On 1 January, local regulators banned indemnity commission on the sale of investment-linked assurance schemes (ILAS), forcing advisers to re-evaluate their business models.
“Challenging transition”
James Tan, managing director of Friends Provident International’s Asian division, said it would not be surprising to see “some degree of consolidation” in light of the changes.
Tan added that although the unit-linked products industry would go through a “challenging transition” in the short term, he said this would be a positive shift in the long run as clarity around the changes increased.
He also said the adjustment to new rules “will take some time” because the regulations not only impact the products but also the processes by which they are sold.
Mark Christal, Old Mutual Wealth sales manager in Hong Kong, agreed the changes would drive consolidation in advisory firm numbers.
He also pointed to the likelihood of increased segmentation between advice and servicing sectors. “There will be an impact on advisers as they adapt their remuneration models,” he said.
“Playing catch-up”
Meanwhile, Mark Rawson, chief executive of St James’s Place Wealth Management, said the impact of these changes on his business was one around clarity of propositions rather than profitability.
He said it was not the structure of the products that had been the issue but the availability. “The timescales for delivery of product within the framework has meant most of the institutions in the space are playing catch-up. This is creating confusion as to what is available and when.”
Rawson said the shift in the regulation of ILAS, meaning underlying funds within certain portfolios had to be authorised by the Securities & Futures Commission, has had a negative impact, as it could be limiting for a global investor with a non-US or non-Hong Kong investment focus.
However, he also pointed to the positive side of this change, which has removed a lot of “esoteric investment options”.
He said this would be “good news for client security”.
“Less choice”
Hong Kong-based advisory firm Convoy Financial Services said those IFAs who have been promoting open-architecture products would be more greatly affected by the changes to ILAS regulations.
It said: “These products are seen as more sophisticated and the regulators no longer consider them suitable for the local retail investors, meaning less choice for customers.”
