HSBC’s Bruno Lee expects unit trust (UT) wrap accounts to enter Hong Kong’s mainstream market within five years after reporting “encouraging” sales figures for FundMax.
FundMax was launched last May to provide unlimited UT transactions and fund switching to Hong Kong retail investors for an annual fee, as opposed to charging a front-end load for each transaction.
This all-in-one fee structure is designed to address concerns about transaction costs and drive up the penetration rate of UT investments in investor portfolios.
And following AsianInvestor enquiries, HSBC reveals that sales of FundMax accounted for 30% of total UT gross sales from May to December last year. The bank does not disclose sales figures.
Further, it reports that 51% of FundMax customers were either buying a unit trust for a first time or had no previous UT holding in their HSBC investment accounts.
Lee, regional head of wealth management Asia-Pacific for HSBC, believes the results show that investors are receptive to UT investments and are open to different types of funds, with an appreciation for the flexibility of fund switching for rebalancing purposes.
“As a product proposition, I would expect it to become a trend in the industry, although it will probably take three to five years to make it mainstream,” says Lee. “But we think it will become a key option or feature for customers.
“In the first half-year of the [FundMax] launch, we have seen a very significant initial take-up of 30% of gross sales. This type of UT wrapper account is still relatively new to customers. If there is education about this and more people talking about it, I am sure it will pass 50% of sales.”
Asked if it would be misleading to read too much into these results with regards to the likely popularity of such schemes in Hong Kong, given HSBC’s strong market share in the city, Lee responds: “In fact, some would argue that makes it more difficult for us to bite the bullet.
“Giving up 30% of a one-time fee is a big commitment, whoever you are. Earning 30% less based on sales because we are building a recurring income for the future, that is not an easy decision to make, for HSBC or other key players.
“I think timing is very important, because the market has gone through a low phase and then started to recover. Even though we have seen a relatively large percentage pick-up with this new offering, because the overall market is recovering we can stand the shock in terms of altering the revenue pattern from a one-time fee to an ongoing fee.”
HSBC notes that FundMax customers also increased their assets under management 60-100% for three consecutive months after launch, which Lee sees as another positive sign.
“Now they feel comfortable about the mechanics of the scheme and the recovering market situation, it is encouraging that they keep increasing the total amount in their account,” he says, adding that similar patterns are emerging this year, although the bank cannot disclose them.
It appears that after the first three months, when customers build scale to put a larger sum to work, their top-ups slow down. “As the customer and account base of FundMax broadens and increases, the incremental AUM we would expect to slow down a little bit,” says Lee.
There has also been a strong take-up of FundMax among high-net-worth customers, with average ticket sizes 30% higher than for general unit trusts. And the bank reports strong demand for more tools and services to support portfolio monitoring, which Lee says points to customer needs.
“I think the all-in-one fee is an important part [of FundMax’s appeal], but if it is just a fee without the advice and guidance for the customer, I don’t necessarily think it will fly,” he adds.
“Strategically what we have been doing in the past couple of years is working on the basic building blocks. That means providing customers with proactive market update information and online Morningstar tools to help customers select the funds.
“Then we screen the funds and categorise them in terms of different asset classes and try to identify funds that are performing consistently. Once done we provide FundMax as the last link. So I think we give customers an overall proposition rather than one fee for all you can invest.”
HSBC is the only retail bank in Hong Kong to offer such an investment scheme, allowing investors unlimited transactions and switching between over 300 funds. US bank Citi also offers a similar service in Asia-Pacific through its Citigold account for high-net-worth individuals.
The fee calculation is based on the average holding balance of open-ended funds in the customer’s FundMax account. The account fee rate per annum is between 1% and 1.75%.