Regulators in Hong Kong have started consulting with asset managers and distributors with a view to putting in rules or guidelines around a more transparent fee structure for investment funds, according to sources.
Meanwhile, investors in Europe are said to be avoiding taking advice as a result of the ban on retrocessions there.
The consultation is said to have started about a month ago, with both the Securities and Futures Commission (SFC) and Hong Kong Monetary Authority (HKMA) involved. SFC regulates asset managers while HKMA supervises banks, the dominant distributors of funds in Hong Kong.
A source told AsianInvestor: “They [the regulators] are not keen to talk about the consultation. Julia Leung may take responsibility for it in her new role [as head of intermediaries] at the SFC.”
The move is thought to have come on the back of an SFC report last year on the future of Hong Kong's asset management industry. The document highlighted the dominance of banks as fund distributors (they have a market share of nearly 80%) and their strong negotiating position on fees, as well as the global trend towards a fee-based – rather than commission-based – model for selling funds.
Another source said the regulators would likely take 12 months before they complete the consultation report. As to the possible outcome of the exercise, the source said: “It is unlikely that there will be a commission ban; a hard disclosure is more likely at the point of sale.”
Rosita Lee, head of investment products and advisory at Hong Kong’s Hang Seng Bank, said the consultation started with the purpose of enhancing transparency and investor protection.
“It is always good to have transparency, but I think there can be two pricing models [commission-based and fee-based] depending on the situation,” she said, speaking on a panel at FundForum Asia in Hong Kong yesterday.
Hang Seng has a fixed-fee model for customers with high transaction volume, which makes it more cost-effective for such clients. It also has a commission-based model for customers with higher AUM.
“Enhancing transparency is the primary objective, but no one should dictate which pricing model distributors and asset managers should follow, because we need different strategies to accommodate the different needs and wants of the customers,” noted Lee.
Meanwhile, the ban on retrocession in Europe has led to investors withdrawing from taking investment advice, noted Christian Pellis, Paris-based global head of external distribution at Amundi, also speaking at the conference.
“You see more private clients asking for execution-only service; they are not going for advice because they have to pay. This has also led to the rise of passive investing because price is no longer an issue [for such products],” said Pellis.
“Pay-for-advice is the rule going forward, but for the short term a lot of investors will be lost and will not invest,” he added. “It’s the downside of these regulations. Clients are standing still at the moment – this is happening in Asia and in Europe.”
Product-wise, this has resulted in the trend towards guaranteed, money-market and multi-asset funds and into passive investing, he noted.