Singapore and Hong Kong: Fund Fees Above Average

Singapore and Hong Kong: Fund Fees Above Average

Dominated by Banks

Most investors in Singapore pay a financial adviser through retrocessions embedded in the expense ratio, the study found. Funds without retrocessions are technically registered for sale in the market but are not actually accessible to the average retail investor given that fund distribution is dominated by intermediaries, especially banks.

«Very few investors in Singapore utilize fee-based advice, and financial advice fees are typically bundled. Retrocessions can make up 50 percent of the total expense ratio of a fund,» wrote Morningstar.

Similar in Hong Kong

Similarly, Hong Kong received a «Fees and Expenses» grade of Below Average, retaining its grade from the last report. «UCITS funds make up the majority of the available-for-sale universe in Hong Kong and tend to be more expensive than locally domiciled funds,» Morningstar wrote.

«The concentration of distributors in Hong Kong presents challenges for asset managers in trailer fee negotiations. In Hong Kong, it is common for trailer fees to make up as much as 50 percent of a fund’s management fees, although this can be even higher for small or new asset managers with less negotiating power,» it noted.

Since November 2018, the Securities and Futures Commission of Hong Kong (SFC) has enhanced point-of-sale disclosure by requiring intermediaries to disclose the maximum percentage of trailer fees received for a particular fund per the distribution agreement and to make a one-time disclosure on whether the intermediary is «independent.»

Evaluation Categories

For the report's sixth edition, Morningstar uses four evaluation categories - fees and expenses, regulation and taxation, disclosures, and sales - as independent chapters. 

The Global Investor Experience study aims to empower investors worldwide by promoting dialogue and transparency around global best practices for mutual funds from the perspective of fund shareholders.