Cerulli Edge - Asia-Pacific Edition Topic: Regulatory Developments (4Q 2011)

Countries covered: Asia In the fourth quarter 2011 issue of The Cerulli Edge™—Asia-Pacific Edition, Cerulli discusses the implications of tightening regulations in Korea, India, and Australia. Additionally, our Report Spotlight— condensed from Cerulli’s Asset Management in Southeast Asia 2011 report—examines the product opportunities arising from regulatory changes in Malaysia, Thailand, Indonesia, Vietnam and the Philippines. Cerulli's Quantitative Update section covers the key metrics of mutual fund net flows and assets under management (AUM). In this issue, data is updated through the second quarter of 2011. We also provide a regional overview and a focus on the Chinese mutual fund market’s asset flows up to June 2011. The data indicate that Chinese guaranteed funds’ sudden doubling of AUM in the first half of 2011 is likely unsustainable.

Additional Information

Report Excerpt

In India, the prohibition on front-end loads that began in August 2009 was disastrous for sales. In 2010, net outflows from mutual funds totaled almost Rs 1 trillion (US$21 billion), the first negative net flow since 2006. To ease the industry’s dilemma, the Securities and Exchange Board of India (SEBI) recently made allowances for distributors to charge Rs 100 for every subscription of at least Rs 10,000, or Rs 150 for every new account. Please see Ground 0.1 in this issue. However, most distributors don’t think that fee level is worthwhile. Retail accounts have an average Rs 40,000 in assets under management (AUM) each, which means distributors used to earn Rs 1,000 before the prohibition. Clearly, relying on front-end fees alone won’t work.

India’s example is relevant to other Asia- Pacific markets because the latter may eventually adopt the fee-for-advice model to varying degrees. However, it is notoriously difficult to get Asians to pay for advice.

Even so, Cerulli thinks there are five avenues fund managers might explore to maintain a viable retail proposition. But it is likely to take longer to build a strong retail book than previously possible.

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