Cover Story: The consummate banker

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on April 29, 2019 - May 05, 2019.

We need to be a lot more relevant from a transactional standpoint, and that is where we talk about building our digital capabilities to allow customers to perform their banking needs in the comfort of their homes. - Fan

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A veteran banker with 35 years of experience, Elaine Fan did not start out her career in banking.  In fact, her ambition was to be an air stewardess, born out of her love of travelling.

However, after college, she found herself working at an accounting firm. But one evening, as she was walking past the Citibank building in Medan Pasar, Kuala Lumpur, she had a flash of inspiration.

“I vividly remember the day I decided to join the bank. It was a rainy evening and a group of bankers had walked out of the Citi building, where I was seeking shelter from the rain. They looked very professional in their suits and heels,” says Fan.

“At the time, Citi was the only building [in that part of the city] with glass walls and I thought it looked so nice. Plus, it was an American bank. So, the brand itself was very attractive.

“That was the first time I considered banking as a career. And I have not looked back since.”

When the opportunity to join the bank arose in 1983, she applied and got a job as an office assistant in corporate banking. She quickly found that she had the aptitude for it.

“I have always been a self-starter. I have always taken the initiative to try and do more than what my role asks of me. I have a curious mind. So over time, that has helped me build my career at the bank,” says Fan, who is currently Citi’s consumer business manager in Malaysia.

Fan’s ability to adapt to new challenges is reflected in how she has embraced digitalisation in banking. “We need to be a lot more relevant from a transactional standpoint, and that is where we talk about building our digital capabilities to allow customers to perform their banking needs in the comfort of their homes.”

Fan is no stranger to starting from ground zero. In fact, when she joined the bank in 1983, it was a steep learning curve for her. She had to work much harder than her colleagues, and often into the wee hours, to remedy her lack of knowledge.

“My contribution and delivery of several results brought me out of my rank-and-file job. I was offered a senior position and given the opportunity to handle clients and cases. At the same time, Citi invested in me by providing the tools to help me succeed in my role such as risk and finance training,” says Fan.

Her ability to draw from her experience has helped her cope with the challenges she faces at work. One of her biggest challenges was recovering a difficult loan when she was a relationship manager in the bank’s real estate department.

“Everyone had given up on this particular customer deal. I knew the customer well and was determined to make the deal work, knowing how important it was to the customer,” says Fan.

“However, with the gaps and risks dimensioned, none of my colleagues shared my view or wanted to get involved. That was when I realised I had to roll up my sleeves and get down to the ground to work by myself on what I believe, and of course to convince my boss of the merits of the deal.

“I worked closely with the customer, seized on each detail and opportunity, and even collaborated with other banks. Eventually, when I had managed to recover the loan, my work and efforts were commended across the region. My CEO even applauded my determination to handle the case.

“The case taught me to always stand my ground, be confident and resourceful, and always be on the lookout for different or better ways of doing things. My personal motto is not to accept legacy processes at face value and to always innovate.”

After more than 20 years in corporate banking, she moved into consumer banking in 2010. “I took on the role of retail banking head. It was a totally different business altogether. Managing consumers felt completely different from managing corporates,” says Fan.

Only four years into her role there, she was appointed consumer business manager in March 2014, making her the first Malaysian woman to hold that position. In her current role, she is responsible for leading and managing the entire consumer business division. This means all consumer products, segments, alternative channels and distribution network come under her purview.


Changing wealth landscape

Fan’s 35-year career has allowed her to be familiar with a broad spectrum of banking services. She has seen first-hand how the wealth management industry has evolved over the years.

“A few decades ago, people accumulated wealth mainly through savings, time deposits and real estate, as well as the Employees Provident Fund (EPF) for those who were employed. These were the main sources of wealth,” says Fan.

“The growth of the unit trust industry back then was limited, both in terms of knowledge and understanding. Unit trust funds were not really an area that consumers looked at. As the market evolved, we started seeing a lot of consumers move into the stock market for short-term gains.

