Last month, the Securities and Futures Commission (SFC) revealed that the number of intermediary licences had jumped to 1,805 between April and June this year, a rise of 15% compared to the same period in 2014.
In April, the chairman of Hong Kong’s Independent Financial Advisors (HKIFA) said the advice industry will suffer a “service vacuum” because of the “over-ambitious” timeframe of the regulatory reforms, which include January’s ban on indemnity commission.
However, with the number of licences increasing, HKIFA’s predicted ‘advice gap’ is put into question.
Strabens Hall’s Hong Kong director David Benskin suggested the increase could be due to the rise in private bankers, leaving the big banks to set up independent advice firms which require the appropriate SFC licensing.
“IFAs were left with very few products to offer to prospective clients"
Benskin also suggested the jump could be caused by Asian-based hedge funds choosing to set up in Hong Kong, which also need to be licensed.
“Hong Kong as a jurisdiction is well regulated, has good infrastructure and importantly has relatively easy access to deal flow coming out of China,” he said.
Growing & global city
Similarly, Globaleye’s managing director Edward Harris said he expected the increase to be caused by applications from banking, asset management, and fund companies looking to do business in the “growing and global city” of Hong Kong.
He said some applications will be local and expat IFAs wishing to gain SFC licenses because of the changes and restrictions to investment-linked assurance schemes (ILAS).
In June, Hong Kong’s Office of the Commissioner of Insurance published figures indicating that the number of ILAS being sold had halved in the first three months of the year.
‘Extremely short notice’
Harris said life companies were given “extremely short notice” to adapt to guidance note 15, the circular containing details of amendments to the way class-C investment linked insurance products are sold.
“IFAs were left with very few products to offer to prospective clients,” he said. “I believe some IFA firms do not wish to risk a repeat of this and are hedging their bets by seeking dual licences.”
“However, many firms which have gone down this route and now offer discretionary fund management services have neither the experience nor the internal resources to effectively provide these services.
“Over the last few years in HK we have seen prominent in-house DFM services give disastrous results for clients’ portfolios, with inappropriately aggressive and concentrated portfolios.
“Clients should thoroughly investigate these ’tied’ or ‘in-house’ offerings to understand who is behind the investment decisions.”