Investors turn to advice in tougher times

PUBLISHED : Sunday, 17 August, 2003, 12:00am
UPDATED : Sunday, 17 August, 2003, 12:00am

The growing popularity of mutual funds is giving a lift to financial planners

Hong Kong's financial planning industry is in the midst of a shake-up as new firms set up and old ones close, providing hard hit investors with more options.

The past few weeks has seen the launch of financial planner Clearwater International, while brokerage Celestial Asia Securities Holdings (Cash) acquired financial adviser Frederick Taylor. Australian financial planner ipac also officially opened its Hong Kong office last month.

No hard data is collected on the number of financial advisers in Hong Kong or how much is invested through them. But more investors are definitely going through mutual funds as opposed to buying stocks themselves and some of this is likely to be through financial advisers.

A survey commissioned by the Hong Kong Investment Funds Association last year found 9.5 per cent of the adult population have bought into mutual funds compared to 7.8 per cent three years ago and 3.2 per cent in 1997.

These figures exclude the Mandatory Provident Fund and the Tracker Fund.

'The steady increase in the penetration rate indicates that professional investment management services are no longer only enjoyed by high-net-worth individuals or institutional investors, but are increasingly used by the general public,' according to the Hong Kong Investment Funds Association.

Independent financial advisers see more interest in their services following the poor performance of the equity and property markets in the past few years.

Compared to other developed countries, Hong Kong is seen as an untapped market where relatively few people take independent financial advice.

During the boom years Hong Kong investors were used to high returns and it mattered less which particular stocks or properties were acquired - most of them were going up. As a result people were less interested in taking financial advice - and when they did were less concerned about the independence of the source.

'When the times were good whether you were independent or not didn't really matter because as long as you invested in equities, you made money and people were satisfied with that,' said Bridgewater president Puru Saxena.

Since the Asian crisis Hong Kong investors have found high returns much harder to come by.

'After 1997 and the Asian crisis more and more Hong Kong people accept that speculation is not a sure-win game,' said Dennis Wong, managing director of financial planner Cash Frederick Taylor.

'So [now] they rely more on long-term planning. Before 1997 nobody was interested in talking about a 10 per cent return per annum.'

Even the safe option of putting money in the bank has become less attractive as interest rates have fallen to record lows.

Investors are also looking more at assets other than Hong Kong stocks and property and are seeking advice on the best way forward.

'People realise there are now options out there, combined with the fact that cash on deposit is earning its lowest rate of return for something like 40 or 50 years.

For a variety of reasons people are looking at sensible alternatives,' said Clearwater International director Chris Beale.

Investors are also becoming more aware of the need for independent advice rather than listening to people or institutions who have a specific product to sell.

'In this market there is a dearth of professional financial planning that deals with a person's holistic financial needs,' said ipac financial planning Hong Kong chief executive Derek Young. 'Rather, financial planning in this market appears to be a misnomer for product push.'

In the past the market for independent financial advisers was geared almost exclusively towards expatriate clients in Hong Kong. Hong Kongers tended to invest themselves or go through big household name institutions which often meant the banks.

'About two years ago this market was mainly for expats. Local Chinese were used to dealing with big banks - I don't think people were used to or experienced in dealing with IFAs,' said Mr Saxena. 'I think we have seen a major change in that trend now. More and more people are seeking independent financial advice.'

Apart from the advantage of working with independent firms that can access a broader range of products, investors can also be reassured by the increased regulation in the sector.

Over the past 10 years the Securities and Futures Commission and the Hong Kong Confederation of Insurance Brokers have increased regulation and investor protection.

'There's a safety factor as well,' said Mr Saxena referring to the increased regulatory oversight.

While all financial advisers will tell you they expect huge growth in the industry some expect to see more consolidation with a few big names dominating the market.

Among the reasons Frederick Taylor sold out to Cash was because of the strength of the brokerage's brand name and the technical support it could provide.

Such benefits give Frederick Taylor greater economies of scale and allow it to offer clients a broader range of assets and services, according to Mr Wong.

'Most of the financial planning firms in Hong Kong are small and medium sized so they find it more and more difficult to develop their business in Hong Kong - like the system support, like the brand name,' said Mr Wong.