“Many also focused on real estate to grow their wealth. They would try to accumulate wealth by acquiring properties, either to make returns when the market goes up or for the next generation.”

Over the past decade, however, Fan has observed a shift. Consumers have become a lot more discerning. She attributes this primarily to the access they have to a lot more knowledge due to rapid digitalisation.

Digitalisation has in many ways required banks, such as Citi, to redefine the way they interact and engage with their customers. “We see a very high adoption of smartphones among consumers today. So, that has become a way of life,” says Fan.

“This makes it even more important for banks to ensure that we redefine the way we deal with our customers, by ensuring that we roll out a lot more digitalised solutions to take care of those needs.

“In the past, we saw a lot of transactions at bank branches. There are much fewer of these now. Where banks continue to play a major role is having that personal touch, where relationship managers are still the core point of contact in building relationships with customers, whether it is a discussion on mortgages or one’s financial needs.”

Fan has played a key role in championing digital transformation of the business. During her tenure, Citi has introduced various first-in-market digital capabilities, including its pioneering Voice Biometrics in 2017. To date, more than 80% of its customers have opted for voice authentication, she says.

“Also, we recently enhanced our digital offerings to simplify our customer experience when they call in, allowing them to use what we call a natural language understanding system. Customers can use their normal everyday speech to interact and no longer need to select keys on their dial pads,” she adds.

“There is constant innovation and it is always centred on the customer experience and needs. We call it client obsession.”

However, digitalisation does not mean banks have done away with the need for relationship managers and financial advisers. Fan says there is a need to invest in both areas and one area should complement the other.

“We like to look at it as two aspects of the wealth management space. One is we want to invest in technology to enable customers to perform transactions in the comfort of their homes or on their smartphones.

“But at the same time, there is still a need for that personal touch. So, a good banker will be able to leverage the digital transactional capabilities and complement that with a personal touch to better serve the customer’s needs. The emerging mass affluent segment could be served via a robo-advisory service, for example.

“As our customers grow their wealth, there will still be a need for that human touch, which will continue to be one of the wealth business’ main assets.”

Fan sees digital disruption as more of a disintermediation of branches, as opposed to disrupting the banks themselves. “Banks will now need to look at how their branches should be shaped in terms of making sure they are a lot more technologically advanced so that customers can self-serve when they come in. But it can never replace the human touch,” she says.

Today, the competition between financial technology (fintech) start-ups and banks has increased as the former leverages technology to take on various core functions of retail banks. This can be seen in the areas of mobile payments, cash withdrawal facilities, short-term loans and even product marketing.

How should banks address this issue? “Our view has always been that the fintech industry complements the banks. If you look at fintech players, they are obviously a lot more agile. They are disruptors and their speed to market is clearly very fast in terms of coming up with digital solutions,” says Fan.

“But the one thing they do not have, which banks do, is the fact that we have the balance sheet, and we have the brand. And more importantly is our ability to manage regulations.

“So, we see that these two industries should complement each other. The key is how you can integrate these solutions into the ecosystem to be more relevant to customers.”

She offers an example of how Citi has done so. “In India, we have invested in a fintech firm to help us build a solution, which we have integrated into our wealth management offering. It enables customers to do two-way video conferences with the bank, with our investment consultant and relationship managers via the phone.

“We are able to share documents and product disclosure sheets and be able to have customers fill forms if they choose to invest and execute on that basis without the need for them to come to the branch. So, that is something we have done in India.”

Today, investors are faced with many uncertainties in the market as global economic growth continues to slow amid various geopolitical events. There are growing concerns about how investors can increase their wealth in such an environment. Fan says this is why there is a need to educate customers on taking a longer-term view of their investments.

“I do not believe that geopolitical issues and all these trade tensions will go away.

