* HK, Singapore wealth managers may have to disclose fund
* Potential new rules to hit smaller wealth managers most
* Move follows initiatives by some Western nations'
HONG KONG, April 13 (Reuters) - Hong Kong and Singapore are
set to launch new disclosure rules for wealth managers on what
they are paid by funds to sell their products, moves aimed at
revealing conflicts of interest but which could disrupt a
business that generates billions of dollars in fees.
Regulators in the two main Asian wealth hubs are framing
rules that will make such disclosures mandatory, people with
direct knowledge of the matter said. Wealth managers in the two
centres generally don't disclose the overall revenues they make
from recommending funds to clients.
The moves could upend the existing fee-sharing model between
the funds industry and wealth managers as clients may increase
scrutiny of the products they buy to discern any conflicts of
It may lead to a drop in fees from such deals and could even
make clients bypass wealth managers altogether and source
products directly from fund managers, with smaller wealth
managers most vulnerable because their revenue mainly comes from
selling third-party products to clients, analysts say.
"The increased transparency will allow investors to have
much clearer visibility of how much money investment advisers
make from fund managers for distributing their products, and
investors may think more carefully before buying a fund," said
Karen Man, partner at law firm Baker McKenzie.
"It will likely increase competition for all the players,
and mainly the smaller ones, who may depend on product
distribution as a principal source of revenue," said Man, who
focuses on financial service regulation.
Assets of the 20 largest private banks in Asia rose by 6
percent last year to a record $1.6 trillion, according to data
from industry tracker Asian Private Banker. The bulk of the
assets in the region are invested in the equity markets directly
or via funds, making it lucrative for the wealth managers to
earn fees on sale of those products.
The wealth managers get a cut of 0.5 percent to as much as
6.0 percent of the management fees charged by investment firms
on the assets clients put into funds. They also get the
so-called trailer fee, which is money paid to them annually as
long as clients hold the investment products in their
The moves by Hong Kong and Singapore to increase disclosure
follow similar initiatives by regulators of some Western nations
after investors faced hefty losses on structured products linked
to the collapse of Lehman Brothers.
Defaults of some illiquid, high-yielding bonds in Singapore
last year also cast the spotlight on the role of wealth managers
in "pushing" the products, the sources said.
Hong Kong's Securities and Futures Commission (SFC) received
industry feedback on fee disclosures earlier this year in
response to a consultation paper. The paper argued that fee
disclosures would make it easier for clients to spot potential
instances of conflicts, and lead to lower fees in the long run.
"Based on a preliminary review, the responses received are
generally supportive of our proposal to enhance disclosure with
comments on the suggested manner of disclosure," SFC said in an
emailed response to Reuters, adding it will issue conclusions on
the consultation after a detailed review.
The Monetary Authority of Singapore said that "work is under
way to require trailer fees to be disclosed in the Product
For the smaller wealth managers in Asia, the disclosure
requirements could come at a particularly tough time as they are
already reeling from higher costs and cutthroat competition.
As a result, many smaller Western wealth managers have shut
shop, despite Asia-Pacific being the fastest growing wealth
region in the world with nearly 5 million individuals having $1
million in liquid assets.
Andrew Hendry, director at Hong-Kong based Westoun Advisors,
said the potential fee disclosure rules could make clients
approach fund houses directly and cut out wealth managers.
"We are starting to see a lot of negotiations in the fee
sharing space," he said.
Clients of wealth managers, however, back the proposed
"Since the Lehman mini-bond debacle, wealth managers have
become more careful of stuffing unwanted products down clients'
throats for fees and this new push to transparency is welcome,"
said a client of a European private bank in Hong Kong.
(Reporting by Sumeet Chatterjee and Saikat Chatterjee;
Additional reporting by Anshuman Daga in SINGAPORE; Editing by