Wednesday, 16 December 2015

IFA Industry in Hong Kong: What is missing?

Hong Kong has all the chances to become the world’s leading fund distribution centre, but the lack of strong IFA (Independent Financial Adviser) industry and the concentration of sales channels in banking sector question if it could really happen.

Credit: Abdul
The biggest challenge for Hong Kong is that fund distribution channels are mostly concentrated in the banking sector and primarily with a small amount of banks. On top of that, unlike the UK and the US the IFA industry is not well developed. There are, however, a large number of independent wealth management firms across Hong Kong, but the authentic meaning of advisory seems to be lost for many of them. Alternative new sales channels for fund distribution are limited, as banks have been able to exploit their existing retail distribution network, which makes it difficult for new players or distribution channels to take hold - plus small players struggle to meet the capital requirements imposed by the SFC.
The size of Hong Kong’s market is another reason why it can be quite challenging to become the global fund distribution centre. Some experts believe that Hong Kong needs to grow via the sale of funds to overseas investors. Launched in July 2015 MRF enables funds to be sold into China laying the foundation for the strengthening of financial and regulatory ties between the two.

Client on-boarding is also viewed as quite costly and discouraging to investors. The process often involves a direct identification process, which can be problematic for online platforms in particular. Therefore, the uptake of online platforms has been quicker in more developed markets.

Despite these challenges, Asian market is considered to be very attractive with its economic power, growing pension funds, and an increasing number of high net worth individuals.

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