HK regs a bottleneck to rise of roboadvisers

Added 15th June 2016

Hong Kong regulations require people to be involved in wealth management services, said iFast Financial (HK) chief operating officer Kelvin Yip.

HK regs a bottleneck to rise of roboadvisers

In Hong Kong, the account opening and know-your-customer processes still need to involve manpower and manual intervention, Yip explained.

“We are still at the stage of promoting the use of online portfolio management at the moment and it might take a long time,” he told FSA.

Ifast's Singapore-listed parent launched an online mutual fund platform for retail investors in Hong Kong in 2007, and has expanded the service to high net worth clients and institutions.

Currently the firm has a portfolio management team comprised of roughly 20 analysts to construct five model portfolios based on different risk ratings, which are under review every month.

It is either used as a discretionary service for retail customers, or as a reference model for institutional clients using its online platform. The service for institutions was launched a few months ago.

The model portfolios are now primarily built using mutual funds with no more than 30% of ETFs, he said. All products in the portfolios are focused on equities and fixed income.

“Technically, we can build a fully-automated portfolio by inputting all the parameters. But it would be a waste if we haven’t addressed the bottlenecks first, which are partly due to regulations.”

Mini private banks

In the UK and US, platforms selling mutual funds outside of banks are very common, but it is not the case in the SAR, Yip added. He observed that local and mainland investors are usually less comfortable using discretionary management, when investment products are chosen for the client. 

Yip noted there is demand for wealth advisors to have a model portfolio, as seen from the example in the UK, which empowers them to act like "mini private banks".

“They don’t have to keep up with managing the portfolio every day, but only to choose which model is more suitable for each client.”

Some small-scale private banks, such as East West Bank from the US, and Commonwealth Bank from Australia, are using the iFast platform to buy mutual funds or bond-related products, he said.

Mainland brokers trying to tap into the wealth management business are also looking for partnerships to gain access to mutual funds, he added.

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