Establishing a foothold in Labuan, Malaysia’s offshore financial centre, is a turning point for Hong Kong-based financial advisory firm Just Service HK, says its chief executive Phil Neilson.
“Hong Kong has limitations in terms of building a global business, therefore we have just had confirmation that our licence in Labuan has been approved,” he says.
Just Service was launched by Neilson in late 2014, after he spotted a gap in the market for a financial advisory firm specialising in technology.
Filling the gap
Today, the firm advises expat clients living in Hong Kong, offers back-office services to the region’s IFAs and has an in-house platform, Genius, which it plans to license to insurance companies in a bid to pick up their ‘non-serviced’ policyholders.
“While we are an advisory in Hong Kong, we are more of a fintech,” says New Zealand-born Neilson. “I tried to buy an advisory business but it is much easier – especially if you want to build a technology platform – to start from scratch, as you do not have any other baggage.”
Demand for its services has exploded over the past year, says Neilson. The firm now partners with unregulated IFAs in Thailand, Singapore and Malaysia, has $100m of assets under management and, according to Neilson, is planning to triple its client base from 500 to 1,500 over the next 12 months.
“One IFA in Thailand currently has more than 2,500 clients, and up to 300 people joining each month. That is massive growth,” he says.
Just Service works with these firms to ensure their clients receive monthly updates so that they can “see what is going on with their money”, Neilson says.
“Often these firms do not have any formalised ongoing service delivery for clients. So the idea of Just Service delivering monthly updates, market news and developing ongoing relationships with their clients is really appealing,” he says.
Which is where the licence for Labuan and plans for an office in Kuala Lumpur come in. Neilson hopes the licence in Labuan – an island off the coast of Malaysia – will attract unregulated IFA firms across Asia that will seek to team up with Just Service to gain legitimacy in the region.
“Wherever we operate we want to not only be licensed but have a ‘real presence’ as part of a professional, compliant and transparent advisory and technology business.”
Neilson predicts that new regulations proposed in the Isle of Man earlier this summer will boost growth in its service business.
In July, the Isle of Man Financial Services Authority set out plans that if implemented would mean international life companies, most of which are registered on the island, will only be able to receive business via a licensed IFA.
“When this is brought in, it will be a wonderful thing for us because that will be our model,” he says.
“For someone who owns an IFA company, I do not fit the usual profile,” says Neilson.
Having started out as a financial adviser more than 30 years ago, Neilson forged a career in sales, rising through the ranks at New Zealand’s Colonial Insurance in the late 1990s.
Arriving in Hong Kong in 2001 with Dutch giant ING, Neilson built the insurer’s IFA model in the city state and then went on to launch the first mutual fund platform in Hong Kong, ING iWrap, which was subsequently bought out by Singaporean wealth manager iFast.
Then during a three-year stint with the Henley Group – now owned by St James’s Place – Neilson updated the company’s business model from the “old-world selling of products” to an assets under management fee-based model.
Despite his corporate past, Neilson describes himself as an “intrapreneur”, someone who is innovative while working at large commercial companies.
“I thought about setting up my own firm for a long time, even when I was in a corporate. I was always an ‘out of the box’ thinker or challenging the status quo.
“Plenty of people had said to me over the years, you should set up your own operation,” he says.
Before launching Just Service, he worked as a consultant with Hong Kong’s advisory industry, including the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority.
His time at the SFC involved helping the regulator “build an extra layer of supervision for advisers”, which included launching a mystery shopping programme for IFAs in Hong Kong. “The SFC has used this mystery shopping process at least three times in the past few years and the results were unsatisfactory. It was disappointed in terms of their conduct as advisers in adhering to regulation,” says Neilson.
Hong Kong’s regulatory landscape has undergone massive upheaval in recent years. In January last year, the Insurance Authority banned commission clawback on Investment Linked Assurance Schemes under its GN15 legislation.
The move came after complaints that the products failed to protect consumers and that the high initial fees were unfair. The clawback, known as indemnity insurance, is where a life company pays commission to an intermediary based on the full value of the policy, which could run for 25 years.
Despite the ban, life companies are still entitled to take back some or all of the commission if the policy is cancelled.
GN16, which is expected to be phased in by January 2017, outlines the requirements for the fair treatment of customers – largely covering class-A products, such as whole-of-life policies.
Neilson says these changes, especially under GN15, which was criticised for giving IFAs just five months to comply, led to many smaller firms leaving the advice industry.
He adds that only larger firms or those working in a niche area were able to make the switch from commission to ongoing business models.
“It is largely the businesses that had significant client books that survived or those working in a niche, such as offshore property or UK pension transfers. Unless a business was niche, it had to have at least 150 to 200 clients to survive the transition from big upfront commissions to more ongoing revenue,” he says.
Just Service operates a split charging structure. Its advisory service charges a fee while its IFA clients take upfront commission, of which the firm takes a percentage of the recurring revenue.
Despite adapting well to the new regulations, Neilson says he is frustrated at the “archaic” ways in which some international life companies in Hong Kong still operate. Insurers are failing to invest enough resources into transitioning to the ongoing revenue model, he says, instead holding on to their outdated role as a product manufacturer.
“There are many examples where their operations are dealing with rules that have been there for 20 or 30 years.
“I am there saying, ‘I do not get much in terms of upfront revenues, my business depends on recurring commissions and you have got to be supportive here’. Generally, it takes forever to get something changed because they are so slow to react,” he says.
Given the challenges, Neilson remains optimistic about the future direction of Just Service. The firm’s main focus, he says, will be to continue to grow its international partnering with offshore IFAs as well as working with insurance companies to fully license its Genius platform.
Another area the company is looking to move into is robo-advice, with plans to build a service that allows clients to choose between using an automated guide or a qualified human adviser.
“Over the next five years, we are going to see a serious surge of technology and automation and people being able to ‘do it yourself’, which will sit alongside human advisers,” he says.
For now, Neilson is happy with the rate of progress, listing his biggest achievement to date as “proving that the model works and that the industry has a bright future if you focus on recurring revenues”.