Passporting to threaten scale: Manulife
While asset managers are rubbing their hands together in anticipation of Asia’s three fund passporting schemes, they should also be concerned about fragmentation of assets, warned Donna Cotter, Asia head of wealth management at insurer Manulife Financial.
“We have compressing margins, and if we start to split up our assets across the region, across different platforms, [building] scale becomes much more difficult,” she said.
For this reason, she sees no threat to Ucits funds from the passporting schemes in the near term. The European Union-regulated products are widely used in the region because they enable the centralisation of assets, she noted.
“But the longer-term picture is going to be dictated by what happens with the passporting schemes,” said Cotter.
Distribution is already problematic because a few very large institutions and banks control it, she added. “As a product manager, it’s challenging when you don’t control your own distribution."
Other managers have also voiced frustration at the distribution model in Asia, though for different reasons. This June, Shelly Painter, Vanguard’s managing director for Asia, pointed to the opaqueness of commission-based sales structures and called for more disclosure.
“Very few distributors in Asia are interested in something like Vanguard because we won’t pay for distribution; so the end client will never hear about us,” she said. Vanguard is a passive investment specialist.
Commission-based distribution in the US is shifting to fee-based distribution, and Australia is moving in that direction too. Meanwhile, the UK and Switzerland have banned commissions and compelled fund houses to be transparent about retrocessions paid to banks.
Cotter pointed to nascent moves on that front in Asia. “I don’t have a crystal ball, but we are certainly seeing a trend towards that [in the region]. Singapore, for example is moving towards an advice-based model. Same thing in Hong Kong,” she said.
In December last year, senior private bankers in Asia expressed surprise that commission-free distribution is not being discussed more in the region.
Speaking at an AsianInvestor roundtable, Rene Buehlmann, then global head of investment funds for UBS Wealth Management said: "If you look ahead five or 10 years, the trend will probably go towards a flat advisory fee.”
Cotter also flagged the rise of online fund platforms as another distribution trend. “There’s a far greater propensity here in Asia than in the Western world to use [online platforms]. I think we’ll see that explode in the not-too-distant future,” she said.
Thanks to the runaway success of its internet finance-related money-market fund, Tianjin-based Tianhong Asset Management unseated China Asset Management as top dog in the mainland funds industry in terms of assets under management earlier this year.
* For a full interview with Donna Cotter on how Manulife picks the products it puts on its shelves, see the forthcoming (October) of AsianInvestor magazine.