HKEX plan to sell fund products is great news for investors and brokers

In the wake of the Lehman minibond fiasco in 2008, banks introduced lengthy tests for investors wishing to buy funds. HKEX plan should make life easier

PUBLISHED : Monday, 08 January, 2018, 2:26pm
UPDATED : Monday, 08 January, 2018, 10:41pm

Hong Kong Exchanges and Clearing (HKEX) is planning to sell investment fund products, which is good news not just for stockbrokers but also for investors who have long endured the lengthy process involved in buying products from banks.

Graham Turl, the chairman of Hong Kong Investment Funds Association, is now working hard with the Securities and Futures Commission and HKEX to launch the new exchange platform.

Great news for the 500 stockbrokers who will have more products to sell, and hence more income from commission.

Many investors will tell you what a painful process it has been in the past, buying fund products via banks, particularly for first-time buyers.

Banks still account for 80 per cent of funds sold, with the rest being offered by fund houses directly.

It was actually a pretty straightforward process buying fund products via banks before the financial crisis hit – but the Lehman minibond fiasco changed all that in late 2008, when more than 20,000 investors accused banks and brokerages of misleading them into buying products linked with the now-defunct US investment bank.

Banks still account for 80 per cent of funds sold, with the rest being offered by fund houses directly

Since then, many banks have feared being accused of mis-selling, and have become strict vetters of investors, just to be absolutely sure of their risk tolerance levels and that they know exactly what clients are buying before getting them to sign on the dotted line. Even basic types of fund products go thought a strict process.

Sometimes even the simplest application form can take an hour to fill out. But now with investors able to buy and sell fund products such as shares through stock exchange brokers, it will make buying those forms of investment so much easier.

It is also positive for HKEX, which will now have more product lines offered on its platform.

Looking ahead, who knows, if the fund sales platform proves successful it could become the next “connect” scheme to allow mainlanders and international investors to conduct cross-border trading of fund products listed on the stock exchanges of Hong Kong, Shanghai and Shenzhen.

The two Stock Connects linking Hong Kong and the two mainland exchanges have worked very well and the concept could be expanded to other products.

The previous mutual fund recognition schemes launched two years ago and aimed at cross-border trading of fund products proved to be a failure because its regulation was too complicated and it never really took off.

The HKEX should retake this opportunity and create a new platform for fund products sales, and add another “connect” system to its already growing list of successes.