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Independents day intermediary profile of IFAA

Major banks and investment product providers dominate Hong Kong’s financial services landscape, drowning out the voice of its independent advisory industry. Since 2006, the IFAA has sought to rectify that.
A Hong Kong resident interested in obtaining financial advice, or possibly investing in insurance or some investment products, does not have to look very far.
Pretty much everywhere in Hong Kong’s CBD, he sees skyscrapers topped with the names of major banks and insurance companies that cater in a big way to the local retail insurance and investment market.
Here too he will find few streets that aren’t filled with bank branches, most of which would welcome his interest in their financial service offerings, were he to step inside.
What this Hong Kong resident will not see, however, are 40-storey-plus towers with the names of independent advisory firms on them. This is in spite of the fact that such a firm might be the best to serve his long-term interests – or so the independent advisory industry would argue.
The relative invisibility on the part of independent advisers, compared to the ubiquity of the banks and agency armies of the major multi-national insurers, is one of the biggest challenges facing them, spokesmen for the independent advisory industry in Hong Kong say.

Market share debate

Exactly what share of the Hong Kong advice and financial products market the independent financial advisory sector handles is almost impossible to ascertain, experts say, but it could be as little as 3% to 4% in terms of retail mutual fund sales, and probably not a lot more for insurance products – with the major banks, insurance brokers and tied agents accounting for the rest.
Making the number-crunching more difficult is that an unknown percentage of sales are to non-residents, including mainland Chinese and other Asians, rather than just to Hong Kong’s population of seven million-plus.
Perhaps not surprisingly, the IFA industry’s invisibility and relatively small size were among the key reasons that a group of five advisory industry veterans got together in early 2006 to form an organisation that they decided to call the Independent Financial Advisors Association (IFAA), according to Glenn Turner, chief operating officer of Altruist Financial, who was one of the five, and who is still actively involved in running it, though he stepped back from its chairmanship earlier this year, after four years in the role.
“We formed the IFAA in order to argue against product and regulatory arbitrage, in the absence of a super-regulatory body, which the FSTB Financial Services and the Treasury Bureau] says is not the way forward for Hong Kong, [even though] it is in the UK, Australia and Singapore,” adds Mark Kirkham, chief executive of Platinum Financial Services, who joined the IFAA in 2007.
Early support
Once the idea for the IFAA was established, the next step was to get the backing of some of the industry’s key product providers, such as the major insurance companies whose products these advisers handled.
These became the fledgling association’s “founding patrons”, with Friends Provident, Skandia, Standard Life and Zurich among the first to step forward, giving the IFAA the money it needed to get off the ground.
Because these and the other Patron companies that subsequently joined them distribute their products primarily through the IFA sector, they were seen by the IFAA’s founders as having a compelling and aligned self-interest in seeing the IFA channel become stronger and better organised – and thus, it was hoped, would be willing to support an association like the one they were hoping to create.
Once they had the support of these patrons, Turner – along with executives from other companies such as Convoy Financial Services, which listed on the Hong Kong Stock Exchange in 2010, and now has more than 1,500 consultants – were able to make the IFAA a reality.
“Our first meeting was held in the offices of the future founding chairman, Sidney Sze [then, as now, chief executive of Midland Financial], in early 2006,” recalls Turner.
“The first thing we spent money on as an association was our official launch, at the Foreign Correspondents’ Club, that April.”
By 2007, the IFAA had a website, and its meetings, on the third Thursday of each month, were becoming a regular part of life for a growing number of Hong Kong advisers. Most recent developments include an IFAA “group” on LinkedIn, which currently has some 3,759 members.
Voice of the community
Kirkham stresses that no less important than its role as “the voice of the financial planning community of Hong Kong” is the IFAA’s mission to significantly increase “the visibility and recognition of the IFA channel among potential clients”.
Seven years on, the challenges in this and other areas remain daunting, he admits, but he is adamant that the IFAA has made measurable progress, particularly when it comes to being consulted by the government and regulators on issues that affect their industry.
We are on a campaign to sign up new members, so we can shout that bit louder when the next regulatory changes come down the pipeline at us. 
“Over the years, we have become recognised by such bodies as the Securities & Futures Commission, the Hong Kong Federation of Insurers and the FSTB, which now consult us on issues that concern our members and their clients,” adds Kirkham, who since March has shared the IFAA chairmanship with James Bolus, chief executive of the Hong Kong operations of the International Financial Services advisory group, and Sondy Lo, executive director and president of Thornton Global Wealth Management.
“With any position papers or consultations that are going out, they always ask us for our opinion.
“The problem is, our membership isn’t yet as large as it could be, because there are still a lot of short-sighted IFAs in Hong Kong who are keen to avoid paying a membership fee, and are aware that they will benefit from the work that we do even if they don’t join.
“For this reason, we are on a campaign to sign up new members, so we can shout that little bit louder when the next regulatory changes come down the pipeline at us.”
Corporate memberships
One of the reasons signing up members is more difficult than for some other industry associations is because it is the companies themselves, rather than the individual employees, which are the members.
There are two basic annual membership fee rates, HK$3,000 ($386, £250) or HK$5,000 ($644, £415), depending on the size of the firm in question’s advisory staff.
Mark Kirkham, Glenn Turner, Sondy Lo, James Bolus
Kirkham and other IFAA officials insist this is ridiculously little, and say they are mystified that it should even be an issue for some firms – as it evidently is – given all that the association does for its members and the industry as a whole.
Only slightly more than a third of the companies that might be members are – or around 35, out of an estimated 90 firms thought to be eligible. Because many of the IFAA member firms are quite large, though, Bolus says as many as 70% of Hong Kong’s practising independent advisers are represented by it.
This cost sensitivity is all the more surprising, according to Bolus, given that the IFAA’s “preferred partner programme” offers a range of discounts to IFAA members that can effectively “cancel out the fee for joining in the first place”, and even save the member companies money, if they take advantage of it.
“For example, our preferred partners at the moment include companies offering services that IFAs can use in their financial planning work, such as compliance experts, data providers, client portfolio tracking services, legal counsellors and so on,” Bolus explains.
“There are also food and beverage providers, which might offer IFAA member companies discounts on venues for their client seminars, and even wine tastings.”
Serious intent
Talk of wine tastings suggests a casualness of purpose that otherwise seems not to characterise the IFAA. This is possibly because most its seven years in existence have been pretty full-on for its members, giving it an organisational character that seems rather less country club than battlefield command centre.
One of the first challenges, for example, was dealing with the aftermath of the global financial crisis, which hit Hong Kong, as elsewhere, in the second half of 2008. Here, one of the most dramatic manifestations of the crisis was a local scandal that involved the sale of high-risk ‘mini-bonds’ backed by Lehman Brothers to thousands of ordinary retail investors.
Less dramatic than the mini-bond failure, but no less important, was that the crisis put the entire financial services industry under the media, government and regulator microscope, with a resultant outpouring of new regulations that have been adding to advisers’ costs and workloads.
An example of such new, post-crisis regulations would be the new requirements for those selling investment-linked insurance products to disclose any commissions they are due to receive to their clients.
The requirement comes into force this year, with the IFA sector having the longest time to prepare for it.

‘More level’ playing field

Many in the industry take issue with some or all of the elements contained in the new commission disclosure rules, but Kirkham, though not happy about them either, notes that at least this time, all the distribution channels will have to disclose commissions clearly and in the same prescribed manner by the end of this year.
In other words, he says, the playing field is at last looking “a bit more level” for Hong Kong’s IFAs. 

Part of the Mark Allen Group.