Wealth management in Hong Kong is evolving rapidly, driven by an interplay of technological advances and changing client needs and expectations. In this Q&A, Gregory Van, Co-founder and CEO of digital wealth platform Endowus, and James Arnett, Managing Partner for APAC & Middle East at Capco, explore the key trends in the light of Capco’s recent survey of 500 Hong Kong respondents with investable assets of over US$100,000.¹

Their discussion covers the drivers of growth and change in Hong Kong’s wealth management market, the increasing use of digital channels, and the relationship between new and old models of wealth management – as well as highlighting how AI can be deployed to improve the wealth management experience.

Can you comment on the growth of Hong Kong’s wealth management market over the next few years?

Gregory: The growth opportunity for independent wealth advisory across Asia is enormous, across all segments from retail to HNW, and from family offices to institutions. Hong Kong had a robust reopening in 2023 and has strong regulatory support with ambitious initiatives. We're likely to see more regional and global wealth moving into Hong Kong, particularly from ultra-high-net-worth individuals (UHNWIs) and family offices. 

There is massive potential in Hong Kong to serve the wealth management needs of mainland Chinese clients, as their asset allocation moves away from historical over-allocation to assets such as property. Hong Kong, through the multiple Connect schemes, is poised to be the offshore hub to help mainland Chinese clients diversify their portfolios and access global investment products. 

James: As Hong Kong’s wealth management market grows, it will also evolve, and wealth managers will need to cater to an upcoming cohort of digitally-savvy HNW investors just as generational wealth transfer gathers momentum. 

In addition to the market growth offered by HNW mainland Chinese investors, schemes such as the ‘top talent passes’ may add a further dynamic by attracting affluent young professionals from mainland China to Hong Kong. There is an opportunity for banks and other providers to broaden their propositions to tap into new segments. 

The Hong Kong government looks poised to strengthen the wealth management market significantly over the next few years by fostering innovation, attracting talent, and enhancing regulatory support through Wealth Management Connect, tax incentives, talent development initiatives and other projects.

What do you see as the key drivers of change? 

Gregory: Demand for conflict-free and personalized investment advice, technological advancements, fund manager and structure innovation, and progressive regulatory frameworks are the key drivers of change. 

However, scalability issues, customer acquisition costs, and the need to build trust and differentiate from competitors continue to be a challenge for many players. 

The wealth management landscape is highly competitive. Some digital players have struggled to identify their target clientele and execute on their investing and advisory value proposition. Many have tried to recreate what traditional asset managers do, only with less resources, and performance has struggled as a result. 

Over the next few years, I anticipate more consolidation through mergers or closures. The competitive landscape will likely drive smaller or less differentiated players to merge with larger firms or exit the market. 

James: The key drivers of change include the democratization of wealth management, and innovation around how wealth management services are delivered to both traditional and new segments. 

This will mean leveraging digital channels and platforms, automating processes, integrating hybrid models, and making a much greater use of data and AI to personalize the wealth management experience and make it easier, more transparent and more responsive. 

Will the trend towards using digital channels to manage wealth continue?  

James:  Yes, it will continue to reshape the industry. The vast majority (93%) of Hong Kong respondents in our recent survey – Transforming Wealth Management: Balancing High Touch & High Tech – say they are using digital channels to access wealth management more than they were two years ago. Nearly half say this is ‘significantly’ the case. 

Digital channels tend to be thought of as ways to service the mass affluent, but they are increasingly important for wealthier segments too. Meanwhile, additional ways to communicate with wealth management providers have proliferated. 

As well as traditional face-to-face meetings, these include email, online chats, social media, video calls with wealth managers, and self-service service via apps and digital platforms. This client experience across multiple channels needs to be managed and acted on by wealth managers in a much more integrated, seamless and efficient manner than has been achieved to date.

Gregory: The digital investing space will grow for decades to come. Clients of all ages and demographics are becoming more savvy and seeking access to better solutions at lower cost that offer conflict-free advice and greater convenience. Our clients already range from 18 to 90 year olds, and from first-time investors to endowment CIOs. 

This is echoed in Endowus’ research reports, which show that a majority of respondents in Hong Kong and Singapore across wealth bands are already using digital wealth and investment platforms.²

Have you increased your use of digital channels to access wealth management over the last two years? (Hong Kong) 

Source: Capco Hong Kong Wealth Management Survey 2024

Are ‘high touch’ and ‘high tech’ models of delivering wealth management services complementary or competitive? 

Gregory: Both models are complementary to one another, and service providers will have to find their niche clients that appreciate the way they approach their balance of touch and tech. We have seen some of the older generation adopt Endowus very quickly, while some of the younger generation require a more high-touch approach. A lot of it comes down to sophistication and experience, rather than age and demographics. 

While Endowus is a wealthtech company, the human element is a significant part of our business and approach. We do not intend to replace the human advisor with tech. Rather, we embed advisory elements onto the platform rather than building offline branches and employing armies of financial advisors. 

