'Family Office is Rising' Banks' Wealth Management Competition for High Net-Worth Clients Heats Up

Short-term profit generation is still challenging... Opportunity to secure loyal and new customers

[Asia Economy Reporter Yu Je-hoon] As the retirement of the baby boomer generation (born 1946?1964) is in full swing and the transfer of wealth to the next generation is accelerating, fierce competition is unfolding among banks in the 'family office' sector for wealth management (WM) of ultra-high-net-worth individuals (UHNWIs) among them.

According to the report "Changes in WM Market Trends Due to Large-Scale Wealth Transfer" published on the 14th by Hana Financial Research Institute, the largest-ever wealth transfer is expected to take place, centered around the United States and other regions.

In the U.S., it is anticipated that by 2045, approximately $84 trillion (about 11 quadrillion KRW) of wealth will be transferred to the generations following the baby boomers, including Generation X, Millennials, and Generation Z, with 87% of that amount, $72.6 trillion, expected to be transferred through inheritance and gifts.

With growing interest in inheritance and gifting, the research institute explained that competition among financial companies for family offices serving ultra-high-net-worth individuals and families will intensify. A family office refers to a comprehensive asset management service company that manages and advises on funds for UHNWIs or families, handling everything from inheritance to business succession. In the U.S., clients typically have assets exceeding $10 million (about 1.28 billion KRW).

Domestically, competition among major commercial banks for family offices has recently intensified. This is due not only to the increasing demand for inheritance and gifting following the retirement of baby boomer UHNWIs, similar to overseas cases, but also to the significant increase in so-called "Young Rich" who have accumulated considerable wealth during the prolonged ultra-low interest rate era over the past several years.

In fact, earlier this year, Shinhan Bank opened the "Shinhan PMW Family Office Center" targeting UHNWIs with assets over 10 billion KRW, and Hana Bank, which had been leading in the private banking (PB) sector, responded in May by launching the "Hana Family Office & Trust" service for clients with assets exceeding 30 billion KRW.

These centers provide comprehensive asset management services, including investment advisory for securities and real estate, as well as tax and legal consulting related to inheritance and gifting. Additionally, they offer supplementary services such as concierge services tailored to the personal preferences of UHNW clients and networking services for marriage and social connections.

Recently, banks have been raising the level of competition by launching flagship branches dedicated to UHNW clients. Following the opening of the Club1 Samsung-dong Center by Hana Bank in 2017, a second branch was opened last year in the affluent Hannam-dong area. KB Kookmin Bank is preparing to open a flagship branch for high-net-worth clients in Apgujeong, Gangnam, in the second half of this year. Shinhan Bank also renovated two branches into specialized branches for UHNW clients alongside the launch of its family office.

Within the financial sector, it is still considered difficult to achieve short-term profitability from the family office business domestically. However, as the WM market gradually expands, it is expected to create synergies similar to a "trickle-down effect." A financial industry official stated, "There are not yet enough UHNW clients in Korea to generate significant fee income from the family office business," but added, "If a company gains initiative in the WM market through this, it can secure a lock-in effect by retaining UHNW clients and gain a strategic advantage in expanding general clients who want asset management, which is why fierce competition is ongoing among companies."

This content was produced with the assistance of AI translation services.