Retail investors in Asia-Pacific now have more options than ever before to buy mutual funds, as online platforms and robo-advisors increasingly offer them cheaper, alternative channels than traditional retail banks, concludes the 2020 edition of Broadridge Financial Solutions’ “Distribution 360 Apac” report.
The US-based corporate services firm estimates that the share of mutual fund sales through retail banks is likely to fall to 35% by 2024 from 40% in 2019 , while the combined share of mutual fund sales from direct sales and online platforms will rise from 17% to 19% during the five-year period.
Growth in the online fund business is already a well-established trend in both China and the wider Asia-Pacific region.
Online distribution is widespread in mainland China through Ant Financial and Tencent’s Wechat platform, while fintech companies such as Stashaway, Syfe and, most recently ride-hailing firm Grab, in Singapore and Malaysia, and Bareksa in Indonesia are rapidly increasing market share, according to Evonne Gan, Apac insights manager and lead author of the report.
Front-load fees typically range from 1.5% to 2% for mutual funds bought through banks, compared with about 1% for products bought from online platforms and as little as 0.5% for some of the large funds sold in mainland China, Gan told FSA.
“[Therefore] retail banks in the region must reinvent themselves to maintain their leadership position in the distribution of mutual funds,” she said.
Some are already responding, with the creation of their own online platforms, especially in Singapore where the leading local banks, DBS, OCBC (Bank of Singapore) and UOB will face a challenge for their wealth management businesses from the five “virtual banks” (that is, banks restricted to providing online services) that will soon be awarded licences in the city-state.
Bricks-and-mortar Hong Kong banks will also face competition from up to eight virtual banks, granted licences by the territory’s regulator last year.
Moreover, “customer segmentation will be increasingly critical for distributors looking to identify clients with the highest revenue potential”, said Gan.
Basically, high cost services such as face-to-face meetings with relationship managers will be restricted to the wealthiest, high-fee generating clients. Enhanced digital services will be used to offer advice and access to products — including mutual funds — to most other customers.
However, the pressure to adapt is not just coming from customers, but also from the asset management industry
“Asset managers are increasingly adopting online [services] to sell to and serve their investors more efficiently, and at greater scale,” said Gan.
Meanwhile, Broadridge expects Asia-Pacific to remain the “engine of growth” for the global asset management industry.
However, that rate of growth will be significantly slower, as the region and the rest of the world recovers from the economic damage and wealth destruction caused by the Covid-19 pandemic, according to Gan.
The firm forecasts a five-year asset management industry CAGR (compound annual growth rate) of 10%, compared with 14% CAGR recorded between 2014 and 2019, while ETF sales are likely to grow faster at 11%.
In country terms, China will continue to lead growth with 14% CAGR , followed by India (11%), and Indonesia (10%), according to Gan.