Earlier this week, International Adviser reported that the Hong Kong Federation of Insurers (HKFI) had issued new guidance notes to the life industry informing it of measures being introduced to increase transparency and customer protection.
Drawn up with cooperation between the Office of the Commissioner of Insurance, the HK Monetary Authority, the Securities and Futures Commission and the HKFI, the new rules will mean financial advisers offering ILAS products will have to formerly disclose commission payments to their clients from 1 July onwards.
It should be noted that from 15 April this year, advisers have been expected to disclose commission payments to their clients and that the new requirement will be for this to be set out clearly in a newly created Important Facts Document (IFS) from 1 July.
Another of the new consumer protection measures is a requirement that life companies contact each individual after every purchase of an ILAS product to ensure they understand the product fully and, importantly, that they understand the adviser’s remuneration. This will also be implemented from 1 July.
Lehman mini-bond fallout
Financial adviser Melanie Nutbeam, who is a senior associate at HFS Asset Management in Hong Kong, points out that these new regulations are only the latest in a raft of measures introduced since the Lehman Brothers mini-bond “fiasco” in which many high street investors were left heavily out-of-pocket.
“Commentary raged through the press and still does,” she said. “The distribution of complex bonds to ‘mum and dad’ investors was criticized for many reasons including that clauses in relation to commissions were unclear and/or misleading.”
Nutbeam has been offering a fee-only service to her clients for a number of years, and says, while there are clear arguments both for and against the use of commission, a reluctance to disclose them “can’t help but raise a lot of questions”, so welcomed the new measures.
[Click here to read a recent profile of Melanie Nutbeam]
Mark Everitt, chief executive of international advisory company Globaleye’s Hong Kong office, said the question of commission disclosure had already been addressed last month and that, while the IFS may be seen as an “unnecessary reinforcement of rules firmly in place”, the greater concern for advisers will be life company’s after sales process.
“How life companies propose to satisfy the HKFI’s demand for a post sales call to clients that may already be suffering ‘compliance fatigue’ after being guided through an application process which will in some cases require no less than 16 signatures, each confirming their understanding of the fine detail of the ILAS product in question, is of greater concern to advisers,” he said.
Alan Armitage Standard Life’s chief executive of Asia and emerging markets said the new rules should not pose too significant a problem as providers have been aware of them for some time.
However, he said some financial advisers will need to “refine some of their working practices to support these changes in regulation”, but pointed out that Standard Life has been through similar issues on a number of occasions and so will be there to offer support.
The burning question though seems to be whether this is a precursor to Hong Kong adopting a model similar to those in Australia or the UK where commission is completely banned.
Nutbeam said this is perhaps not the case, but did not entirely rule it out.
“The measures are not necessarily linked to a move from transaction-driven relationships to advice-driven relationships. That’s a different business model. But it’s a model the industry is becoming increasingly interested in as it realizes the waves of change in the UK, Australia and elsewhere will inevitably reach our shores.”
Click here to read reaction to the planned introduction of sweeping regulatory changes in Singapore
