As an investor, we want to keep up to date with the latest that is going on in the wealth management industry.
At the moment, the ground below the wealth management industry could be shifting and the incumbents that do not adapt could be under threat.
iFAST Corporation Ltd (SGX: AIY) recently talked about three trends that are happening in the wealth management space. The ramifications of the shifts are significant and could impact traditional banks, brokerage houses — even you and me.
1. Digital banking without borders
In August, Singapore opened bidding for five licenses, comprising of two licenses for Digital Full Banks (DFB) and three for Digital Wholesale Banks (DWB).
The requirements for Singapore’s DFB and DWB do vary.
The DWB license will require paid-up capital of S$100million. DWB license holders will be restricted to accepting deposits from SMEs and corporates, as well as from individual for fixed deposits above S$250,000.
The paid capital for a DFB license will start from S$15 million and gradually rise to a sum of S$1.5 billion. License holders will be able to accept all deposits without caps, provided they fulfil the S$1.5 billion capital requirement and is approved by the Monetary Authority of Singapore (MAS).
The licenses are granted by individual countries, but the nature of digital banking is likely to eventually transcend geographical borders.
Given the borderless nature of the internet, iFAST CEO Lim Chung Chun believes that fintechs will have to become regional or global players to remain relevant in the future.
2. Beyond brokerage fees (which are going to zero)
In early October, US-based broker Charles Schwab made an unexpected announcement that it would eliminate online trading commissions for all US stocks and exchange-traded funds.
TD Ameritrade, Schwab’s peer, quickly followed suit.
Lim said that the announcement may be surprising for some — but in truth, the writing was already on the wall. He added Charles Schwab earns most of its revenue from net interest income today.
Eventually, brokerage houses will have to adapt and move beyond a transactional relationship with its customers.
For instance, Charles Schwab said that the company can still offer advice to its customers on financial matters.
Lim echoed his sentiment, saying that brokerages will have to go beyond transacting trades for its customers and start offering wealth management advice for a range of financial products.
3. The untapped independent asset management market
Last week, iFAST’s China unit inked a joint venture deal with RFO Holdings, the Singapore branch of the Hong Kong-based Raffles Family Office. The move will enable iFAST to tap into China’s ultra-high net worth (UHNW) market in China.
According to a 2018 Asian Private Banker report, the penetration of independent asset managers (IAM) is still nascent in Asia.
Lim cited the example of Switzerland where independent asset managers (IAM) accounted for a sizable portion of the local Swiss wealth management.
The Asian Private Banker report noted that the European country had an estimated 2,500 IAM firms managing US$430 million in assets.
In contrast, IAM assets under management in Hong Kong and Singapore is less than a quarter of that, leaving room for the IAM space to grow in the future.
Get Smart: Trends and mends
It’s one thing to talk about trends. It’s quite another for a company strategically act on what it believes in.
When you view iFAST’s actions over the course of the last few years against the three underlying trends above, the company’s reasoning becomes clear:
- The iFAST has expanded beyond the shores of Singapore into Hong Kong, Malaysia and China, going beyond geographical borders. The company also owns a 33% stake in its Indian subsidiary.
- The company has also been diligently increasing its products options beyond its core unit trust offering into bonds and stocks. The aim is to be able to offer a wide range of wealth management services.
- iFAST’s latest move to partner Raffles Family Office is another way to broaden its assets under administration (AUA). Notably, the company recorded a new high of S$9.44 billion in AUA as of 30 September 2019.
Like most things in life and investing, there is no guarantee that the wealth management industry will turn out the way iFAST envisions. To its credit, the company has provided its reasoning for its actions.
The rest depends on iFAST’s execution and its ability to compete.
As an iFAST shareholder myself, it should be clear which side I am betting on.
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None of the information in this article can be constituted as financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. Disclosure: Chin Hui Leong owns shares of iFAST Corporation.