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The challenges facing IFAs in Hong Kong

  • IFAs who have been suffering in the wake of the financial crisis due to lower fee income and higher costs are trying to work out how to cut their costs without compromising quality – using platforms is one option
  • When competing for clients against the banks, IFAs need to stress their advantages of independence in investment and insurance advice
  • To be a good financial planner, individuals need to be able to compare different products and understand what is suitable for a particular client – and then be able to select the right product for that client
  • Hong Kong should adopt fee-for-service models given that they can create win-win situations – lower fees and better service for the clients, and a steady income for IFAs

Following the financial crisis, independent financial advisers (IFAs) in Hong Kong have been suffering due to lower fee income and higher costs in terms of compliance and systems, said Sidney Sze in an interview.

As a result, they are trying to work out how to cut their costs without compromising quality.

In terms of research, for example, Sze said IFAs with a research team of four people might be looking to reduce that to two people, and instead upgrade their systems to minimise the need for manpower.

Using platforms might be a way to cut research costs without comprising the quality of their overall service, he explained.

Conversations today

When advisers have conversations with their clients in today’s market environment about investments, clients tend to have negative views, said Sze, given the investment sentiment.

In general, he said clients tend to be more interested in investing in the property market rather than in stocks or mutual funds.

Competing for clients against the banks

According to Sze, banks have an advantage when competing for clients. The banks have a good database and clear information about an individual client’s wealth, he explained.

In contrast, many IFAs don’t have good quality databases and might use random mobile phone numbers to get in touch with potential clients – which is not an effective way.

That approach can also create a bad impression for IFAs and be damaging to their market, said Sze.

The advantages which he said that IFAs can offer to their clients include their independence in their investment and insurance advice (rather than being tied agents such as insurance brokers, or multi-tied agents such as banks).

Required skills

When it comes to life insurance, financial planners require certain core skills.

For example, said Sze, they need to be able to compare different products and understand what is suitable for a particular client – and then be able to select the right product for that client.

Fee-for-service models

When Sze worked as a financial planner in Canada over 10 years ago, he said IFAs were successfully using fee-for-service models.

He explained the way they do it: for example, for an independent advisory firm with 100 clients, they might identify 20 clients who they deem suitable to charge a fee for service.

They would then tell those clients how much they have earned from them in commission over the past three years, and say that instead they plan to charge them a certain amount as a fee for the service.

The firm would then explain to these clients how many hours they will spend in return meeting with them and what they will provide in terms of support services.

When doing a comparison, clients would realise this is a win-win situation, said Sze – lower fees and better service for the clients, and a steady income for IFAs.

This type of approach should exist in Hong Kong, said Sze.