Earlier this summer, after the worst typhoon in 13 years had battered Hong Kong overnight, Melanie Nutbeam arrived at HFS Asset Management’s offices in the heart of the Wanchai district to find all the trees along the Gloucester Road uprooted and fallen to one side as if they had been picked up and dumped down by some great force.
Typhoons are a regular enough occurrence in Hong Kong for the alert system to come into play effectively. Nutbeam, like others, had noted the Observatory went from issuing a low hurricane signal to the maximum ten. She even managed to get home to her flat, handily positioned near an underground MTR station, before it started raining but she also recalls how she worried that her large terrace might fill up with water by the time morning came.
Spared a swimming pool feature, and when not challenged by the elements, she is forging a path as one of the few fee-based financial planners in this part of the world.
An extreme regime
“The fees versus commissions debate has raged for the 26 years I’ve been a financial planner,” she says. “I started in Australia, which has now gone to an extreme that makes Hong Kong IFAs shake in their shoes. There are arguments for and against fees and commissions.
“There is also a view that people in Hong Kong will not pay for advice. Perhaps I just work with the exceptions, but certainly I find people are prepared to pay for advice.”
Nutbeam gained a law degree at Auckland Uni¬ver¬sity before embarking on a financial career. She joined HFS Asset Manage-ment as a senior associate in 2011 having moved to Hong Kong in 1993, four years before the handover to China.
Gap in the market
She soon realised no one was advising Australian expats, forming a niche high net worth client bank which caught the eye of Axa’s Ipac. She was taken on as its first external recruit for its new fee-based operation in Asia.
Leaving Ipac before its high-profile cessation of operations in Hong Kong, she joined HFS Asset Management after getting to know and being impressed by managing director David Bojan’s approach to the business.
HFS was set up in 1996 by partners in accounting firm Horwath Hong Kong. Bojan, who had arrived from the UK a few years earlier, was appointed almost from the outset as managing director.
The aim was to complement the professional services already offered to Horwarth’s clients with a range of financial advisory services, and Bojan built a team of advisers numbering 20 at its peak.
Building a team
Then along came a large Australia-wide adviser business, Professional Invest¬¬ment Services, which bought HFS in 2007. Bojan remained as director until the global financial crisis of 2008 led to a retreat back to Australia.
However, Bojan and former Horwath partner Charles Dickson were pleased to become the sole principals of the business in 2011 and they renamed it HFS Asset Management. Dickson, resident of Hong Kong for over 30 years, had been a keen observer of this side of Horwarth’s business and he had a solid working relationship with Bojan.
Charles Dickson, Melanie Nutbeam and Ricky Chan
Services offered to clients include investment advisory, asset management, risk management and pension transfer work. Bojan specialises in the latter, mostly for UK expats. Dickson is a non-executive and the other advisers in the team are Ricky Chan, who has been with HFS for 12 years, Brian Taylor and Koonie Chan, who between them have clocked up five years with the firm.
Unlike the others in the team, who typically work on a commission basis using portfolio bonds, Nutbeam takes a fee-based, holistic financial planning approach. She charges on a time cost basis at HK$3,000 an hour and works out a fee for a financial plan.
Her qualifications – she is a certified financial planner with a diploma in financial planning and a postgraduate diploma in applied finance and investment – reflect her priorities in giving advice.
If the client elects to accept a product recommendation arising out of the plan, then a separate “modest upfront fee” is usually charged for this service, followed by a recurring 1% average portfolio management fee. The management fee is also “modest in comparison to some I’ve seen, especially when the ongoing fee covers updates to the overall financial plan as well”, she says.
“I see value in the financial plan itself and I have always charged for my advice,” she adds. With the help of Excel spreadsheets, she uses the classic six-step process, including identifying the client’s goals, which she factors in with the capital resources and savings potential available. Asset, liabilities, protection needs, investments and tax strategies all go into the mix.
With some clients, Nutbeam finds there is real value in just working out a budget for them; others just want to know whether they are saving enough.
Although many other advisers in Hong Kong do not believe that charging fees can be a profitable way of doing business, she says she has an 80% to 85% success rate in signing up new clients. She readily reveals that usually the clients have been referred to her, so they already have an idea of how she does things.
She mentions a client who works in a high-profile role on one of the international TV channels based in Hong Kong, with a complex divorce behind her, and who wanted to know if she had enough saved for her retirement.
Another fee-based client is a wealthy local professional moving to Australia. Nutbeam reviewed his portfolio of shares, property, FX accounts and other assets, tax structuring asset requirements in Australia, superannuation and banking arrangements.
She then coordinated strategy and introduced him to accountants and other professionals.
She is even preparing a plan for a US citizen who is a long-time resident of Hong Kong. “Helping his parent manage retirement finances has made him aware that his own retirement is only about 15 years away, so we are doing a thorough review of whether his resources will enable him to meet his goals. My role is to make him aware of his options. There is value in that. It is a service that can be distinguished from pushing an investment product.”
She adds it is a great service to offer a client as it forms the basis of a good long-term relationship “and that is what financial planning is about. To me it is important to have both depth of relationship with a client and to be able to offer breadth of service.”
While many advisers would shy away from FATCA issues, Nutbeam argues “that is the beauty of charging a fee for advice” because the complexity of the case can be covered by her time-charged fees.
“Interestingly, though, I have just completed a long and in-depth research job for a very wealthy client and we agreed at the outset I would not charge a fee for service, but rather my time would be covered by commission on the product if he went ahead. He preferred that approach.”
She continues: “I can’t say, hand on heart, that I’m fee-only, but I can say I offer a fee-based advisory service for those who want it.”
Nutbeam did a lot of networking when she arrived in Hong Kong. Her long-standing memberships include the Royal Geographic Society and a directorship at the Australian Chamber of Commerce.
She never tires of Hong Kong as a stimulating and fascinating place in which to live and work. However, her enjoyment of the outdoors took her to Europe this year for a summer holiday where she did some dramatic and elevated Alpine climbs.
On the economic front, exports to the US and eurozone have slowed the Hong Kong economy but growth is still in positive territory and inflation has receded. Total employment levels are at record highs, creating a tight labour market which has generated moderate wages and earnings increases in some sectors while property prices have slowed a little and transaction volumes are down, she says.
“I’m less concerned now about clients losing their jobs, and I’m working with younger clients to ensure they keep their savings plans. In some cases we’re also setting funds aside to take advantage of any drop in the Hong Kong property market.”
Older clients tend to wait around on the sidelines: “They are more concerned about preserving capital and enhancing returns, even when they have considerable wealth. Basically, the approach for each client is different dependent on their goals, resources, risk appetite and retirement horizons.
“I’m frank about not being able to predict what will happen next but about helping the client make an informed decision about how they should play the cards in their hands.”