Since the financial crisis of 2008/2009, which revealed the widespread sale of ultimately worthless Lehman Brothers-linked mini-bonds, regulatory bodies in Hong Kong have been tightening the distribution of investment funds.
One upshot has been that the Securities and Futures Commission, which regulates fund sales, now requires advisers to hold a Type 1 licence, meaning, as well as having to obtain the licence, advisers need to hold HK$3.6m on deposit.
Advisers also claim that, where they were once able to access a wide range of offshore funds, as well as Hong Kong onshore funds, the SFC has now ensured that only those funds registered in the jurisdiction are available to retail investors.
Harpreet Sajjan, head of Portfolio Management at Platinum Financial Services, said: “I can understand that the SFC wants to ensure any fund available in Hong Kong has been properly vetted and that there is no risk to the investor.
“However, they are limiting the investment choice essentially to make money from fees. A fully qualified adviser, with his client, should be allowed to make the investment decision over whether to use an offshore fund, without interference from the regulator.”
James Sutton, director at the Hong Kong branch of The Fry Group, agreed. “For retail clients, you are only able recommend SFC authorised funds, or those that meet certain exemptions and unfortunately that list of funds is limited.
“This is not such an issue for local investors, but more so if you are dealing with overseas nationals, for example British expats wishing for a range of sterling-denominated funds, or those that are more UK or overseas centric.”
It has also been suggested that, due to increasing regulation, both in Hong Kong and overseas, international life offices, which provide the main bulk of the products sold by advisers, are imposing more onerous “know-your-client” checks. Sajjan said the increased time this is taking has already cost him business, with clients going to banks who are able to operate much more quickly.
Glenn Turner, chairman of the Independent Financial Advisors Association, said, while banks are subject much of the same regulation, they seem to circumvent this with weak internal procedures.
“If the banks obeyed the regulations properly then it should not be easier for them to sell however, I do not believe many banks do obey the regulations,” he said.
“Banks operate at much lower levels of best practice than IFAs or agents, meaning they can process sales much more quickly.”