As Southeast Asians become more affluent, they will likely shift their focus from mutual funds to investment opportunities offering higher returns, according to research house Cerulli Associates.

Eventually, the region's mutual fund assets will deplete as a result of more money being re-allocated to real estate, insurance and structured products, it forecasts.

Cerulli also finds that fund managers will need to spend a significant amount of time redefining their offerings for affluent clients in terms of services offered as well as products.

A number of Southeast Asian banks have already started to offer “private-banking equivalent” services to their clients. Last year, for example, the fund management arm of Malaysian financial services group KAF partnered Alliance Investment Management, a local fund house that offers a multi-manager platform. In addition, Indonesia’s Trimegah Asset Management is looking to launch advisory asset management services later this year.

On the product side, some have introduced discretionary managed portfolios, such as Indonesia’s Kontrak Pengelolaan Dana. Yet the shift towards innovative products may prove difficult for some Southeast Asian countries due to strict regulations. At the moment, Asean countries (apart from Malaysia) cannot distribute offshore mutual funds to retail investors.

A number of other challenges face local fund houses. Captive distribution – banks mostly selling products from the asset management arms within their groups – makes it difficult for fund houses seeking to expand. Captive distribution is especially widespread in Thailand.

The scale is also skewed towards the largest mutual fund houses – in almost every single Southeast Asian market, the big five mutual funds account for more than half of total industry AUM.

Yet the push towards unconventional products and assets in the region is very real, and will only increase in upcoming years. Two Philippines-based managers exploring online platforms to sell proprietary products, with one of the firms using social media to target retail investors with a minimum one-time investment of P10,000 ($226.40). The aim is to help expand the client base of high-net-worth and ultra-high-net-worth individuals.

In addition, some Indonesian fund houses are attempting to diversify their client base by targeting lower-wealth tiers through banks’ savings plans.

Ultimately, this shift towards new, innovative products is a positive change for Southeast Asia, albeit a gradual one, Cerulli notes.

Although the range of products will expand beyond traditional mutual funds, Cerulli’s four-year forecast for Asia ex-Japan mutual fund AUM is very bullish. It anticipates that assets will increase 67% to $1.9 trillion by 2017.

Yet emerging markets have endured a strong sell-off this summer, triggered by the US Federal Reserve’s planned tapering of its quantitative easing programme, depreciating currencies and rising current-account deficits. Asia ex-Japan mutual fund outflows totalled $2.4 billion in the 30 days to August 21, according to HSBC Global Research.