Over the past year, regulators have announced new rules which not only require increased capital and in some cases impinge on revenue streams, but also set requirements for persons to be appointed to specific company positions.
For example, in the UAE as of 28 November, an insurance brokerage will have to have a chief executive, an operations manager, an internal auditor, an individual head of each line of business and a separate head of each branch. These roles must also not be combined with a sales function.
Meanwhile, in Singapore, draft regulations published last month stipulate advisory firms must have an independent sales audit unit “responsible for the audit of the quality of the financial advisory services provided”.
In Singapore this is only a small part of wider changes following the Monetary Authority of Singapore’s Financial Advisory Industry Review.
Advisers also face a fundamental shift in how they receive commission payments following the sale of investment-linked assurance schemes (ILAS), with full payment of indemnity commission deferred over six years.
In Hong Kong, however, while no changes to the structure of advisory companies have been announced, the industry was shocked earlier this year to be told that indemnity commission would be entirely banned on the sale of ILAS products from January 2015. This could prove fatal for some advisory companies which have not been able to build substantial assets under administration, and therefore longevity, into their business.
DeVere chief executive Nigel Green earlier this year in an editorial for International Adviser, controversially forecast that of the approximately 150 firms currently listed as Insurance Authority-licensed brokerages in the UAE, only six would be compliant after November.
Click here to watch a recent video interview with Green where he talks about market consolidation
In his piece, Green also predicted regulation would lead to consolidation in the market, which was discussed during last month’s IA Expert Investor Forum Singapore.
Click here to read what happened at the event
Tim Searle, chairman of Globaleye, which has its headquarters in Dubai, but has operations in Europe and Asia, said the “commission deferral” rules, while navigable for larger firms, could prove problematic for new entrants.
“It will be more difficult for those who don’t have a decent business underneath their belts already to survive in the new world,” said Searle.
“I like the fact commissions have been drawn out, because it’s very much within our model anyway. But for new entrants it will very difficult.”
Meanwhile, David Pugh, general manager of The Fry Group in Singapore, questioned whether “big” is always “better”.
“I began my career at Lucas Fettes & Partners – a firm of 10 advisers. On the other hand, I worked for Hargreaves Lansdown, a FTSE 100 company. I’ve never seen since a firm that’s more focused on what the client needs, and that’s been tested on its feet by their success. So, big or small, I think it’s missing the point. It’s good or bad.”