Hong Kong's small army of so-called independent financial advisers must be hoping the special administrative region will not follow Britain's Financial Services Authority, which is poised to outlaw commissions paid to advisers by fund managers and life insurers.
Instead they will have to collect fees from customers prepared to pay for their advice. However, in Hong Kong consumers are to be offered no such protection. Not only are advisers subject to the lightest of regulation, but there is no prospect of ending a situation in which so-called independent financial advice is tainted by conflicts of interest.
As matters stand, almost all Hong Kong advisers claim to be a providing a 'free' service. But in practice they earn hefty fees on each product sold by collecting commissions from companies providing the investment funds. This clearly raises the question of whether their real customers are the individuals buying these investment products or the companies who actually pay them.
It is disingenuous for advisers to claim they offer a free service when the only investments they suggest are those that pay them hefty commissions, which amount to 5 per cent of the value of every product sold.
Because the fund companies pay this money up front to the advisers, they make sure their customers are as tied as possible to their funds by charging heavy penalties to prevent investors switching out of these products. In addition, they levy high management charges to claw back the cash they have had to advance to secure the sales of their products.
Were financial advisers, more accurately described as salespeople, offering purely impartial advice, they would at least occasionally suggest that their customers invest in assets that do not pay them a commission.