Customers are empowered in how they manage their investments, so you can either DIY invest or schedule a call or in-person meeting with our client advisor. We leverage technology to lower the ‘cost to serve’, making the net returns for our clients more attractive. 

James: Wealth managers are going to have to rebalance ‘high touch’ and ‘high tech’ as new technologies arrive and client preferences evolve. They need to prepare for a much faster rate of market innovation and deployment. 

An important part of that is to understand what each segment wants, and then focus human expertise where your client values it the most. It’s also important to offer clients a significant degree of choice and flexibility, so that they can decide the way in which they want to be served at different points in their journey – and switch seamlessly to a different channel if they so choose.

Three-quarters (75%) of our Hong Kong survey respondents manage at least some part of their wealth themselves. The ease of doing this nowadays means any fee-charging wealth management model, whether ‘high touch’ or ‘high tech’, has to add value. That’s not only financial value: wealth management services need to be increasingly relevant and convenient for each client, for example, through greater data-driven personalization.

Many investors now use online research and social media to find investment ideas and advice. What are the pros and cons? 

Gregory: The proliferation of low-cost online brokerages and 24/7 access to information has encouraged more people to manage their own investments, with thousands of stocks, bonds and investment funds for investors to choose from. But more options does not always equal better choices. 

Stock tips on social media can encourage speculative behavior, and the business model of online brokerages, run on transaction fees and commissions, means they are incentivized to encourage clients to trade. Besides, people are hard-wired to suffer from confirmation bias – the tendency to put more faith in information that confirms our pre-existing beliefs while discounting opinions and data that are contrary to our beliefs. 

Using evidence-based strategies and investing in a disciplined manner can help us avoid succumbing to our human fallacies. Our investments should align with our goals, be as diversified as possible, and focus on transaction costs and not just on returns. 

James: From an industry perspective, one big potential advantage from the increased use of digital resources, including wealth manager platforms, is that these can offer useful and timely data on the investment ideas and products that clients are most interested in. 

The challenge for wealth managers is how to leverage this data efficiently and appropriately to help clients achieve their goals, while complying with regulator suitability requirements.  

Our survey shows that 71% of Hong Kong respondents use online research and 60% use social media to generate investment ideas and advice. Many continue to employ traditional avenues such as gathering tips from friends and family, but the use of a wide range of digital resources for wealth management research now stretches across all age groups.

Capco’s Hong Kong survey respondents seem confident about allowing AI to guide wealth management decisions. Are they right to be optimistic about this? 

Gregory: AI cannot and should not be used solely to predict the trajectory of financial markets. Instead, Gen AI's great advantages are to enhance efficiency and – this is perhaps the revolutionary feature – improve interactions. For example, through enhanced chatbot experiences, which could range from addressing customer queries to sharing potential options and considerations. 

Besides improving the quality of each client’s experience, we believe AI is a useful tool to elevate the quality and accuracy of wealth advice. 

Our client advisors are leveraging an in-house developed generative AI platform, Endowus WealthWise AI, trained with financial data and our proprietary database. This helps advisors provide quicker and more robust responses to technical client queries. For simpler tasks such as getting account updates, wait times have been reduced from one day to less than a minute. Approximately 30% of all incoming requests are dealt with via AI.  

With the help of AI, we can tailor more personalized recommendations and solutions based on the unique needs of each individual. It’s still in the early stages given the technology, but we’ve started experimenting and exploring more AI-powered use cases in our client advisory as well as our own day-to-day operations. 

The world is far from seeing generative AI replacing human advisors. Aside from being able to fully understand and account for context, not least, there are areas where the industry requires further clarification from regulators on the rules and guidelines for providing wealth management advice via GenAI-powered models. 

James: AI has the potential to transform the wealth management experience although, for now, many traditional wealth managers are happiest keeping a human in the loop. Trust and reputation is everything in this industry. 

The investors we surveyed are indeed pretty relaxed about AI. Three-quarters (74%) of Hong Kong respondents say they are comfortable with AI guiding their decisions on wealth management, including 25% who say they are ‘extremely comfortable’ about this.

As well as helping relationship managers to personalize investment recommendations, there are many ways that AI can help free relationship managers from admin tasks and speed up behind-the-scenes processes such as customer segmentation analyses. Wealth managers need to gain a more strategic understanding of where AI can be shown to add value and the degree to which it must continue to be mediated by relationship managers and other professionals. 

They also need to work out how to embed AI-innovation in their firms, and how to build the kind of environment in which AI can be leveraged and scaled more rapidly and safely – for example, by rolling out AI governance frameworks that can help them comply with the Asia-Pacific region’s fast-evolving AI regulation and guidance. 



References

¹ Capco Hong Kong Wealth Survey: https://www.capco.com/Intelligence/Capco-Intelligence/hong-kong-wealth-survey 
² Endowus Wealth Insights Report 2023: https://endowus.com/en-hk/wealth-insights-report-2023; Endowus Private Wealth Insights Report 2024: https://endowus.com/en-hk/private-wealth-report-2024