In a new series in conjunction with Investec Asset Management, Funds Global Asia looks at the challenges affecting fund distributors around the world. Cindy Fu, managing director, head of wealth management, Standard Chartered (Taiwan), explains the importance of offering local clients a broad range of products.
The Taiwanese funds industry, which is changing rapidly as a result of regulation, offers a good example of the kind of environment that is challenging but which offers opportunities for fund distributors as they seek to provide their clients with the best range of products available.
A key trend in the country has been the efforts of the Taiwanese regulator, the Taiwan Financial Supervisory Commission (FSC), to promote onshore fund management activities. Cindy Fu, managing director, head of wealth management for Standard Chartered in Taiwan, sees the deregulation trend as a good opportunity for the wealth management market.
In order to establish Taiwan as an Asia-Pacific wealth management centre, the regulator has made efforts to promote reform and deregulation gradually. The latest change in the rules for distribution of offshore funds was the relaxation of the offshore banking unit (OBU) business, which widened the scope of products sold by banks’ OBUs on a large scale by negative list. The new regulation also allowed OBUs to distribute local securities investment trust funds denominated in Taiwanese dollars. This was a benefit for both international and local fund houses to develop the broadening financial service business.
Under the FSC’s plan to encourage stronger business ties in Taiwan for offshore funds, a variety of actions have been taken in recent years, for instance: limiting the types of offshore fund that can be registered in Taiwan and requiring master distributors to meet minimum staffing requirements.
These rule changes are generally seen as an attempt to bolster Taiwan’s onshore funds industry and by extension Taiwan’s domestic financial services industry. As a result, international firms may be obliged to increase their staff on the ground in Taiwan to continue serving Taiwanese investors.
There are some opportunities amid the rules changes. International fund houses are now able to open up Taiwanese dollar and renminbi share classes and tap into the large portion of the Taiwanese customer base which prefers to invest in their own currency rather than in US dollars or euros. This is a good opportunity for international fund houses to leverage their global resources and experience related to Taiwan’s domestic fund houses, and to broaden the asset management business domestically.
This is important, says Fu, because in Taiwan, “there is still a big pool of local currency – some customers may be reluctant to convert their money because of the currency risk”.
Amid Taiwan’s changing environment, it is important for a fund distributor to monitor the new regulations, offer advice to existing customers and take the opportunities, where available, to generate new business.
“Last year, the regulator opened up the market for OBUs,” says Fu. “If eligible foreign investors have offshore income, they will be allowed to invest with more choices.”
This expanded choice applies to products such as hedge funds, which are available under the OBU regime but are restricted to domestic investors.
Other opportunities concern the changing risk appetite of Taiwanese investors. Whereas in the past, Taiwanese investors have tended to prefer bank deposits and fixed income funds, Fu has noticed more interest in equities in recent months, with many investors choosing to switch from fixed income to balanced funds as they increase the equity component of their portfolios.
“Since the middle of last year, customers are willing to take more risk,” she says. “We have seen them moving into balanced funds and multi-income funds.”
One aspect that still dominates the market, she says, is income. Investors want either a good return from their bond funds or a good dividend on equities. If fund providers can offer good income on their balanced funds, they have an opportunity to raise assets from Taiwan.
Fu says her firm’s house view is that 2015 will be volatile.
“Standard Chartered (Taiwan) suggests to follow the 2015 ‘WIDEN’ investment strategy: modestly accelerating growth, benign inflation and still-stimulatory monetary policies will support returns for both global equities and a diversified allocation to income-generating assets.
“Since the market will vary, investors should understand their investment objectives and risk appetite and seek investment advice before investing,” she says.
That means a diversified portfolio is likely to be the most sensible strategy for most investors. And for clients to achieve this requires fund distributors to offer a wide range of products.
Fu, who worked for Standard Chartered in Hong Kong before relocating to Taiwan 18 months ago, says there are some specific characteristics of local investors that fund distributors need to understand. One is that they tend to hold funds only for a fairly short period, before seeking to realise profits and reinvest them elsewhere. In this regard, the Taiwanese investors seem to be more short-term in their outlook than in Hong Kong, where holding periods tend to be longer, she says.
Another aspect of the market is that investors generally want to receive advisory services for free. In addition, the high level of competition in the market creates pressure on fees.
“It is a competitive market,” she says. “When you have so many choices, asset managers have to lower the fee.”
However, there are clearly opportunities for fund firms in Taiwan, where there is a significant customer base for funds and the potential for huge growth in future.
Fu says she believes the key to serving the market is to make sure distributors offer the full range of products that are available under the new regulatory regime.
“We have an open platform,” she says. “We have offshore and onshore funds. The offshore ones are usually from international players – they have to be set up for a year with a track record. We also have a local platform so we can bring in more funds for customers, to offer more choice for them.”
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