It may be harder than in the past for foreign asset managers to operate in Taiwan, but the local authorities are making progress on creating a more conducive environment for online fund distribution. This will be welcome news to the investment industry, as product distribution via intermediaries has been gaining importance in Asia.
FundRich Securities, Taiwan’s government-backed online fund sales platform, is readying a fund-selection tool for launch next week and aims to launch a platform for third-party robo services early next year.
The fund-selection tool employs parameters used by research houses such as Lipper or Morningstar, such as performance and risk levels. Unlike a third-party service that FundRich already offers – ‘bubble chart', developed by Australian financial technology firm Square One – the new product doesn’t use fund fees as a parameter.
Both tools help investors pick products on an automated basis by assessing various parameters against investors’ risk profiles and then listing the most suitable ones. “We don’t recommend funds directly to investors,” Sherman Lin, the company's chairman, told AsianInvestor.
He said FundRich was also talking to other potential partners about adding more selection tools.
Meanwhile, the firm will not develop its own robo-advisers, which create portfolios on an automated basis. Instead, it wants asset managers – both local and foreign – to offer such services via its platform.
FundRich focuses on building and providing infrastructure, noted Lin. As technology and investor demands keep changing, “we cannot provide all the solutions in-house, so we are open to incorporate more solutions providers to join our platform”, he said.
Asset managers’ robo-advisers will be able to access the 2,500 funds available through FundRich and recommend portfolios to investors, Lin noted. He declined to identify any asset managers that it was talking to.
The regulator – the Financial Services Commission (FSC) – has been very supportive of FundRich’s development of robo services, Lin said.
Risk profile restriction
However, there are still issues to be addressed, noted industry observers.
A key obstacle relates to investors’ risk profiles. The overall risk level of the portfolio constructed by the robo must not exceed an investor’s risk appetite, which is set based on an assessment. But the rules state that every asset in the portfolio must not exceed the overall risk appetite level. This is a requirement that needs to change of robo-advisers are to take off in Taiwan, said sources.
Lin declined to comment, apart from to say: “We’ve been communicating with the regulator on that front.”
The FSC has certainly made clear its belief that financial technology is key to the development of the local investment industry.
However, domestic banks are opposed to the development of a centralised online fund distribution platform and – concerned about a rise in competition – had sought to prevent it taking off, as fund executives have told AsianInvestor in the past.
Still, FundRich seems to be gaining momentum. It started accepting registrations in June 2016 and had more than 15,000 users as of May 30, with total assets under management standing at NT$4 billion ($133 million). Of the 2,500 funds it distributes, 66% are offshore products and 34% onshore.
FundRich’s biggest shareholder is Taiwan Depository & Clearing Corporation, a government body, with a 51.43% stake. Taipei Exchange holds 8.57%, and 34 asset managers own the remaining 40% between them.
The full interview with Sherman Lin will appear on the upcoming June/July issue of AsianInvestor magazine.