New rules from the Hong Kong regulators on online distribution and advisory platforms will come into effect next month and is set to make ripples. Here are five key things wealth managers should consider.
1. «Execution-Only» Dead
With the introduction of the new rules requiring minimum due diligence to classify all investment products as either «complex» or «non-complex» under the SFC’s definitions, the so-called «execution-only» business in Hong Kong is expected to take a big hit.
Unlike traditional wealth management, where a relationship manager advises and a client decides, execution-only involves a pure brokerage order ridding the transaction of any fiduciary responsibility, a practice that is oft done to access products a bank has and will not conduct due diligence due to the lack of scale from a one-off ticket.
Greater Scrutiny
A once popular channel, especially for Greater China’s sophisticated investors, the clampdown will test banks appetite. None are expected to openly give a blanket pass to all one-off transactions.
Nonetheless, greater scrutiny on the business case per trade will be applied and many expect that relationship managers will naturally cease pursuing such long drawn, low probability requests for due diligence.
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