Wealth management back on its feet after Melinda scandal

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A year after Bank Indonesia (BI) temporarily banned banks from accepting new high-value clients, the local wealth management industry is back on its feet and ready to court the affluent.

The central bank ordered banks to stop accepting new priority customers and offering wealth management products to new clients for a month in 2011, asking banks to use the time to upgrade internal controls.

The suspension came after a Citibank relationship manager, Inong ‘Malinda’ Dee, embezzled more than Rp 44 billion (US$4.7 million) from the bank’s high-value customers. Malinda was sentenced to eight years’ imprisonment.

Lanny Hendra, the general manager for wealth management at Standard Chartered Indonesia, said recently that business has grown by “a strong and healthy” 30 percent in the first quarter of 2012, declining to mention if the growth covered business lost during the ban.

Lanny said that the one thing that every bank learned from the case was not to grow “complacent” by letting internal controls get lax. The bank now calls its clients to ensure that they understand the financial products that they have ordered.

“We want our customers to show alertness by reading documents before signing them,” Lanny told The Jakarta Post. “That’s why we keep on educating people, such as by holding seminars on how to treat their funds.”

Lanny said that while the bank’s existing clients remained concerned about their investments, new clients were not disturbed by the Malinda scandal, partly because those clients were investing in low-risk products, such as insurance.

“This young and emerging sector is not contributing massively to our revenue yet. But if we do things right, in terms of service, they will in time get there,” Lanny said.

Lanny said that the bank’s newly affluent clients, unlike its richer, investment-savvy clients who invested in large volume, were seeking basic investment products such as insurance and mortgages, given that these clients were still “growing” their wealth.

Reita Farianti, the director of CIMB-Principal Asset Management, said that her firm was targeting customers in their productive age who were likely to spend more on consumption.

CIMB-Principal’s managed assets were worth Rp 1.53 trillion as of May, up from Rp 1.51 trillion in 2011. The bank is aiming to manage Rp 2 trillion in assets by the year end.

“That’s why we would like to raise their awareness on investing, not only on savings,” Reita said.

She added that a preponderance of deposit-based banking products presented an opportunity for wealth managers to offer something different.

“We have also witnessed that people are more conscious about investing, be it in the form of mutual funds or the direct purchase of bonds,” she noted.

Anselm de Souza, the managing director at Callatay and Wouters, said that the number of newly affluent people in Indonesia was 40 million — a large potential market for wealth management services — and would be worth US$500 million by 2015.

Anselm added that this segment was keen for alternatives to traditional banking to augment their wealth. Therefore, banks had to start rolling out more sophisticated products, in addition to bettering service, to appeal to clients who have been looking at off-shore investments.

“It is not only about expanding products, but also expanding the complexity of new products and services offered to the clients,” Anselm said.

Standard Chartered Indonesia started selling two new products in the first half of 2012, including a US dollar-based mutual fund. The bank has 40 mutual-fund products and additional bonds and insurance offerings.

Meanwhile, CIMB-Principal intends to introduce eight new products this year, including mutual fund products.

Anselm said that regulators must also issue regulations to “facilitate market growth”, which included “defining wealth management and setting policies around them.”

“One of the key points is to have industry players form an association that will speak on their behalf to regulators. In this way, banks can understand the need of regulators and vice versa,” he said.

Difi Johansyah, spokesperson for BI, said that the central bank has yet to issue detailed regulations on wealth management, although the bank has passed regulations on priority banking.

“Fund management, as meant by wealth management, has yet to be [regulated] because Indonesia does not yet have the laws required to regulate wealth management, such as a financial adviser act,” he said.

Difi said that the emerging affluent would spur the growth of wealth management, adding that people now had better understanding of what wealth management was and that banks had to continue educating people on wealth management.

“That is why Bank Indonesia has required banks to educate and protect clients,” he said, adding that banks and clients had to be clear on each other’s rights and obligations.

“As business competition between banks in grabbing and maintaining clients, banks also need to develop their services, including by providing products beyond savings and deposits and thus, spur the growth of wealth management,” he said.