Amy Lo, Private Wealth Management Association
According to a recent joint PWMA and KPMG survey, up to 49% of Hong Kong’s private wealth AUM could come from mainland China by 2023.
The challenge for the local industry, therefore, is how to capitalise on this potential.
“You have the successful roll-out of the different connect systems out there. The framework is there, so how will you make that work for wealth management? These are some of the details that we need to further discuss and finalise,” said Amy Lo, chairperson of the PWMA executive committee.
“The ‘wealth management connect’ will allow us to leverage on the GBA initiative to further develop the wealth management industry and capture the 69 million population outside of the 7 to 8 million in Hong Kong,” explained Lo, who is also UBS Wealth Management’s chairperson and head of Greater China, at a media briefing last week.
Developing the scheme
The PWMA and KPMG have outlined three stages under the proposed mutual wealth management scheme, according to Paul McSheaffrey, head of banking and capital markets for Hong Kong at KPMG China, who also spoke at the briefing.
Paul McSheaffrey, KPMG
During the first stage, Hong Kong-based private wealth management institutions will be allowed to market and sell products to existing and prospective clients in the GBA, said McSheaffrey, noting that the same will be applied for institutions based across the rest of the GBA.
At the moment, restrictions exist on offshore Hong Kong private wealth firms soliciting business in the mainland. This means that onshore Chinese clients of Hong Kong-based wealth managers must come to the SAR to conduct wealth management activities.
PWMA and KPMG expect the first phase to be implemented within three years.
The second stage will allow GBA residents who meet certain criteria to more freely transfer funds within the GBA, according to McSheaffrey.
“This is subject to quotas and qualifying criteria to make sure [outflows of capital] is controlled,” he said.
The white paper noted that the initial pilot scheme could have features similar to the principles of the proposed qualified domestic institutional investor 2 (QDII2) scheme.
The QDII2 programme allows individuals to invest in offshore products. It is similar to the current QDII programme, in which firms apply for a quota and offer QDII funds to investors.
The third stage involves increasing quotas and expanding the programme to other areas in mainland China after various stakeholders have become comfortable with the scheme, added McSheaffrey.
It is expected to take at least three years or more for the second and third phases to be completed.
Currently, the PWMA and KPMG are still in the initial phase of drafting how to implement the programme, UBS’ Lo noted.
“We are now in various discussions with different stakeholders to ensure we have a successful implementation of the scheme. It will be a step-by-step approach in order for all parties concerned to get comfortable with the scheme,” she said.
In total, there are 13 recommendations, including attracting family offices to be established in Hong Kong and further developing regulations.
Peter Stein, PWMA’s managing director, said at least half of all private wealth in Hong Kong is managed by family offices.
Hong Kong PWM industry AUM breakdown by type
Source: PWMA and KPMG survey
There are four recommendations for attracting family offices: having a regulatory- or government-led effort to coordinate industry business development in targeted geographies, such as running seminars and roadshows globally; setting up an investment office liaison centre to guide family offices through the set-up process in Hong Kong; expanding the offshore funds exception to family offices; and reforming taxation treatment of Hong Kong trusts, said KPMG’s McSheaffrey.
On the regulatory front, the PWMA and KPMG are recommending a new code of conduct for the private wealth industry and streamline existing disclosure requirements to ensure they are appropriate to a private client’s level of sophistication and experience.
The new code of conduct will be “consistent to the SFC and banking codes of conduct and would streamline many of the regulations that exist in the different circulars and guidelines into one holistic document”, McSheaffrey added.
The other recommendations are to:
- Introduce a concessionary tax rate for fund management and advisory
- Develop a flagship postgraduate degree to position Hong Kong as a hub for private wealth management learning and innovation
- Reform professional training reimbursement under the WAM Pilot to boost the number of mid-career joiners
- Ensure any future developments involving a KYC Utility or electronic IDs include HNWIs to improve the client experience
- Create a private wealth management industry forum to keep focus on the long-term future of the industry and track progress against the white paper