“I have never worked so hard in my life but I really have enjoyed it,” says Tony Morgan, chief executive of First Degree, as he considers his lack of free time since launching his company.
“In the first year, your business has to be your hobby, if it isn’t then you aren’t serious about it. I think everyone should do it once, I don’t know about twice though; it’s like marriage really.”
Morgan, a lawyer by background, and originally from Australia, formed his labour of love back in 2011 alongside Stephen Fisher, who now holds the role of chairman and chief investment officer, and Sam Luft, chief executive, global wealth management.
At the time of forming the company, Morgan and Fisher had already known each other for 11 years, having both worked at JP Morgan.
When he left, Morgan had held the role of chief operating officer, South and South East Asia, where he was in charge of the company’s businesses in Australia, Singapore, India, Thailand, and Pakistan.
Home from home
Having been based in Singapore since 2000, Morgan saw the area as the ideal place to launch his own business, with First Degree Asia still continuing to operate from a single office in the region. It now has a total of $40m (s$52m, £25m, €32m) in funds under management.
“You either stay in Singapore for two years or 25, it looks like I am headed towards 25,” says Morgan of his home city-state. “It’s Asia for beginners. It’s transparent, they model their egulation on the UK and Australia. These are environments I am familiar with and it really just works for me.”
The company was formed as a discreet entity with a view to bringing the institutional standard of investment management, which its three founding partners honed in their previous jobs, to the non-institutional space, something which initially proved difficult.
“Establishing ourselves in the independent side of the market was challenging. It isn’t big in Asia, where you tend to have very large financial advice groups with relationships with insurance companies and product providers; you don’t have independent houses like you do in the West.”
No fear
While establishing the company as an independent proposition could have proved challenging, Morgan says its progress has so far exceeded his expectations.
He adds that he initially thought it would take around four years for the brand to take off.
Perhaps its success so far has been down to its pragmatic focus on public markets, which Morgan sees as the most predictable, liquid, and transparent of all sectors.
“We tend to discourage our clients from fringe investments until they have got the core asset classes right. We have 100 years’ worth of data on these markets, so we pretty much know what sectors such as, for example, global equities, are going to do.”
In order to lessen its clients’ fears of what Morgan calls “that one bad year in 10”, many of First Degree’s services nclude an overlay that allows clients to set a floor which they do not want their investment to fall below in the event that markets drop by a significant amount, allowing them to turn it into cash at that point.
First Degree’s clients, of which there are around 20, tend to fall into the bracket of credited investors who earn at least s$300,000 a year or have assets of s$2m, and Morgan says the competition in the space it serves is only clearing up as time progresses.
“In Singapore, it is getting emptier because our natural competitor has historically been private banks and financial advice firms. Now, however, advisory firms tend to focus on products, so they will use mutual funds and structured products, which we think are too expensive, and the minimums for private banks are getting higher all the time.”
The right direction Morgan maintains an attitude of ambivalence towards Singapore’s recent regulatory overhaul, which will see many proposals from its Financial Advisory Industry Review brought into legislation by the Monetary Authority of Singapore (MAS).
Included in the proposals is the introduction of “commission deferral”, which requires payments on some products to financial advisers to be made over six years rather than in one lump sum, and a “balanced scorecard”, which will impose reduced commissions on advisers who have failed to meet certain targets in the handling of their clients.
Morgan says such measures are a step in the right direction, but ultimately fail to address wider problems in the advisory industry.
“Some of the recent changes made are good. The MAS is doing the right thing but they need to realise that it’s going to be a marathon rather than a sprint.
“You need to have a point where advice is regarded as a profession in the same sense as law and accountancy, and to do that the minimum standard for advisers must be higher; this should be seen as the end point.”
As well as generally raising standards across its advisory industry, the MAS proposals look to address Singapore’s conflicted advisory stance, in which advisers are caught between their client’s best interests and the sale of particular products for a commission.
Morgan says the MAS’ solutions do little to solve such this conflict, and instead provide a blanket of “noise” that “pussyfoots” around the issue.
He adds that an absence of complex, Western tax structures which require professional assistance is to blame for Singapore’s stoic gravitation towards commission, despite the negative impact such a system has on returns.
He says that consumers are just not sold on the idea of paying for advice.
Perceived value
Consequently, Morgan says that consumers must be educated in the potential benefits that paying for advice could hold for them before progress can be made: “The first alignment needs to be that the adviser chooses for whom he acts and that it is crystal clear. They either work for the client, and the client writes them a cheque, or they work for the insurance company, and they write them a cheque.
“At the moment a client doesn’t put a particular value on advice, if we are able to increase the competence, ability and reputation of the industry that’s a better thing to stick on the front in the sale of advice.”
Morgan finishes his point with a call to arms aimed at Singapore’s advice industry, requesting an increase in discussions around the individual merits of products in order to weed out weak popular savings plans, which he claims to contain fund options that continually fail to meet their benchmarks.
“This should be a priority,” he says. “At this point the loss from the funds is much worse than the cost of commission. If such funds are identified, the overall quality will improve and the sale of advice will subsequently become easier.”
Morgan’s progressive hopes for the future of the industry contrast the measured attitude he takes towards his company’s future.
The company does not aim to be “the next JP Morgan” he says, and instead wishes to continue to operate on a smaller scale which enables its four strong team to get to know their clients on a personal level.
Achievable aspirations
“At the end of the day, Asia is enormous, it isn’t just one market; it’s a collection. We want something that’s manageable, we know all our clients and that is nice. The aim is to add a couple more investors over the next three to five years and explore a couple of new strategies, but that would be about enough,” says Morgan.
He does not rule out the potential expansion of the company into different jurisdictions, which would allow it to encapsulate new regulatory environments, away from those which govern the Singapore arena.
However, he adds that, for the time being, First Degree’s view is that the world is currently one single market, and this allows them to serve it from Singapore.
