Banks advance retail funds dominance

Boston-based consultancy Cerulli Associates says banks now account for about half of all retail mutual fund sales by assets in Asia ex-Japan, and predicts they may sell up to two-thirds of fund assets by 2008.

"Almost every channel is likely to lose market share to the banks," says Shiv Taneja, associate director in London. The exception in some markets such as Singapore may be independent financial advisors, but they will remain too small to make an impact. "Unless there is a concerted effort to raise demand for advice and further develop the channel, in ways similar to the experiment currently underway in Singapore, IFAs will always be something of a sideshow in the region."

Taneja adds he will relocate to Asia at the end of the year in order to better cover the region, including Japan and Australia.

Cerulli estimates bank sales now account for $145 billion of assets under management, a figure that will top $350 billion by 2008, running at 19% CAGR. That compares to Cerulli's claim that retail AUM in Asia ex-Japan now stands at $367 billion; with an estimated CAGR of 14%, total retail funds will hit $694 billion by 2008.

The Citibank model of centralizing distribution policies will continue to be replicated by competitors that currently provide different menus in each market, says Taneja.

This trend means fees and the way they are shared are converging. Cerulli notes that fees in Hong Kong, Singapore and Taiwan's retail markets are becoming similar. For example, annual management fees for fixed income funds in these markets are all around 0.5-1.0%. And everywhere, fund managers are sacrificing any front-end sales charges and up to 50% of management fees to bank distributors. China remains an exception on both counts, but Cerulli predicts it will eventually conform. Moreover, banks are increasingly demanding fund managers to pay for sales and marketing training sessions or point-of-sale materials during initial launch offer periods.

Banks have long dominated the Hong Kong and Singapore markets, where they account for 80-90% of retail fund sales, as well as China. Taneja says the big stories for banks are in Taiwan, Korea and India. Taiwan's market restructuring, in which investment advisors and fund management companies will be allowed to merge and distribute offshore funds, creates a challenge for banks, but will also grow the total market. Cerulli estimates by 2008 Taiwan will be the region's biggest retail market after Japan, with $213 billion of retail AUM (including offshore funds).

Korea is another exciting market for banks, where the concept of wealth management is swiftly taking hold, a process that will be hastened by Citibank's acquisition of Koram Bank.

A longer-term story is India, where funds distribution has traditionally been dominated by tied agents or securities houses. But banks now have a 40% market share and Cerulli expects that to grow in line with East Asian markets.