Time to rethink the investment process?

Video transcript

1. Does it surprise you that firms in private wealth management don't change the way they manage client investments?

It does actually surprise me. I've been in Hong Kong for about 18 years, and 18 years ago we were talking about the changes that were needed in the way that investment management is done in Asia, especially if you compare it back then to what was happening in Europe and the US. Actually to my surprise Europe and US have moved ahead tremendously, I think wealth management and investment managements in the US is very sophisticated. And Europe has made a big step forward in regulation, and to my surprise the way it's done in Asia hasn't really changed over the last 15 to 20 years. I believe it will change for two reasons, the market is getting more mature, the investor is getting smarter, and I think the regulators are eventually catching up with global trends.

2. How do you think about fees and transparency?

Transparency is key to building a long-term relationship with your clients. Obviously we charge fees for what we do, for the services we provide, and that's the same everywhere in the world. It doesn't matter if you're a lawyer, a doctor, or a financial adviser, you should get paid for the value you deliver. The problem in Asia is it's still very un-transparent for most clients what they're actually paying for and where they’re paying it. I actually applaud the regulators in Asia for moving in the right direction in enforcing more transparency, for example the SFC in Hong Kong makes it clear that if you want to call yourself an independent financial adviser you really have to be a fiduciary, meaning you are fee only and not receiving any retro-sessions or commissions from product providers. They also make it very clear that banks need to be much more transparent in the way they disclose their commissions and their monetary benefits. Obviously that doesn't go as far as some of the European countries where certain retro-sessions and certain commissions are totally banned. I don't think we will get there, but I really think it's a step in the right direction. I firmly believe that financial advisers should act as a fiduciary to their client or they should act as a broker. That's what happens in the US, where they have made it very clear you either act on behalf of the broker or you act on behalf of the client, and that's an important difference. It’s also interesting to see that over the last 10 – 15 years, where wealth management was once mostly conducted by brokerage firms it has now moved, for almost 80% of the wealth management business, to fiduciary firms in the US. I expect that to happen in Asia as well in the longer term.

3. Do you honestly think this will change in Asia?

I honestly think they'll change in Asia. It will take a long time, but I actually think it will be driven partly by what the Chinese regulators are implementing. They are looking more at what some of the other global regulators are doing, and it also has to do with the investment clientele in China being a younger generation, already more used to what they see happening in the US and Europe. I think Hong Kong and Singapore, because they have been wealth management centres for such a long time, are slower in their adaption of these new standards, but I'm convinced it will happen, how long it will take, I have no idea. It could easily take another 10 to 15 years.

4. How do you manage risk and deliver performance for clients?

In delivering performance to our clients, the most important thing is to really make clients understand what they're actually investing in, and actually understanding what their risk-willingness is, that they're willing to assume in their portfolio. Because nobody can predict markets, what we can do is to deliver capital market returns in the long-term. Our job is making people aware of the risks they are able to take or might not be able to take, and to build investment strategies around them, and to encourage our clients to be disciplined in executing their investment strategy. What we've seen in the long-term is the biggest problem is clients not being disciplined enough, meaning if their markets go up they tend to increase their risk appetite, which they typically shouldn't do, and when the market's going down they become suddenly very risk-averse, and that's actually the time you should be investing. That discipline is very hard to instil in clients, but that's our key role as a financial adviser.