Auto Insurance Quotes ~ Insurers teach mutual funds how to lure Asia’s investors : Mutual fund managers in Asia have perennially lamented the low penetration rate they achieve, particularly compared with the US. It ranges from about 15 per cent in Singapore to approximately 3 per cent in Japan, against 50-60 per cent in the US. But Singapore’s mandatory government pension, the Central Provident Fund, may contain key lessons for reaching Asia’s retail investors.
CPF members make their own investment decisions and can invest in a variety of asset classes and products approved by the CPF Board. In recent years, these investors have placed significantly more assets in insurance wrappers, called investment-linked policies (ILPs) than in any other product or asset class. In the financial year ended September 2010, S$13.53bn ($10.7bn) was invested via ILPs, more than double the S$6bn placed with mutual funds. Endowment policies received S$8.35bn, listed equities S$4.4bn and bonds S$17.6m.
Over the past five years, the number of ILPs available under the CPF has grown faster than has the population of mutual funds. In 2006 there were 237 mutual funds and 203 ILPs. Following the imposition of controls on charges numbers shrank, and by 2009 there were 166 funds and 178 ILPs. As of February 2011 there were 130 funds and 181 ILPs .
Both insurers and fund managers expect fewer funds and ILPs to survive a review by Morningstar, CPF’s adviser, in March. But insurers are likely to remain focused on courting CPF money as this is their main source of assets. At Prudential Assurance Company Singapore, for example, 96 per cent of S$8.4bn assets under management is from the 22 PRUlink Funds approved by CPF.
Prudential, the first insurer to offer ILPs in Asia in 1992, has a particular reading of the retail investor’s psyche. Many retail investors are intimidated by the seemingly arcane world of investing, but ILPs are presented differently – as primarily protection.
“An ILP is an insurance contract. We’re selling a long-term investment into a person’s future. As consumers realise the potential impact of equity returns, they recognise they need equity exposure which can enhance their life protection. The protection message has resonated well with consumers,” says Tomas Urbanec, Pru’s chief marketing officer for life insurance in Singapore.
This is despite the extra charges on ILPs – a mortality charge on top of the charge for the underlying investment fund for this protection, although customers only get back the value of their investment on death.
Moreover, insurers have wide distribution networks. Pru has 3,300 tied agents and distributes through Singapore Post, UOB Bank, Standard Chartered Bank and other partners.
For fund managers, there are pros and cons to being third-party providers under the ILP structure. Insurance agents generally receive part of a fund’s sales and annual management fees, but this commission payment makes it less likely the agent will push clients to sell and reinvest in a different underlying fund.
Madeline Ho, Fidelity’s regional head of Singapore and Southeast Asia, likes the lower churn. “As insurance advisers typically have a stronger relationship with clients and a different sales process that often bundles investment with insurance solutions, investors from the insurance channel are more likely to hold a fund, especially if it’s a core part of the portfolio, for three to five years,” she says.
However, Ms Ho says there is less scope for product expansion: “Investors coming through the insurance channel, especially CPF investors, are mostly man-in-the-street who wish to grow their wealth but may not be sophisticated in investment. As such, they tend to favour core products such as global equities or regional equities.” Even so, Ms Ho hopes the insurance channel can eventually contribute 20-25 per cent of Fidelity’s assets under management.
Cerulli Associates’ second quarter report on the Asia-Pacific estimates that it will become increasingly difficult and more expensive to sell insurance wrappers in Singapore, Hong Kong and China because of new regulations. In Singapore, insurance agents selling investment products were recently placed under the same regulatory framework as investment bankers and licensed investment advisers, meaning agents must now pass the same exams and be registered with the Monetary Authority of Singapore.
Stephen Grundlingh, regional head, Southeast Asia at Franklin Templeton Investments, foresees training becoming an important service.
The group’s Franklin Templeton Learning Academy, for example, offers a nine-module course for insurance agents, bankers and distribution partners. Last year, nearly 2,000 participants attended. “The Introduction to Mutual Funds module is popular with insurance agents,” Mr Grundlingh says.
Franklin Templeton’s head of sales in Singapore, William Tan, discerns a new trend in Singapore: insurers are introducing mutual fund platforms. Unlike ILPs, which are tied to one fund, platforms offer dozens, sometimes hundreds of funds to switch between, sometimes for free. “We prefer ILPs because they have a captive audience, but we like platforms too because we can offer a variety of funds there to suit the differing risk appetites and interests of investors,” Mr Tan says.
Greater competition may eventually lead to lower fees on insurance wrappers, says Mr Grundlingh.
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