In Asia, unlike the UK and many other more mature investment markets, the independent financial adviser is a relatively new face on the financial services block.
In Singapore, for example, legislation providing for the creation of such entities, the Financial Advisers Act, did not exist until 2001.
Nevertheless, IFAs in Singapore have managed to gain a fairly sizeable share of the local investment market over the past ten years, and this year they increased their share of life insurance new business sales, as measured in annual premium equivalent (APE), to 22% in 2011 from 19% last year (see graph below), a new study from NMG Insights reveals.
This has occurred primarily at the expense of the agency sector, which consists mainly of the ‘tied’ agents of insurance behemoths such as AIA and Prudential, the data shows.
But financial advisers in Hong Kong are apparently finding the going a little bit tougher. This year they have managed only to maintain their 15% share of new business APE sales, compared with last year, even as giants such as Bank of China, HSBC and Standard Chartered grew their share by four percentage points to 57% – almost double the banking sector’s current new life insurance business share in Singapore, according to the NMG data.
Tied agents in Hong Kong, meanwhile, saw their share of the new business pie over the past year decline by as much as the banks’ share grew. This, of course, is a trend that is consistent with what has occurred historically in such other markets as Australia and the UK, both of which are further down the evolutionary road, as the investment product distribution channels in these countries mature.
Targeting HNWIs
Sources familiar with the Hong Kong and Singaporean IFA markets point out that independent advisers are understood to be strongest at the higher end of both markets.
Having lately recognised this, they are reported to have begun adjusting their product ranges and marketing efforts to more directly target the high net worth individual (HNWI) sector, which is normally defined as those with $1m or more of investable assets.
The NMG data came out of an annual study the consultancy conducts of Asian investment product distributors, and is based on interviews with some 120 IFAs, premium banks, private banks and private bank brokers located in Singapore, Hong Kong, Malaysia and such other markets as Indonesia and Thailand. The interviews were conducted between May and July this year.
Onshore suppliers
One of the key changes highlighted by the NMG research is the growth in take-up by Asia-based IFAs of local regular premium products, at the apparent cost of offshore regular premium ones, based on APE new business data (see pie charts), and from insurance-linked investments to wrap platforms.
This year, offshore regular premium products fell to approximately one-third of the $1.4bn total APE, from almost half (46%) of 2010’s APE total of $1.2bn, the NMG data shows.
At the same time, platforms – a sector dominated in Asia by Singapore-based iFast – grew their share of new business to close to 20%.
Take-up of protection products by Asian investors, meanwhile, stood at a relatively-low 6% as compared with more mature markets, and was unchanged from 2010.
Taken together, the data appear to confirm a phenomenon many Asia-based financial advisers have commented on in recent years: the influence that the growing numbers of local Asian investors are beginning to have on an investment product market that had its origins in catering primarily to Western expats.
Such local investors previously tended to be looked after by the tied agents of insurance companies. But now, it is said, they are becoming more sophisticated, and beginning to look for advisers with more products to offer and a wider range of investment services.
Challenge
Another trend that seems to be emerging is the success that local investment product providers are having in beginning to attract business away from such dominant offshore life insurance players as Friends Provident International and Zurich International. That said, this is not an easy race to call, since there is some blurring of the boundaries between ‘local’ and ‘offshore’ entities, as a few of the ‘local’ players are actually local operations of international insurers, such as Standard Life’s business in Hong Kong.
Meanwhile, one of the fastest-growing competitors for new investment product provision, among life companies and IFAs in the Asian countries studied, is not an established life insurance giant such as FPI or Zurich – or indeed, an insurance company of any kind. Rather, it is iFast, the platform provider, which in little more than a decade has built up assets under administration of more than s$4.05bn ($3.2bn), and has expanded into Hong Kong, India and Malaysia.
The NMG findings correlate with the most recent Merrill Lynch/Capgemini World Wealth Report, which in June revealed that for the first time, there were more HNWIs in Asia (3.3 million) than in Europe (3.1 million). Only the US, with 3.4 million HNWIs, had more than Asia, although on a country-by-country basis, it remains the world’s millionaire capital by far.
“In 2010, eight of the world’s 20 fastest-growing HNWI populations were Asia Pacific markets, including Hong Kong, Vietnam, Sri Lanka, Indonesia, Singapore and India,” the Merrill Lynch/ Capgemini report said, noting that growth in many of these countries was being fuelled by both strong macroeconomic growth as well as market performance, “especially equities and real estate”.
However, the report added: “Looking forward, the outlook is unclear for many of the key asset classes that have driven wealth creation for Asia Pacific HNWIs, particularly real estate and equities.
“Governments are also facing numerous challenges that could constrain economic expansion in the coming years.”
NMG Consulting is a specialist multi-national consulting firm focused on the insurance, reinsurance and investments sectors. Its NMG Insights division has been conducting an annual study of Asia’s premium advisory market for the past five years, from which the data for this article was taken. Further insights from this and NMG’s other global studies may be found at www.nmg-group.com.
