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Direct fund sales surge in Asia

By NexChange
Asset Management

Banks are having a tough time. They are pilloried by the public and punished by regulators, but the biggest threat to their prosperity is technology.

Already challenged by online payment platforms and alternative lenders, banks are having another source of reliable income eroded. They can’t count on the fees they’ve collected for years from selling mutual funds. Instead, more and more people are dodging the middleman and investing directly online.

The shift is well-established in the UK, and now momentum is picking up in Asia, writes AsianInvestor. Banks had a 63.3% share of mutual fund sales in 2012 and 59.9% in 2013, but by the end of 2014 it had dropped to 48% in the region. Meanwhile the slice of the pie grabbed by direct sales grew from 10.9% in 2012 to 12.4% in 2013 and swelled to 16.2% last year, according to a report by Cerulli Associates, a leading research firm specializing in asset management and distribution analytics.

“There is a global trend towards robo-advice, business-to-business platforms and, more recently, direct-to-consumer platforms,” it concluded.

Commissions – in plain language, bribes – are paid to banks by the big asset managers to distribute their funds and give them a marketing edge over rivals. Clearly there is a conflict of interest, as a salesman is unlikely to misalign his investment advice with an easy payday.

But, the public really aren’t mugs when given a choice. In China, Tianhong Asset Management partnered with Alibaba’s payment system Alipay to launch the Yu’E Bao money market fund in June 2014. It was the country’s first internet fund and now Tianhong has more assets under management than any of its competitors.

Elsewhere, regulators are pressing the advantage home that technology can give them over powerful banks. The Australia Stock Exchange-led mFund Settlement Service allows investors to buy and redeem units in unlisted funds directly through a stockbroker, Fund Online Korea is an online supermarket that offers 900 products with low-management fees and it won’t be long before Hong Kong has its own platform in place.

In the past, banks lobbied successfully for free-wheeling disintermediation in financial services and prospered mightily. It would be ironic if new technologies lead them to protect their own vested interests by lobbying for prudence.
Photo: New York Playhouse

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