Greater fee transparency to boost ETF demand in Asia

Feb 28th, 2017 | By | Category: ETF and Index News

ETFs listed in Asia may see an uptick in investor demand if current initiatives under consideration by regulators to improve the availability of information on fees incurred by fund investors while buying mutual fund products come into effect.

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Initiatives aimed at reducing costs for end-investors could spur efforts by regulators in Asian countries to promote ETFs as a low-cost solution to investors.

Global consultancy firm Cerulli Associates conducted research into the potential effect of such proposals in markets such as Hong Kong, Korea, India, and Singapore (all potential regional hot-spots for future growth in the ETF industry). The firm found there was a mixed response among asset managers and distributors to these initiatives aimed at bringing these markets in line with the developments in some mature markets.

Some asset managers, mostly those from developed markets and expanding their presence in the region, saw Hong Kong as lagging behind international markets in adopting higher standards of disclosure, and hence were pleased to see developments toward more transparency. Other Asia-based or domestic managers, however, believed that Asian markets and investors’ behavioural traits were different from those of international markets.

Cerulli noted these initiatives would likely affect the distribution landscape over the medium to long term.

First, as the initiatives are aimed at reducing costs for end-investors, Cerulli believes there could be further efforts by regulators to promote ETFs as a low-cost solution to investors, along with greater adoption of online platforms and robo-advisory channels.

Second, due to most investors in Asian markets showing preference to a transaction-based advisory model (according to Cerulli’s survey of retail investors conducted last year), there may be a gradual process to migrate towards the fee-based advisory model rather than a complete shift in the near term, unless driven by regulations.

Cerulli notes that as and when regulators take steps toward the fee-based model, a near-term impact on business may result. However, Cerulli believes the industry should be able to adapt and make changes to their business strategies in order to adopt the advisory model.

A fee-based advisory model is expected to boost ETF demand as advisors sharpen their focus on reducing investor costs, without being swayed by seeking to maximize commissions from trading more expensive mutual funds.

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