Private wealth investors value their relationships. When interacting with their private bank, most decisions are made via discussion with a personal relationship manager who provides support across every aspect of their account and investment portfolio. Yet, to date, digital assets have largely been a “do it yourself” asset class dominated by retail-style exchanges.
Private wealth previously hasn’t been that active in crypto but, as the market has developed, there is growing demand from these investors as many are now ready to add digital assets to their portfolios.
This begs the question of what needs to be delivered to make an offering attractive to mass affluent, high-net-worth individuals (HNWI), family offices and corporate investors who are interested in gaining exposure to the burgeoning asset class.
We believe that these investors require a combination of a digitally native platform, an integrated product set, and safety and security — while keeping the intimate personal connections that private wealth managers deliver in traditional asset classes.
Private wealth services market continues robust growth
In an age when margins are shrinking and competition is rising across the financial services sector, the private wealth segment is still one of the growth opportunities. This is particularly true in Asia, where high-net-worth financial wealth is forecast to surpass US$42 trillion in 2025, according to the Capgemini Research Institute.
Furthermore, ultra-high-net-worth investors, with personal assets in excess of US$30 million, are the fastest growing segment in private wealth. The Hurun China Rich List recently reported that more wealth was created in 2020 than in the previous five years combined, showing that the pace of wealth creation in the region is accelerating. In mainland China, Hong Kong and Singapore are some of the world’s highest concentrations of high-net-worth individuals and ultra-high-net-worth individuals.
These eye-watering numbers are backed up anecdotally, as Asian private banks and wealth managers that primarily serve this segment are among the only parts of the traditional finance ecosystem that continue to add headcount, as evidenced by successive media headlines.
We believe that these numbers also point to a sizable addressable private wealth market for digital assets, an asset class that traditional service providers have thus far been unable to offer due to slow-moving compliance and business decisions. Even if digital assets only make up 1% of total Asian private wealth portfolios by 2025, this would represent a US$420 billion opportunity in the region.
A gap in private wealth services for digital assets
Most digital asset exchanges are built primarily to serve the mass retail investor market. As a result, the user experience usually does not meet the needs of HNWIs who enjoy close relationships with traditional private banks and are not willing to wait in long customer service queues, prefer to form close working relationships with the firm managing their investments and expect customised investment products and solutions.
At the other end of the spectrum are institutional crypto brokers and trading desks. However, most of these are primarily designed to service funds and large institutional accounts and are unable to meet the diverse needs of private wealth investors. These players often have high minimum thresholds that are out of reach for even HNWI and UHNWI investors and lack the dedicated private bank customer support they are looking for.
This has left a large underserved white space between retail digital asset exchanges on the one hand and institutional brokers on the other. This infrastructure gap is ripe to be addressed, as Capgemini reports that 80% of UHNWIs and 55% of HNWIs under 40 are interested in and willing to pay for value-added wealth management services.
A model for meeting private wealth digital asset needs
We believe investors should expect the same level of personal service for digital assets as they enjoy from their traditional private bank relationships. Essentially this means providing clients with a completely digital online platform for trading and storing their assets, but also providing a dedicated personal relationship manager who can guide them through every step of the process, regardless of their level of knowledge about blockchains or bitcoin.
We have found that the HNWIs we work with often have very specific personal needs and require sophisticated products to meet their investment criteria. Interestingly, even though we prioritize providing an entirely digital trading platform, about 50% of our Hong Kong-based clients come to our office to onboard in person, meet their relationship manager and talk through their digital asset investing expectations.
While they value these touchpoints, the vast majority of interactions are then completely digital. But having the knowledge they have a dedicated individual to help with their account gives them the comfort to place trades and custody assets via our platform.
As a result, we have also learned that delivering a truly private wealth digital asset experience depends on much more than technology. A high degree of cultural understanding and linguistic competence is needed to meet clients, develop a clear understanding of their individual needs and build a foundation of trust.
Simple and intuitive is the name of the private wealth game
The complexity of digital assets is another big hurdle for private wealth investors, most of whom don’t want the hassle of managing multiple crypto platforms and storing their private keys. With the wide array of platforms available to investors, the chances of finding a single one that meets all of an investors needs can be a challenge.
We believe that the best private wealth digital asset platform is one that makes the entire investment process simple and intuitive. This means the platform should take care of the private-key management, allow investors to store their assets with best-in-class custodians and offer an integrated product set such as borrowing and lending, structured products and leveraged trading. In addition, all activity should be easily traceable via periodic activity statements and valuations to help meet any tax and audit requirements.
This boils down to offering a next-generation, digitally native platform with specific crypto products and augmenting it with a traditional private wealth experience — in particular, the availability of a personal contact point.
Anyone considering a digital asset private wealth service provider should ensure that, like traditional full-service brokers, they can access additional liquidity to help secure efficient pricing. And, of course, this should be done to the highest standard of safety and security possible in terms of the trading platform and the available custody solutions.
We anticipate a growing trend in the demand for private wealth solutions for digital asset investing in the coming years. This is based on a combination of the attractive demand level from mass affluent, HNWIs, family offices and corporate investors and the fact that neither current digital asset platforms or incumbent wealth managers are structured to meet their needs.
However, there are new platforms emerging that are designed specifically to service this segment, to meet what we believe to be the primary criteria for private wealth clients — the service has to meet their individual needs. They should not have to make do with a “best-fit” solution.