How Taiwan’s E.Sun Bank selects funds
Banks dominate fund distribution in Taiwan, and E.Sun Bank is one of the biggest players. Its distribution business covers 1,158 funds, about 70% of those available in the market.
E.Sun’s wealth management fee income – most of which it earns from clients’ fund trading activities – has grown from NT$2 billion ($66 million) at the end of 2011 to NT$7.3 billion at end-2015, an average annual increase of 38%. That was the highest of the five major banks covered by Keystone Intelligence, a Taipei-based consultancy. E.Sun is also planning to launch a robo-advisory platform, as reported.
In an interview with AsianInvestor, Louis Chang, E.Sun Bank’s head of wealth management, credits the firm's incentive system for its business growth, outlines its fund selection process and gives his views on proposed regulatory changes.
Q AsianInvestor: What is special about your bonus structure?
A Louis Chang: Our relationship managers [RMs] only get bonuses once a year, before the lunar Chinese new year holiday, rather than receive commissions each time their clients buy a fund. Their bonus is not just based on the sales revenue they bring to the company, but also takes into account if they have team spirit, help colleagues in other business lines, and the execution of corporate culture, and more importantly, whether customers’ overall AUM grows and if they are satisfied with the services.
Q How does E.Sun Bank conduct fund selection?
A First, we assess if the [foreign fund house] applicant is a good fund manager: factors include its size, operation, awards won, performances in difference countries, diversity of product range, investment philosophy and compliance observation.
The second step is to choose which products to put on our shelf. Apart from the funds’ performance, AUM and liquidity, we also refer to fund ratings from agencies such as Morningstar.
Every month we come up with a house view on equities and fixed income for developed markets and emerging markets, in accordance with changes in economic conditions. We draw conclusions of overweight, neutral or underweight for each asset class.
Based on the house view, we choose the most recommended asset classes for different periods: one to three months or six to 12 months. Then we’ll have a product committee to make the final decision on the top-pick funds within the recommended asset classes for that period.
Q Does E.Sun Bank intend to add or reduce the number of fund houses it uses this year?
A The total number of fund houses we cooperate with increased from 50 at the end of 2012 to 60 as of the end of May.
But we are cautious in adding new fund houses to our club, because new foreign fund managers must show solid commitment to Taiwan’s market, amid the tightening regulation on foreign houses’ fund sales here. In addition, having too many funds on the shelf will [make it] difficult for RMs to have a good understanding of each fund.
We are considering ending cooperation or stopping top-up subscriptions with some fund houses – those that have unsatisfactory performance or less service coverage due to shrinking their exposure in Taiwan.
In the past 12 months to the end of May, we added five new fund houses to our platform and removed two.
Q How do you see the Financial Supervisory Commission’s plan to change banks’ fund distribution fees to be AUM-based rather than transaction-based?
A I think the direction FSC aims to achieve is right, [but] this reform will take time and may not be well accepted by Taiwanese investors, as they are used to paying banks commission fees if they do a transaction. The current commission-fee system is a natural result of free-market development; we need to respect investors’ preferences and demands.
Q What do you think of the online fund distribution platform that the regulator plans to launch?
A That [will] take time to see if it will be popular among investors. The platform is similar to what South Korea launched in 2014. By June 2015, funds sold on the Korea platform was about 95% of all funds available in the market, but there were only 43,900 users, accounting for fewer than 1% of the total of 15.43 million fund investors.
The other question is which funds will the platform recommend to investors. Different fund managers have different house views, so investors themselves will make the final call.
I predict the discount will be about 70% off for bond funds and 80% off for equity funds on the platform in Taiwan. That will attract young investors who hold comparatively smaller amounts of investment capital and make their own investment decisions.