There has been considerable change in Hong Kong and Singapore’s financial advice industries over the past few years, which have historically been the regional hubs.
Regulation and rising costs in the special administrative region and the Lion City have forced firms and individuals out, while others have teamed up through various M&A deals.
Malaysia has made great strides forward but the advisory industry has been relatively quiet across other markets.
It begs the question: how is the industry faring beyond the key hubs?
Snapping at the heels
“Malaysia has the benefit of being one of the few countries in Asia, outside of Hong Kong and Singapore, where the independent financial advisory sector is well defined,” David Knights, head of Asia distribution for Investors Trust, told International Adviser.
There is a growing number of local advisory firms “seeking to displace the banks and insurance agents as the primary source of financial advice for affluent Malaysians”, he said.
Expat businesses, on the other hand, are increasingly adopting a “hub and spoke” approach, where they “use Malaysia as a base from which to serve clients around south-east Asia; including newly developing markets, such as Vietnam and Cambodia, where numbers of expatriates are starting to increase”.
“The introduction of conduct of business rules in a number of major offshore jurisdictions and the requirement that institutions only deal with licensed distribution partners is also leading to increased interest in becoming licensed in locations such as Malaysia, typically through the Labuan offshore centre.”
Knights added that firms are also looking to diversify and work with a broader range of clients.
“This reflects the changing nationality mix of the expatriate segment across the region and also the growing awareness of local nationals of the benefits of independent advice.”
A demonstration of Investors Trust’s confidence in the Malaysian market is its recent decision to move from a branch operation and set up a full subsidiary insurer, ITA Asia, which is licensed in Labuan.
Not so rosy
Farringdon duo Stuart Yeomans and Martin Young, however, have a less sanguine view of the Asia market.
“It’s pretty obvious that the market has had enough of IFAs that offer little more than long-term product with heavy commissions,” said Yeomans, chief executive of Farringdon Group.
He moved to Dubai to run the firm’s newly opened office in March, having previously headed up its Malaysia operation.
“Hence we are seeing firms go out of business because they can’t generate the commission that they used to.”
Farringdon Asset Management chief executive, Young, agreed. “The number of expats is in steep decline, which is why there is so much consolidation in the market.
“The number of expatriate advice firms in Kuala Lumpur has dropped by more than half and it’s a similar situation in Singapore. Firms that are doing well have branched out into more specialist areas of planning or into the ultra-high net worth space like us.”
When it comes to looking to set up in other markets, Young admits the firm has looked at Vietnam twice.
“It has been around for a long time but it is a very limited market and not worth opening an office in.”
Yeomans added: “The ultra-high net worth space doesn’t need offices in smaller places like Vietnam and Thailand. These types of clients prefer to bank in places like Singapore and the Dubai International Financial Centre (DIFC), hence our core business focusing there.”
Some still see opportunity
That point of view hasn’t put others off, however.
In April 2019, Holborn Assets opened an office in Ho Chi Minh City, Vietnam.
Globaleye chairman Tim Searle confirmed to IA that his advisory firm had “closed its office” and “passed our lease for Holborn Assets to take on going forwards”.
The switch also saw Andrew Menzies leave Globaleye and become country manager of Vietnam for Holborn.
Changing needs and changing times
Of the key regions covered by International Adviser, Asia has experienced the most seismic change when you look at the domestic population.
Back in its infancy, the financial advisory sector was born out of a need to cater to westerners living and working overseas.
At that time, Asia was barely at the start of its growth story and the monumental wealth now associated with the region was a twinkle in the eye of providence.
The wealthiest people in each country are increasingly locals and demand is on the rise for homegrown expertise.
[While it could be argued that the UAE has undergone a similar story, the locals are still staggeringly outnumbered by foreigners, meaning demand for expat advisers remains very high.]
The draw of the familiar that first took Brits out to Asia to advise their fellow countrymen is being mimicked in Asia. People want to know that their adviser or wealth manager is fully versed in their local tax law and understands their culture.
Increasing numbers of expat firms in Asia are courting the local market. A two-pronged approach will likely stave off any shifts in the population but requires more resources, staff and a multi-cultural approach.
Rising costs are also pushing advisers to seek out increasingly wealthy clients – specifically those falling just shy of the private banker threshold. This leaves big numbers of people without access to quality advice.
Technology to the rescue?
So, to recap, there are fewer advisory firms in the core Asian markets and they appear reluctant to set up shop in developing markets.
This means there are fewer players and they are focusing on higher-value clients, leaving affluent and rich locals and expats struggling to find quality advice.
Admittedly, this leaves the door open for less scrupulous firms and individuals to pounce on unsuspecting clients.
But it could also be the drive the sector needs to develop a standout piece of fintech.
“This is one of the main reasons that we set up the robo-adviser to cater for the smaller accounts,” Yeomans told IA. “Its fees are way lower than regular premium policies that many IFAs use.”
Many have tried but few have truly succeeded. Such an imbalance between supply and demand, however, could be the catalyst for a technology solution that resolves, at least some of, the problem.
