. You are one of the earliest External Asset Manager in Singapore, having founded HPWM in 2009. What motivated you to set up HPWM in 2009 when the world had hardly emerged from the global financial crisis of 2008?

 A. I believe that a better client servicing model exists instead of the existing “sales target”-driven model. During the global financial crisis, the “sales-target” driven model destroyed the trust of clients in financial institutions.  I thought that the crisis provided the best opportunity to “reset” the client-servicing model by breaking away as a game changer.

I also believe that the timing was right to promote an investment philosophy that deeply embeds risk management in the DNA. My investment motto: “Boring is excellent!” HPWM subscribes to this and we do not promote leverage in our investment strategy to clients.

Lastly, as counter-intuitive as it may sound, I suddenly realized that I would enjoy greater job security and work-life balance as an entrepreneurial external asset manager than as a banker. I wanted to be in the driver seat and control my career.

Q. Why did you establish HPWM in Singapore?

 A. I came to Singapore in 1986 and have stayed in the city state since then.  As a result, my network of contacts and clients is in this part of the world.  It came naturally for me to set up HPWM in Singapore.

Q. What are the key challenges faced by HPWM?

A.  The first challenge is the cost of regulatory compliance. HPWM has to devote greater resources and manpower to meet the regulatory requirements on client KYC/onboarding. This is despite the fact that the custodian banks will subsequently conduct a similar client KYC/onboarding process in order to open an account for the client. Currently, HPWM has 2 compliance officers and they are busy.

Adding to the cost structure is the technology risk management needs. As wealth management goes increasingly digital, this creates a greater number of vulnerable entry points for cybercriminal to exploit. The monetary costs of a financial data breach have increased over time. Of utmost concern is the reputational cost of a data breach because the loss in trust accorded to the EAM by clients cannot be easily assessed in monetary terms.

A second challenge lies in attracting senior relationship managers to join HPWM. We compete with the banks for experienced candidates.  Unlike an incumbent bank, an EAM is like a start-up. For example, HPWM does not pay a basic salary to senior relationship managers but ties the compensation to revenues generated by the senior relationship managers. This compensation structure requires an entrepreneurial mindset. Moreover, we are unable to support our relationship managers with a large specialist pool. Hence, we look to hire senior relationship managers who are not only strong in client servicing but also strong in technical knowledge.

A third challenge is the perception of EAMs in Singapore. Unless the value proposition of an EAM is sufficiently attractive, it will be hard for clients to perceive EAMs as being on par with the traditional banks. Hence, clients would naturally choose a safer bet and stay with private banks for their investments.

A related challenge stems from the perception of EAMs by the regulators. As with any new financial services development, the regulators would want to assess the inherent risks. The diversity of EAMs presents an information asymmetry challenge and I feel that the MAS views EAMs as being generally riskier than banks. While there are grounds for the regulators to feel less at ease with some EAMs that are tiny in scale and lack the capabilities to manage risk up to industry standards, I personally feel that the average EAM regards risk management very seriously as there is widespread recognition among EAMs that reputational capital is critical to their survival.

Q. How would you go about addressing these challenges?

A.  On regulatory compliance:
We need more engagement with the MAS on regulatory compliance. I have wondered whether an EAM can do a lighter touch of client KYC/onboarding since the custodian banks will conduct a similar process subsequently. However, I do not think that the EAM can delegate client KYC to custodian banks since it is critical for us as an EAM to understand the clients. At the moment, there is at the very least overlap in what we are doing and what the bank is doing. I believe that a “portable KYC” would be a wonderful idea, and I hope that regulators and the industry will continue to work on this.

HPWM has benefitted from generous grants from the Singapore government to develop digital capabilities that can aid us in managing regulatory compliance costs. We will continue to tap into technology for cost efficiency and risk management.

On talent attraction:
As for talent attraction challenges, one traditional approach is to engage professional head-hunters to source for the right talents. Unfortunately, this approach turns out to work less well because we do not have deep pockets to pay high recruiting fees. Another approach is by word of mouth. This approach hinges critically on the size and reach of the EAM network and can be slow. Even when both approaches generate a candidate with the right resume, HPWM may not be able to recruit successfully because we also require the candidate to have an entrepreneurial mindset. A mid-career employee often has personal and family obligations that may not allow him/her to be entrepreneurial.

On Perception of EAMs
The growth of the EAMs in Singapore has naturally created greater awareness of EAM.  Over the past decade, the EAM community has worked hard to create educational outreach and engagement with clients, regulators and other stakeholders. I was one of the pioneers to establish the Association of Independent Asset Managers (AIAM)1 in 2011.  I believe that the Association can serve as a unifying voice to engage the regulators and other stakeholders on critical matters such as regulatory compliance.

High net worth clients’ needs are becoming more complex and the expectations of clients on the technical competencies of client advisors has never been stronger. I feel that some sort of “ISO” standards can be established within the EAM community to ensure a minimum standard of competency.  This step will be a positive development to cultivate a positive perception of EAMs to private clients and the larger community.

Q. Before we end the interview, if you would provide two pieces of advice to aspiring EAM, what would these be?

A.   I think it needs patience to build up an external asset management company properly.  And it is costly. But I would also advise to do it right in the sense that of doing what's right for the client, in terms of the advice that you provide, but also in terms of building the infrastructure.  Don't try to save money on the technology by relying on excel spreadsheets to consolidate trades and portfolios.

And be prepared for a drop in income for a period of time. But if you are an entrepreneur, you have to take that risk.


Background

This interview was conducted by the research team comprising Dr. T Mandy Tham, Assistant Professor of Finance (Education), Academic Director, Master of Science in Wealth Management, Sino Suisse Fellow, Lee Kong Chian School of Business; Ms Esther Kong, Senior Deputy Director and Ms Juliana Koh, Research Associate, Business Families Institute, Singapore Management University, with Mr Urs Brutsch, Founder of HP Wealth Management.

 

1Interested readers can refer to the website of the Association of Independent Asset Managers in Singapore. https://aiam.org.sg/