By G. Sharmila
In this part of the issue KiniBiz compares the domestic unit trust industry fees with that of Singapore, Thailand and developed countries like the United States. In addition we also look at the liberalisation of the industry and what it means for investors.
In the previous article, KiniBiz looked at the fees and charges imposed by unit trust management companies (UTMCs) in Malaysia. Malaysia-based UTMCs impose among the highest sales charge in the region, according to unit trust consultants KiniBiz spoke to. (See table for a comparison of fees between Malaysia, Singapore and Thailand).
As in the table (right), the sales charge for equity funds in Malaysia typically exceeds 5% whereas Singapore charges a higher sales charge than Malaysia for bond funds. We looked also at unit trust funds sold in Malaysia by US-based UTMCs such as Franklin Templeton Investments and found that their sales charge can also exceed 5% for equity funds.
Seeing that unit trust fees are still high in Malaysia, KiniBiz asked the Securities Commission what they are doing to regulate these fees.
“As a matter of policy, regulators generally do not regulate fees, which are determined by market forces. However, the SC requires clear disclosure on the fees imposed,” a SC spokesperson said via email.
It may take a considerable amount of time before market forces kick in and create enough competition to drive prices down, as many are hoping liberalisation of the industry will bring. For the uninitiated, in June, the prime minister announced that effective immediately foreign corporations will be allowed to own 100% of shares in local UTMCs. Additionally, barriers have been removed for foreign-owned unit trust companies entering the Malaysian market. (Prior to this announcement, foreign UTMCs were only permitted to sell wholesale funds to retail investors with a net worth of above RM3 million).
Then on August 25th, the Asean Capital Markets Forum announced the launch of the Asean Collective Investment Scheme (CIS) Framework, established by the Securities Commission of Malaysia, the Monetary Authority of Singapore and the Securities and Exchange Commission of Thailand. In essence, this enables fund managers from Malaysia, Singapore and Thailand to promote their unit trust products directly to retail investors from the three countries.
Besides creating competition with the entry of foreign players and eventually reducing unit trust fees, liberalisation is expected to result in more investment products to choose from. However, it appears that liberalisation has yet to influence the fees charged by foreign players entering the market such as Franklin Templeton.
In fact some some foreign funds can be cheaper to purchase online. One example is the Templeton Global Total Return fund. Buying into the fund directly from Franklin Templeton will incur you a maximum sales charge of 4.25%, which is still rather high. However, buy it via online unit trust distributor fundsupermart.com and you get a zero percent sales charge, although you’ll have to pay 0.2% a year in platform fees
Sandeep Singh
Sandeep Singh, Country Head, Malaysia of Franklin Templeton Investments welcomes the liberalisations. In an email to KiniBiz he said the move shows that the government is inclined to liberalise the financial services industry and integrate with the global market.
“This also signifies the local unit trust industry is now mature enough to handle more competition from the international players and is ready to advance to the next phase of growth. With liberalisation, we foresee the industry will grow more competitive and vibrant. Competition will naturally shape the players to develop, innovate and improve in order to survive,” he said.
He added that new standards will emerge out of this environment and it will benefit the industry as a whole. “For instance, the breadth and depth of product offerings will widen to cover different strategies, asset classes and geographies. Infrastructure to support retail market will see major changes as the support systems to develop the retail market requires heavy capital investments.
“This naturally favours the larger and committed players who not only can leverage on their scale, but are also willing to take a longer term perspective to operate in this market. It will also create more job opportunities both within the industry as well as the ancillary sectors that support the investment management industry as more foreign firms establish or grow their presence here,” he said.
Commenting on the benefits of liberalisation to foreign UTMCs, Sandeep said that the move will benefit the foreign asset management firms as they can offer products which cater to a wider segment of the market, in this case, the retail market. “Franklin Templeton Investment has a sizeable presence globally in this segment and we hope to bring our expertise and learnings to benefit the local retail investors,” he said.
The spokesperson from the Securities Commission (SC) pointed out that within the Asean CIS Framework, qualified fund managers in Malaysia now have the opportunity to offer their products directly to investors in Singapore and Thailand. Correspondingly, Malaysian investors would benefit from a wider range of investment products following the operationalisation of the framework.
“The move is set to create a larger market for the industry, hence bringing greater efficiency and a more vibrant and cost-effective environment for investors. Local players stand to benefit from the overall growth of size of the market, given their current strengths in market infrastructure, penetration and access to distribution channels,” the SC spokesperson said.
Linnet Lee
However, some prefer to take a more cautious stance on liberalisation. Linnet Lee, chief executive officer of the Financial Planning Association of Malaysia told KiniBiz in an email interview: “The entrance of the Asean CIS framework is good for the industry on the whole. Foreign fund houses are likely to use local players to distribute their funds instead of reinventing the wheel. The possible challenges will be logistics as different countries will have different structures and these must be adjusted and matched before local and foreign companies can work together.”
She added that from a financial planner’s viewpoint, it is an opportunity for them to recommend a wider range of suitable products to meet their client’s needs to achieve their investment goals.
Lynn Cheah, chief executive officer of Eastspring Investments Bhd told KiniBiz that the outlook for the unit trust industry is very promising due to the increasing numbers of the middle income class and also the low penetration rate compared to the matured markets.
“The ASEAN CIS framework opens up opportunities for the industry, for one, it allows our products to be offered in other countries in ASEAN. That means potential business growth for industry players. Whilst the framework has been launched there are still a lot of operational challenges/issues that need to be ironed out,” she said.
To a question on whether she sees UTMCs like Eastspring being forced to lower sales charges to compete with new foreign entrants to the local market, Cheah replied: “Currently, no – we don’t see ourselves being forced to lower our sales charges. A unit trust is still a ‘high touch’ product, meaning to say investors still require a consultation with an authorised distributor to explain the details of the fund along with its risks, fees and charges. Eventually this will change as investors become savvier and learn how to research investments on their own – although we don’t see this happening in Malaysia in the near future.”
She added: “The beneficiaries (of liberalisation) are obviously the retail investors as not only they will have more choices but the local players will have to step up their quality of products and services in order to compete. Hopefully Malaysia will also be able to attract Malaysian talent abroad.”
It remains to be seen if liberalisation will force existing UTMCs to lower their fees, but in the meantime investors have to put up with existing unit trust fees and some of the disadvantages they bring. In our next and final piece in the series, KiniBiz takes a look at some of the alternatives to unit trust investments.
Yesterday: A booming industry despite high entry costs
Tomorrow: Alternatives to unit trust funds
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