But if investors take a view that they are basically growing their wealth for the longer term, they will be able to ride through the volatility because there will always be opportunities you can tap into, even in an environment where there is negative news.”

She says this is the challenge bankers face today as many customers still look at wealth accumulation in a very short-term manner. “That mindset has to change. If you adopt a longer-term view, your main focus will be to accumulate wealth for your retirement or for the next generation. You will be able to ride through the down cycle because we strongly believe in [the benefits of] dollar-cost averaging. This will help ensure that you are able to optimise your returns when the market evolves. The challenge that we face today is that customers tend not to do that.”

From a broader perspective, preserving wealth is also a major challenge, especially when it comes to intergenerational wealth. In fact, a report by US-based wealth consultancy Williams Group estimates that 70% of affluent families will lose their wealth by the second generation and 90% will lose it by the third.

Fan acknowledges that preserving wealth beyond a certain generation is a challenge. But it all boils down to financial literacy and communication among family members, she says.

“We must continue to educate millennials and the younger generation that it is important to accumulate wealth, as opposed to just looking at it today. That is the role banks can continue to play to ensure that we do that, be it for the very wealthy or even the mass affluent segment.

“The other thing is the need for a lot more communication and education between generations. A study has shown that typically, culturally, the first generation does not talk about wealth with their children. Decisions are made unilaterally. Wealth can only extend beyond a certain generation if there is very strong discipline to ensure that there is communication and each generation is educated and trained.”

As the market evolves, there is a need for banks to remain relevant to customers, says Fan. “This means coming out with solutions that address their needs and focusing a lot more on helping them build their wealth from an advisory standpoint, as opposed to just being a short-term strategy.”

In Asia, Citi is one of the top three wealth managers, with US$256 billion under management. In Malaysia, its assets under management grew at a compound annual growth rate of 10% from 2016 to 2018.

Over the past decade, Citi has been building tools to help customers accumulate and preserve wealth. One such tool is the Total Wealth Advisor, a platform that enables customers to map out their wealth goals and solutions using online tools. The platform, which was launched last year, also allows customers to access Citi research so they can make an informed decision when it comes to their investments.

“The Total Wealth Advisor helps customers achieve their objectives and ensure that they are a lot more diversified in terms of investment solutions so they can ride through the various market changes as they progress,” says Fan.

“Citi has the ability to offer products from a wide range of funds from managers with proven investment management expertise. We are able to offer clients the benefits of open architecture by providing a platform of more than 100 investment managers and 2,000 mutual funds globally.”

The platform is able to generate financial goals for customers based on their lifestyles. “They can state their current lifestyle and the lifestyle they want to maintain. We will input their life expectation, inflation cost, how much they currently have in terms of their wealth and [financial] destination. For example, if they want to continue having a lifestyle where they live to 75 and spending RM25,000 a month, the platform can generate for them how much they will need to get there,” she says.

“Customers can also state their risk appetite in terms of how much they have in savings, how much in time deposits and how much in certain instruments. Then, the platform will generate for them the end goal of where they need to get to.”

After doing this, relationship managers help customers review their portfolios periodically to ensure that they are well-balanced. “Diversification is also key. So, that will help customers ride through periods of market volatility,” says Fan.

“And that is something we have trained our relationship managers to do. We have our relationship managers attend the Citi Wharton Global Wealth Institute to ensure that they are well trained not to simply push products but to play a critical role in advising customers on their needs.”


Using insurance to preserve your wealth

There are many ways to preserve your wealth, especially if you want to pass on your assets to the next generation. One way of doing so is through legacy planning, says Elaine Fan, consumer business manager at Citi Malaysia.

According to her, this is particularly important in extended families and even to protect the second and third generations. Legacy planning, which is done while the person is still alive to ensure that his wealth is distributed properly after his passing, can be achieved through holistic estate planning, which includes drawing up a will and having an insurance plan.

