On the eve of Brexit, RDR-proof business models should see the opportunities to gain traction further afield
The recent FCA announcement of a mutual fund recognition deal with Hong Kong’s Securities and Futures Commission should have caught the attention of the UK investment management industry.
UK-domiciled funds will get approval for retail distribution in Hong Kong through a streamlined authorisation process and vice versa. The agreement opens up export opportunities post-Brexit.
While the benefits are obvious for asset managers, the deal is also positive news for large UK advice firms, not to mention individuals who would consider relocating to the region to ply their trade as international advice groups expand.
Some advice firms have already invested in building a presence on the ground, primarily in Hong Kong and Singapore. Take St James’s Place, which acquired The Henley Group, a local adviser firm in Singapore, back in 2014. It subsequently launched its discretionary brand, Rowan Dartington, in Hong Kong earlier in the year.
SJP thinks it has seen a gap in the market and our research suggests such a gap does exist. There is a growing need for holistic wealth management solutions among the affluent expat communities in Hong Kong and Singapore.
They are time-poor and typically do not trust the banking channel for advice. In addition, the Anglo-Saxon origins of most expats (British, American or Australian) give UK firms an advantage in terms of cultural fit.
UK platforms should also consider their options in Asia. Advisers in the region tell us they would love to have access to the sort of services those in the UK take advantage of. Platforms could easily bring their services and most of their UK fund ranges over to Hong Kong to begin with, with regulatory approval unlikely to be a major obstacle.
New business models
There is further opportunity to bring RDR-proof business models into Hong Kong and Singapore.
There are some early adopters of fee-based advice who feel the winds of change blowing. They have been bold enough to rework their business models and factor in the loss of commissions prior to regulatory mandate.
While accepting that their income levels will take a bit of a hit, these advisers believe they are building more sustainable businesses in the long term.
We find that more advisers in Hong Kong and Singapore are becoming curious about this model. They are just not sure if clients will be happy to write a cheque for the advice, even though it will mean full transparency of charges.
However, where businesses are still driven by rebates, corporates will seek to line their coffers now and push back the planning of an exit strategy until regulators get serious about change.
Of course, this approach was seen in the UK prior to the RDR coming in to effect, and history invariably repeats itself. Singapore is likely to take the lead, followed a little later by Hong Kong.
Exporting UK wealth expertise
Aside from expat demand for advice, how can UK expertise benefit from the massive expansion of wealth in Asia?
Hong Kong has more ultra-high net-worth individuals than any other city on the planet, including New York. Furthermore, wealthy Chinese like to access foreign investments through Hong Kong and Singapore, but typically via private bankers.
For asset managers, Hong Kong, Singapore and Taiwan are the recognised regional hubs for fund distribution in Asia.
For advice groups with international ambition, Hong Kong and Singapore offer the best spots to seize the Asian opportunity.
Platforum’s Asian Fund Distribution report was launched last week and provides data and insights on retail fund distribution in Hong Kong, Singapore and Taiwan.
For information on the report, email email@example.com.
Rodolfo Crespo is associate research director at Platforum