The wealth management platform

INVESTORS who, on the suggestion or advice of their financial advisors, rebalance their portfolios or invest in unit trusts (for the first time) are usually ignorant of the fees incurred in doing so.

The more savvy ones may moan about the fees but can really do little about it apart from negotiating lower fees from the agent or financial advisor concerned.

Note that these agents and financial advisors are usually tied to a financial institution and, therefore, are more compelled to push its products.

Since it is illegal to charge lower fees without the consent of the institution they represent, there is a waiting period while the agent communicates with his or her principal.

According to the Securities Industry Development Corp, which provides education, training and information on the capital markets, there is a sales charge of 5% at the point of purchase, of which the agent takes a cut.

Tan

Besides this charge, there are management fees (1.5% per annum) and smaller trustee and miscellaneous fees that together may add up to another 0.14%.

There is also a switching fee payable to the unit trust management company for those who want to rebalance their portfolios.

However, financial advisors who are qualified corporate unit trust advisors (CUTAs) can choose to use a platform known as an “integrated wealth management platform” with a wrap-account function to advise their clients.

This is new in the local financial advisory scene but is not new in more advanced markets.

Fidelity Investments, for example, launched the Fidelity WealthCentral last December offering advisors a more efficient way to manage their clients’ portfolio.

Other platforms include those managed by SunGard (WealthStation) and Thomson Reuters (Thomson One Wealth Management).

In general, these wealth management platforms or sometimes known as fund platforms help advisors to consolidate all their clients’ investments in a single system integrating the front-office and back-office functions.

Among the primary front-office functions is the access to a comprehensive range of unit trusts instead of just the ones represented by agents tied to a particular fund house.

Another useful function is the consolidated statement which allows advisors and their clients to better keep track of the portfolio versus the days when funds were purchased from separate fund houses which then complicates the tasks of compiling an overview of the entire portfolio.

According to iFast Capital Sdn Bhd managing director Dennis Tan, whose firm launched an integrated platform last October, advisors spend less time on unnecessary paperwork and more time formulating the right portfolios for clients.

iFast Capital is a joint venture between OSK Investment Bank Bhd and Singapore-based iFast Corp Pte Ltd. Currently the platform has more than 70 funds from nine fund managers represented.

Besides iFast, another Singapore-based company, asset manager Phillip Capital Management (S) Ltd is also providing a platform similar to iFast’s that was launched end-June in Malaysia via its local subsidiary Phillip Capital Management Sdn Bhd.

Tan says one of the more attractive features, especially for those who choose to use the wrap-account function, are the lower fees as wrap-accounts typically consolidate all the fees normally associated with unit trust investments.

“Under the wrap-account function, advisors have the freedom to determine the upfront fee or sales charge from 0% to 5% but typically they charge 1% to 3% and sometimes even 0% if the account is large enough,” he tells StarBizweek.

Tan says the lower cost is achieved because no intermediary or agent is involved in the sale of the product since everything is done online. “There are no switching fees too when investors rebalance their portfolio,” he says.

Tan says this is to prevent advisors from churning or moving money around different funds unnecessarily to earn commissions. “The advisors earn their keep by charging an annual wrap fee of between 0.15% to 1.5% depending on the performance of the unit trust funds invested,” he says.

Tan says this way, the interests of advisors and clients are aligned.

Whitman Independent Advisors Sdn Bhd managing director Yap Ming Hui says since advisors now have choice of funds to invest in depending on the risk profile of the clients, there is no hard-sell of products that may not be in the best interests of the client.

iFast’s Tan says the wrap-account function is popular in Singapore, where it was launched in the early 2000s.

“We’ve more than 40% of the unit trust market in Singapore,” he says, adding that Aviva plc’s Navigator Investment Services Ltd is the only other major competitor in the Singapore market.

So far, CUTAs who have associated themselves with the iFast platform include Lion Wealth Advisors Sdn Bhd, Standard Financial Planner Sdn Bhd and Whitman Independent Advisors.

Thestar