While estate planning is common in the market, there are disadvantages such as exposure to creditors and a process that could take years to properly distribute the wealth, especially when it comes to large estates, says Fan. An increasingly popular method of legacy planning, however, is using insurance to unlock liquidity and enhance one’s assets.

“While not as holistic as estate planning or having a will, legacy planning using insurance can help you achieve your wealth distribution goals in a simpler and quicker manner,” she says.

There is a popular misconception that one does not need insurance if one is wealthy, but that concept is slowly changing, says Fan. “Some of our wealthy customers think they have more than enough assets. But if you only have a will at the point of your demise, your next of kin will have to go through the whole administration of the will first.

“Not only could there be taxes involved, but your next of kin may face potential family rifts when they dispute your will. Insurance is probably the quickest way to transfer your wealth because if you have defined beneficiaries and proper documentation, the release of funds can be a lot faster.”

Citi has been organising legacy planning events for its wealthy customers, which have seen good interest, she adds. The bank provides opportunities for clients to interact with legacy planning and will experts, estate planning lawyers and insurance advisers. It works with local insurance partners to offer these solutions to customers. It aims to grow the legacy planning uptake to about 10% this year.

Insurance products tied to legacy planning are typically structured like some of the traditional life policies, except with slight variations such as a higher payout amount and longer coverage terms. The product can be tailored to match the customer’s affordability — whether it is a one-off premium or over a multi-year period.

“It is life insurance, but you can look at setting an amount aside [for your beneficiaries]. Say you want RM2 million for each of your grandchildren, so you buy a policy and name them as your beneficiaries. So, in the event of your demise, with proper documentation, they could easily get the release of funds over and above what you currently have,” says Fan.

She offers another example. Let’s say Customer A has RM10 million, which he would like to leave to his beneficiary. By taking up a legacy planning insurance product, he can purchase an insurance policy with a benefit payout of RM5 million to the beneficiary for a premium of RM1 million. “Then, he will be able to leave RM5 million and have RM4 million to spend on himself.”

More people are open to this concept now, especially because it is something people generally do not think about, says Fan. “That is why we are trying to create a lot more awareness of this because it is no different from any insurance policy that you will buy. If you look at it from a legacy planning aspect, then it really helps you to have a more organised plan.”

There are several advantages to legacy planning with insurance. The first is that it is creditor-proof, says Fan. “With proper guidance on the nomination, insurance benefits are creditor-proof. This will ensure that the proceeds go into the hands of the intended person.”

Other advantages include preserving and creating wealth. “Policies with savings element or those linked to investments do offer returns that may help preserve your wealth against inflation. [For the creation of wealth] like in most insurance policies, the benefit will more likely than not be multiples of the premiums paid and therefore allows for an immediate creation of wealth to be distributed,” she says.

In addition, having insurance will create liquidity to pay estate and other taxes through a fiduciary structure bundled with the policy, as well as to distribute assets equally to your heirs according to your wishes.

Legacy planning products are relatively new in the market, but a quick survey by Personal Wealth found that there are a few products in the market that are specifically used for this purpose. For example, AIA’s A-Life Signature Beyond investment-linked plan is one where users stand to have higher coverage for deaths that occur due to accidents. The plan will pay 100% of the coverage amount or account value if the policyholder dies after the age of 80. However, it will pay 200% if he dies in an accident and 300% if the accident happens while he is in public conveyance. The payout is 600% if he dies due to a natural disaster.

The plan pays an additional 100% if one suffers from total and permanent disability. It also allows for coverage of up to RM4 million without having to go for a medical check-up, depending on your age and health condition.

Prudential’s PRUwealth is an investment-linked insurance plan that allows coverage up to age 100. It provides 100% of the coverage amount upon death or total and permanent disability, 200% upon death due to an accident, 300% of the coverage amount if the death is due to an accident when commuting in public conveyance, an elevator car or due to fire while in a public building. It pays 400% if the death is due to an accident that occurs outside of the country.