This article first appeared in Personal Wealth, The Edge Malaysia Weekly on November 6, 2017 - November 12, 2017

There is growing anxiety among the emerging affluent that they will not be able to save enough for retirement. And those who have started saving are only doing so with simple instruments such as savings accounts or fixed deposits, says Karen Fawcett, CEO of retail banking and group head of brand and marketing at Standard Chartered Bank.

“The emerging affluent are getting to that stage where they are beginning to save as they have managed to cover their monthly expenses and are looking to build their savings. What we find interesting is that about a quarter of them are saving less than they think they need to,” she says.

These observations are based on a recent survey by the bank, entitled Race to Save. According to the survey, 43% of the emerging affluent are saving money with a basic savings account while 30% are keeping their money in fixed deposits. This behaviour is seen in both developed and developing nations.

StanChart says the emerging affluent can increase the returns on their savings by an average of 42% over a 10-year period if they switch from largely basic savings accounts to low-risk wealth management investment strategies. “If you save a small amount regularly, the compounding effect will make a massive difference over time. Say, you invest RM100 in something other than a savings deposit, you will earn more over time,” says Fawcett. 

A conservative portfolio refers to a higher allocation of fixed-income securities or products, she adds. “We based the calculations on relatively low-risk model investment allocations comprising about 80% fixed-income solutions (mostly bonds) and 20% equities. We used StanChart’s savings rates, which are broadly comparable with the respective markets’ average savings rates.”

While the survey does not include Malaysians, their saving behaviour is similar. According to Aaron Loo, country head of retail banking at Standard Chartered Bank Malaysia Bhd, 1.5 million Malaysians come under the emerging affluent category. This group has monthly incomes of RM7,500 to RM16,000. 

“That ties closely with the T20 segment of the population. If we look at the composition, more than half of them (54%) are bumiputeras, 37% are Chinese and 9% Indian. Many of them are in their early thirties to mid-forties,” he says.

He adds that the savings they have in place are not enough for their retirement and that really worries them. “So imagine John, who is in his thirties and working at a fast-moving consumer goods company. He earns RM10,000 to RM12,000 a month. His wife is also a working professional and earns RM8,000 to RM10,000 a month. They have two children. 

“Right now, he is putting his money in time deposits. It will not be enough to fund his children’s tertiary education or even his retirement.” 

When asked whether the emerging affluent were thinking about the different areas of wealth planning such as estate planning, Fawcett points out that this segment is still focused on the basics. “What we found from the survey is that overall, people are thinking about quite simple needs such as their children’s education, their retirement and buying a home. Most of their needs are not that complicated,” she says.

“I think retirement is more of a concern now, particularly when we have had such a long period of low interest rates in many of the markets. That is an area of concern. 

“We tend to see more of our wealthier clients talk about estate planning compared with the emerging affluent. Many of those in the latter group are younger and are starting to save with basic instruments.” 

The survey showed that the top savings priority for those between 25 and 34 is saving for a home while those between 35 and 44 are saving for their children’s education. Those between 45 and 55 have retirement on their mind. 

According to a 2015 Bank Negara Malaysia survey, only one in four Malaysians holds any form of investment. This indicates that most Malaysians lack sufficient investment knowledge and financial preparation for the long term, says Loo. “This is further compounded by the lack of time to gain such knowledge as most people spend most of their time working or caring for their family.”

Fawcett concurs, saying that the emerging affluent tend to get information overload. This makes it difficult for them to get simple financial advice such as where they can access a selection of products and wealth advisers through a very convenient channel. “They want to have the convenience of being able to do transactions when they are on the move or at home or in the office, and not having to go to a branch.”

While Malaysia is one of the countries that have a safety net in the form of the Employees Provident Fund, Malaysians will need to put aside more funds for investment. “Our encouragement to clients in this bracket is to start saving and look at the range of instruments beyond savings accounts because who knows what will happen to interest rates. They seem to be moving a little, but you cannot rely on that,” says Fawcett. 

As the family structure changes with more children living away from their parents, individuals are exposed to a different type of society where planning for retirement is absolutely essential, she adds. “I don’t think many can expect to get an inheritance and live on that. Everything we are doing for our clients is about how to start saving early and build that nest egg for the future.”

The Race to Save survey found that up to 40% of people are likely to invest in stocks, mutual funds or fixed-income securities. Loo says the 50/20/30 money management guideline can help Malaysians determine how much of their income they wish to allocate to each area every month.

“Fifty per cent of one’s income can be set aside for fixed costs such as utility bills and rent or mortgage, while 30% may go towards flexible expenditure such as groceries, shopping, entertainment and fuel. Twenty per cent may be placed in investments such as savings, time deposits or insurance. This is crucial for Malaysians to build their financial foundation, which will be handy when they need to pay for a new property, fund their children’s education or an unexpected event,” he adds.

Targeting the emerging affluent

On Oct 23, StanChart launched its premium banking service aimed at the emerging affluent. The bank has put together a set of products and services that reflects people’s busy lives, says Fawcett.

“The emerging affluent are working very hard and they may be young working professionals who are getting on with their careers. They want to have the ability to save, but it also has to be at their convenience. That is why we have launched our premium banking service, which creates a value proposition and a journey for these individuals to get their investments and savings on the right track,” she adds.

