Asia’s asset management industry faces its biggest challenge in the next few years as greater product transparency around the world drives down fees, an AI forum was told.
New regulations have been making transparency an ever-more important issue, and the winners and losers would depend on how firms dealt with this.
Those advisers which have a direct relationship with clients will succeed, and speakers said they were investing heavily in adviser training.
Delegates at AsianInvestor’s first Fund Selector Forum in Singapore heard how the global funds landscape is changing and how this will affect product development and distribution.
Speaking during a panel discussion on “The future of wealth management”, Paul Stefansson, Asia-Pacific head of funds distribution at UBS Wealth Management, explained how “the financial services industry globally, with the Retail Distribution Review in the UK, with regulation coming in Canada and competition in the US, is moving to very transparent fee schedules, which absolutely changes the game. There will be big winners and losers.
“If you look at the UK, St James’s Place have gone from £30 billion of assets to £50 billion in this period of RDR, and one of the primary reasons is disclosure of retrocessions [trail fees].
“When the client can see all the fees and charges, it can really change the game. When you live in a world where you have full transparency in what you are paying for and what you are getting, you change the competition and when you overlay the technology, I think you are looking at a very different industry.”
Alison Brown, head of wealth management in Singapore for Manulife, said that technology is “a huge enabler; it will allow customers to have a better understanding of products. And when clients are aligned more to the product, they potentially may want other things.”
Panellists agreed that there were positives for the adviser/client relationship that may come out of a revolution in fees and technology. Alexis Calla, global head of investment advisory at Standard Chartered, said: “I have not heard a client ask for more alpha, but they will say they want to make more money, and then they will enquire about other investment options.”
Marc Van de Walle, global head of products at Bank of Singapore, also believes the advisor model has a bright future: “Many clients stayed in cash after 2009 because they were afraid to invest. Our advisers were able to encourage them back into the market. That’s the real power of the adviser model and that’s what we need to sell.”
Stefansson suggested that advisers who have a direct relationship with the client will do fine: “I don’t believe the robo-advisers will be able to scale out to provide a serious threat. Maybe Charles Schwab can, because they’ve got the structure in place, but people still need advice.”
Calla added: “As an industry I think we are moving from just giving market exposure to delivering the relevant outcome for the client.” Professional fund selection is needed, said Van de Walle: “There are so many products out there.”
The panellists were asked what greater transparency would mean for product development. Is it good news for ETFs and index funds? Stefansson answered: “Certainly if you look at what’s happened in the US, where you have real competition, something like 30% of fund assets are passive now. For me, when you have complete deregulation and transparency of fees there’s only going to be two winners – passive funds and those managers with real alpha. The quasi-index managers are going to be in trouble.
“And when you see what is happening in other markets, where advisers are willing to undercut active management for directing clients to low-fee indexed products, there’s going to be a massive shift to passive, I think primarily driven by the advisers.”
Van de Walle, however, said that the question was how quickly this would come to Asia: “What this changes for distributors like us is establishing the concept of fees for advice. People will pay to see a doctor or a pay for a lawyer, but paying for a financial adviser in this part of the world is not part of the culture, so it’s a question mark.”
Calla pointed out: “Changes like this are either driven by strong competition, which we see in the US or by regulation as we have seen in the UK. And that’s when you have to start charging for advice. In Asia, it’s uncharted territory for us. I think it’s only going to come, seriously, when the regulation imposes it.”
Van de Walle and the other panellists said they were investing heavily in adviser training. He said: “What the industry has to do is to equip its advisers and that’s a challenge because there’s a shortage of talent in Asia.
“The other thing is how do you deal with the sales force that is always excited about the latest trend. The way we try to cope with this is education of the sales force and going back to basics. 90% of the needs of retail clients are fulfilled with a handful of products - that's the way you construct a portfolio. But you have got to have a products to sell, maybe three or four but not a thousand new exotic things.”