January’s industry shake-up, which saw an indemnity commission ban on ILAS and new rules restricting the underlying investments within the schemes, caused ILAS sales to drop by nearly 50% in the first quarter of the year.
Challenging transition
Tan, managing director of Friends Provident International in Asia, said – as the company anticipated – the unit-linked products industry went through a “challenging transition” after the implementation of guidance note 15.
“In the short-term during the transition period, we did see a dip in demand, which is also reflected in the overall industry,” he said. “However, once all players are settled with the changes, we should see a positive turn for the overall industry.”
Adjustments to the size of the ILAS industry led to some parts of the market shifting to the ‘non-linked’ business, Tan said.
“In the short-term during the transition period, we did see a dip in demand, which is also reflected in the overall industry"
But FPI’s Asia chief is confident that healthier distribution models will emerge that have more sustainable economics for providers and enhanced customer benefits.
Lack of visibility
Edward Harris, chief executive of Globaleye in Hong Kong, said the most heavily affected area following the ban on upfront payments is regular savings plans, particularly in the local market.
“The difficulty for brokers has been the lack of visibility we had about what new products were going to be made available and when,” Harris said, adding however that regular savings only make up 5% of Globaleye’s business, meaning it wasn’t hugely affected.
“There are now options for clients with both contractual and non-contractual savings plans, although as an office we have not advised any clients to take up a contractual plan this year.”
Many positives
Harris said the new guidance from the Securities and Futures Commission (SFC) meant ILAS products had to be revised to ensure they are more flexible and lower in cost for clients. This, he said, has led to “many positives for those advisers able to communicate this effectively”.
“For us, the effects have not been too dramatic and we anticipate having a very similar year to our record year of 2014. However, elsewhere in the market we are seeing some consolidation from firms who relied more heavily on the cash flow from indemnity commissions.”
According to Harris, the platform business is one solution companies are turning to because it allows advisory firms to retain a greater proportion of the total charges.
Despite this, he added that there is still significant value-added in clients using an insurance wrapper, and often trusts, as a means of legitimate tax and estate planning.
Larger impact
The director of Guardian Wealth Management Simon Parfitt said the SFC ban on non-authorised SFC funds for non-professional investors is having a larger impact than the indemnity commission ban.
“There are lots of good potential clients in the sub $1m market that now have a far more limited range of investment options available to them,” he said.
