Hong Kong IFA has China-sized ambitions

The staid world of independent financial advisors in Hong Kong is getting a stir. Bridgewater, a two-year old boutique investment advisory, is aggressively chasing high-net worth clients and expanding beyond its Hong Kong base into China.

Stephen Gollop, its CEO, says the IFA has clients ranging from those contributing a few thousand Hong Kong dollars a month, to multi-millionaires.

"To get the kind of service we offer at a private bank, a client would need more than $5 million," Gollop says. "Anything less, a private bank will give poor service." The model is Merrill Lynch, or Godwin's in the UK, with a scalable, corporate structure that can provide top service and transparency, but with the ability to provide the wealthiest clients with personal service from Gollop and his Chinese and Indian partners.

In addition the firm claims it has achieved steady, positive returns for its clients since it began operation. Gollop credits this to he and his partners' access to thousands of financial products and the know-how to select the appropriate ones. For example, the firm has reviewed 350 hedge funds, of which only five have met its criteria.

Now, however, Bridgewater (no relation to the Connecticut, US-based fund management house Bridgewater Associates) is promoting itself to the higher end of wealth management service.

It has launched a service called Crystal, which Gollop likens to "almost like a club". For clients worth at least $2 million, they get hands-on advice from Gollop and the other major partners, without any initial fees or commissions, or early redemption fees. The firm will charge a management fee of only 1% based on NAV, and performance fees of 15% will be charged only if performance itself reaches 10%.

Bridgewater is therefore taking the IFA, heretofore a stagnant institution in Hong Kong catering mainly to expats and wealthy Chinese, and moving into the private banker's territory.

"A private bank licence is not an advantage," Gollop says. "Our people in Zurich see private bank clients suffering, because banks have had a natural bias toward equities. We have relationships and can arrange anything for our clients, except to link a current account at a bank to an investment portfolio. But we haven't found our clients are interested in this anyway."

Bridgewater is also in the process of registering itself in China with a local partner. It currently has two offices in Hong Kong, plus offices in Kuala Lumpur and Zurich, hiring a total of 38 people. Registered with the Hong Kong Securities and Futures Commission as an investment advisor, the firm has room to expand and add two more Hong Kong offices, Gollop predicts. Bridgewater is also considering putting offices in Tokyo and Sydney.

But China is the immediate project. Bridgewater wants to open an office in either Beijing or Shanghai, and already has a representative putting together a partnership with a local company not involved in finance. The China Securities Regulatory Commission requires an investment advisor to have 18 months of trading experience before it will hand over a licence; "We're just about there," says Gollop. "The regulators want to see strong compliance and risk management."

If Bridgewater gets the licence it will be China's first independent IFA; currently the only registered financial planners are attached to banks. Bridgewater intends to offer both a dollar service for expats and a renminbi service for locals, although Gollop says the firm can't make the same promises about performance for the latter, given the investment constraints.

Overall he is enthusiastic about the prospects for IFAs in Hong Kong and regionally. A Briton, Gollop has been in the advisory business for two decades, the past seven in Hong Kong and the rest in the UK. He likens Hong Kong's IFA scene today to that in the UK 20 years ago. "In the UK 20 years ago, 95% of advice was provided by tied agents and 5% was independent. The banks and insurance companies saw the trend and moved to providing independent advice. Today the ratio is the reverse. I see the whole Hong Kong market there for the taking. Even a move from 5% of the market to 8% would be a huge jump."

The only constraint to growing the firm's business is hiring the right people and training them. Gollop acknowledges gaining a critical mass is a slow process, as it takes months just to bring someone up to a financial planner level.