One group of advisers is having difficulty establishing a presence in the face of new rules and competition from banks THE MARKET FOR independent financial advisory services in Hong Kong has experienced significant changes since the launch of the Mandatory Provident Fund scheme in 2001. The public has grown more conscious of the need for careful retirement planning, which has led to an upsurge in demand for professional financial advice. But despite this boom, local independent financial advisers say they are facing challenging times and are struggling to make their presence known. Banks and insurance companies have played a significant role in shaping these challenges for independent financial advisers in the past five years. While some long-established financial advisory groups, such as Allen Perkins Group and Towry Law, have left town, and a number of new players, such as ipac Financial Planning, having sprung up, retail banks and insurance firms have become the most visible players and raised competition significantly. On the regulatory front, since the enactment of the Securities and Futures Ordinance in 2003, independent financial advisers have been held to stricter governance rules, with the Securities and Futures Commission putting in place specific admission criteria for independent financial advisers and holding them to ongoing obligations to ensure their competence. Stephen Gollop, chief executive of Bridgewater, a local independent financial advisory firm, said one of the key challenges for independent financial advisers was to raise awareness of the services they offered. The perception that they only sold investment or life insurance cover was still widely held by the majority of people in Hong Kong, he said. 'The idea of how much a financial planner can do, particularly for the local population, is just not known. It's a case of getting the message out and I don't see anybody doing a large-scale job of that.' The second challenge was related to a shortage of products, he said. While there were various other investment products that had taken off in recent years - derivatives and warrants being one area - there remained some significant holes, Mr Gollop said. These include permanent health insurance, a standard insurance product in many western markets, which is difficult to access in Hong Kong. There are also few annuities available locally. Finding qualified staff is also a problem for the profession. 'To train somebody to be a financial planner takes time. You need someone who has come part of the way already. What we're finding is that the industry's direct sales forces are probably the closest to being trained of anybody that we see. 'The bigger companies give fundamental training on financial planning, the calculations and what you should be looking for. The best person for us is often someone who has worked in a big insurance company and wants to get further into investment planning,' Mr Gollop said. A long-standing gripe of independent financial advisers is the question of who is or is not properly placed to give investment advice to consumers. Independent financial advisers can only recommend locally authorised funds to clients unless they are registered with the Securities and Futures Commission. Yet companies not registered with the commission can still recommend non-authorised investment products if they are registered with the Hong Kong Confederation of Insurance Brokers or the Insurance Authority. Mr Gollop asked if insurance brokers could sell, for example, a with-profit bond openly, why were they not held to the same Securities and Futures Commission regulations as independent financial advisers? This was not an issue of defining what kind of business independent financial advisers or insurance firms were entitled to do, but protecting consumers, he said. 'If [non-SFC-registered investment advisers] are not required to carry out certain areas of due diligence before recommending a particular investment to an investor, then who is going to lose out at the end of the day?' he said. Another bone of contention is whether 'Chinese walls' should be erected between the wealth management divisions of banks and the rest of their operations to ensure consumers are getting impartial financial advice. In Britain and the United States, there are strict regulations to segregate these activities within an institution; banks may not pass on client details from one division to another in order to cross-sell their own or others' insurance and investment products. What independent financial advisers must do to expand their presence is to highlight their greater impartiality, according to Norman Chan, director - investment services, Altruist Financial Group. 'People think that banks are better. They are more convenient. But they should understand what they get from a bank is often its own products, if they go to an independent adviser they get the best products from a variety of providers,' Mr Chan said.
