Hong Kong investment managers need outsourcing to stay profitable.
Firms in Hong Kong are not immune to the challenges their Western counterparts face:
However, Hong Kong faces a unique set of circumstances that contribute to their challenges, and outsourcing may help.
The fact that Hong Kong is home to more ultra high-net-worth individuals than any other city in the world means there is a world of opportunity for the wealth and asset managers.
However, the increased density of wealthy residents in Hong Kong is making it unaffordable for young professionals, who are leaving in droves.
In addition, the population is aging and birthrates are declining.
Outsourcing could solve issues related to local talent shortages. The outsourcing provider already has the talent/labor, and it can supply that labor on an as-needed basis.
When firms need to ramp up or down, the provider can simply add or subtract the staff, respectively.
Hong Kong’s wealth managers are in an enviable position having a neighbor like mainland China next door.
As mainland wealth and assets continue pouring into the city, new clients not only mean more revenue, but also demand for more wealth managing talent.
However, the amount of wealth in need of management is growing faster than the talent to manage it.
If the wealth management labor shortage in Hong Kong is a concern, the situation for operations may not be much different.
More clients means more reconciliation and performance reporting work that needs to get done, and quickly. Outsourcing some operational functions could make it easier and faster for firms to add labor (scale up) and get the reports done on-time.
Likewise, if the workload slows down, they can easily request fewer staff members from the provider, sparing firms from the hassle and pain (financial and emotional) of letting employees go.
Ever since investment giants like Vanguard, BlackRock, and Fidelity cut their fees, smaller firms have been pressured to cut theirs, fearing the risk of losing clients and at the expense of their profits.
In addition, the Hong Kong government has pressured firms to lower fees for managing assets of the city’s mandatory employee pension program.
According to the South China Morning Post, the government requires asset managers to introduce to pensioners a Default Investment Strategy fund capped at 0.95%, compared to the average fee of 1.56% for the Mandatory Provident Funds (MPFs).
As employees likely choose the lower fee option, the downward pressure on fees means less revenue.
Outsourcing operations or any other business functions can reduce potential financial stress.
While concerns about employee costs are nothing new and not unique to Hong Kong, it’s still worth noting that the talent shortages can serve as a factor in driving up labor costs.
According to recruitment consulting firm Morgan McKinley, the average monthly salary for a reconciliations analyst in Hong Kong is HK$25,000 to HK$35,000.
That doesn’t even take into consider the costs for employee recruiting, training, and turnover, not to mention the lost productivity. Also, there are additional costs associated with hires like benefits, paid sick days and time off.
With outsourcing, investment managers pay for labor only, nothing else. Furthermore, outsourcing providers can offer lower rates compared to the cost of work done in-house.
Outsourcing can help deal with the unique challenges Hong Kong faces related to demographics and local regulations that could eat into profit margins.
Offsetting revenue losses, reducing costs, and supplying firms with talented, scalable labor to increase the efficiency are some of the benefits of outsourcing.
The city has a bright future as a destination for wealth and assets, and consequently, there will be a growing demand for investment management services.
Outsourcing will make it easier to support that growth and maintain profitability.