The giant US-based asset manager surveyed over 900 advisers in the five countries to find that “by a significant margin” more advisers said their profession had become much more difficult than said it had become easier.
“Under the weight of regulatory compliance, advisers across the globe foresee an industry shake-out in the next three to five years. They see older advisers exiting the business and those who remain narrowing their focus to serve high-value accounts, leaving lower-asset clients to automated solutions,” Vanguard said in a report released on Tuesday.
However, the global survey found some significant differences when it came to the advice industry in Hong Kong, where 80% of advisers are aged 40 or younger and the industry is more gender-diverse.
Investment focus
Hong Kong was the only place where worries about investment decisions and market volatility knocked concerns about regulatory change into second place.
“Advisers in Hong Kong wrestle most with investment selection amid unpredictable markets,” Vanguard said.
The survey also found that around 75% of the 132 Hong Kong advisers surveyed said they see a trend toward fee-based portfolio management. However, only 22% saw their own practice becoming fee-based in the next five years. A finding that indicates many advisory practices may be unprepared for the changes that are likely in the near future.
Hong Kong advisers did say they believed they would be able to help their clients more with a fee-based model, but they also acknowledged that their reason for adhering to a commission-based model was revenue-driven, the survey found.
“The top reason most advisers prefer commissions? An ability to generate more revenue than with a fee-based model,” the survey reported.
In Hong Kong, 45% of the respondents’ aggregate practice was fee-based. Only 5% said their practice was 100% fee-based.
Vanguard questioned whether Hong Kong advisers should in fact be more worried about regulatory changes going forward.
It noted recent comments from the Securities and Futures Commission (SFC) indicated that tougher standards around advice and fees, that were more in line with the global trend for a ban on adviser commissions, were on their way.
“Whether such a ban may ultimately be proposed for Hong Kong has become a subject of debate. But the current proposals (from the SFC) mark a clear step towards Hong Kong’s following a global trend.
“In a statement announcing the (latest) proposals, the SFC’s chief executive officer noted ‘it is important to ensure that our regulations are properly benchmarked to evolving international standards’,” the asset manager said.
Fee-based trend
In other parts of the world, where regulation has nudged the advice model towards fee-based structures – and in the United Kingdom, where fee-based is the law – Vanguard found advisers are embracing a “whole-client” approach
Vanguard calls this approach “Adviser’s Alpha,” where the adviser moves on from being a stock-picker towards a focus on asset allocation, rebalancing, cost effective implementation and behavioural coaching.
“It’s an approach that redefines the adviser’s value proposition, and accepts market volatility as a natural part of investing. Rather than trying to outperform a benchmark – something that our research makes clear is very difficult to do – the adviser focuses on the whole client,” it said.
“Advisers initially took to the Adviser’s Alpha approach cautiously. They wondered how they could explain their value to clients if it no longer related to outperformance. But as it turns out, clients – especially sophisticated high-net-worth clients – have been receptive to advisers’ focusing on areas they can actually control, such as wealth planning and behavioural coaching.”
Vanguard said it had partnered with research firm Ipsos to conduct the survey which targeted more than 900 advisers across multiple channels in Hong Kong, Australia, the UK, Canada and the US.
All respondents had to be working as a financial adviser or relationship manager at the time the research was conducted.
Respondents additionally had to have a minimum tenure of five years and their own book of business, personally providing financial advice to clients.