This group is somewhat underserved, says Fawcett. “They do not have enough money to have a dedicated relationship manager, but they know they deserve more. Premium banking gives them access to fully dedicated premium executives who can serve them and help them with their savings and investment needs.”

She adds that the whole point of the premium banking approach is not to force customers into certain asset classes, but to offer them a range of more “all-weather” products and services. 

“I think you will find that many of the emerging affluent are time-poor. They are looking for something that provides steady savings over time so they don’t need to worry too much. They are not the group that trades online all the time. Instead, they want a sensible spread of their assets to give them diversification and better returns than a basic savings account, one that can offer them peace of mind all around.”

The new premium banking service offers video and chat banking for clients’ convenience. It is aimed at creating a dialogue on how clients can save and invest. 

Loo says the premium banking programme is similar to an airline’s frequent flyer programme. It provides clients with better services, preferential pricing and greater rewards. “The services include on-call assistance and financial advice from a dedicated team of specialists via a dedicated premium banking hotline, access to specially created market reports via their mobile devices or laptops, as well as total relationship reward points for every credit card spend, deposit, investment and home loan financing balances maintained with the bank.”

Over the past few years, there have been instances of wealth advisers pushing products that reward them with higher commissions. This has raised concerns about whether clients can truly receive objective and independent advice and product recommendations. 

Fawcett says the way to determine whether an adviser is well trained and has the client’s interests at heart is to ask questions. “[Good advisers] listen to the needs of their clients, understand what they need and then offer a range of options. The job of the investment adviser is to talk the client through the options available. 

“So, it is not saying, ‘This is the portfolio you should have’, but rather, ‘Here is a range of investments you can look at.’ Talk about the past performance, who the fund managers are and what the likely returns are. It is about setting out the choices.

“Ask the banker questions until you feel comfortable. Ask what the commission is, why he thinks this is the better option and what types of clients have invested in this. Have that conversation.”

Fawcett provides an example. “If you look at our strategy as a bank, our whole focus is serving the affluent and emerging affluent clients with a full range of banking products, which StanChart provides directly. However, with our fund options, we have a very wide range of providers from across the world, so we are not pushing our own products. The broader the range of products you have, the better the ability to offer more stuff according to the needs of the clients. On our insurance side, we have selected some of the best providers such as Prudential and Allianz.”

Loo says the team of dedicated premium bankers will help to roll this out. “We are very particular about finding out the needs of clients. We have a needs-based questionnaire that helps discover their investment profile. If the adviser takes a lot of time trying to understand your profile, you get a sense that he is there to help you and not push products.”

Riding the fintech trend 
In recent years, the digital wave has transformed the global retail banking space. Aaron Loo, country head of retail banking at Standard Chartered Bank Malaysia Bhd, says this will lead to a lot of client-bank interactions that are likely be digital, so banks will need to transform from “places where people go to” to “brands that clients prefer for financial transactions”. 

“It is the delivery of a seamless and excellent user experience that differentiates one bank from another,” he points out.

The rise of artificial intelligence will play a significant role, says Loo. “AI will be a huge boost to the financial industry as it will help improve the client experience, lower costs, reduce fraud and grow revenue,” he adds. 

“AI helps with high-volume, data-driven processes that are repetitive in nature for the banks’ front liners. It also helps those in the compliance department by sifting through the onboarding documentation to discover potential fraud. 

“In the long run, the cost of processing such data will be reduced significantly as automation takes over, enabling banks to focus on growing revenue, also through the use of AI. Customers will also be engaged by AI, providing them with recommended financial or investment solutions while adding value to the user experience.”

StanChart has partnered Singapore’s National Research Foundation as part of a programme to boost AI capabilities in the city state. Through the programme, the bank will look at ways to apply AI to better understand and serve the banking needs of clients, with a specific focus on senior citizens. 

Karen Fawcett, CEO of retail banking and group head of brand and marketing at Standard Chartered Bank, says one of the areas that AI can add value is healthcare, particularly for the senior citizen group, which is underserved. 

“The Singapore population is ageing rapidly, with life expectancy lengthening and the total fertility rate falling. By 2030, the resident population above the age of 64 could rise above 20%,” she points out.

“The bank applies AI to better understand and serve the real banking needs of senior citizens. AI can play a significant role in enhancing financial services, including retirement planning based on contextual data. So, we can play an even greater role in helping senior citizens better manage their wealth and plan for their future.”

In the area of financial technology (fintech), the bank expects to see more cooperation between banks and fintech start-ups, blurring the lines between traditional products (retail, payments and insurance) and the convergence of technologies such as AI and the Internet of Things. 

“To expedite this convergence, StanChart opened its innovation lab — the eXellerator — in Singapore last year. Looking at clients’ pain points, the eXellerator uses methodologies such as rapid prototyping and human-centred design to implement solutions that improve the client experience,” says Fawcett.

The bank has sponsored the SuperCharger FinTech Accelerator programme since 2015. It has identified promising fintech start-ups with proof-of-concept projects such as robo-advisory solutions for wealth management (Bambu) and regulatory technology that utilises distributed ledger technology (KYC Chain).

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