THE high deposit rate in Malaysia has hampered the development of the local wealth management segment, says OCBC Malaysia head of wealth management Evelyn Yeo. According to Yeo, deposit rates provide healthy returns in exchange for low risk compared with other investment options.
“Rates range between 3.25% and 4.2% for one-year fixed deposits. Therefore, it is difficult for an investment product which carries some level of risk to consistently beat, say, a 4.2% expectation.”
Yeo has 15 years of experience in the wealth management segment, both in Malaysia and Singapore. She oversees the wealth management segment at the bank, which covers deposits, unit trusts, Treasury products and bancassurance.
Yeo opines that given the current market volatility, it is difficult to find good paper or products that meet the requirements of local investors for yields, yet at the same time are good quality with low risk.
“Let’s say the deposit rate [for a 12-month fixed deposit] is 4.2%. So, using SGD-denominated bonds with an A-credit rating as an example, who would want to touch an eight-year bond or a five-year bond or even a 10-year bond which provides coupon rates of around 3.15% to 4.25%?”
The needs of the retail segment have also been neglected as most of the development of wealth management products that are focused on the affluent segment. Yeo provides an example.
“In Malaysia, a structured deposit like a floating rate negotiable instrument of deposit has a minimum ticket size of RM70,000. The minimum amount for a structured investment is RM250,000 and is only available for high net worth individuals,” says Yeo.
“It differs from Singapore where these structured deposits or even capital-protected products are considered a mass-market product as the size per investment can go as low as S$5,000.”
Yeo says that even the popular dual currency investment product in Malaysia can only be bought by the high net worth individuals and typically require an investment amount of RM50,000 onwards.
“In Singapore, it is a mass-market product. Again, these are some of the developments that our mass-market customers will lose out on. Because what are their alternatives? There are only four things, such as deposits, endowment insurance plans, unit trusts and trading foreign currency directly (subject to a maximum of RM1 million conversion per calendar year if one has domestic borrowings).”
More wealth management products today
Today there are more wealth management products targeting affluent clients than ever before, while there have been challenges in the industry.
“That has definitely increased over the last few years, particularly in the Treasury products space and in unit trusts,” she says.
The Treasury products space, which has seen capital-protected, structured investments and dual-currency products in the past, has now extended its breadth to include retail bonds, non-principal protected credit-linked and equity-linked structured investments. Even credit-linked investments now include both ringgit and foreign-denominated products.
Yeo gives an example of products that OCBC has developed in the affluent segment space.
“Even unit trusts, for example the beta fund series that we launched, can only be offered to the affluent. These are wholesale funds, meaning the Malaysian beta funds will feed into foreign exchange-traded funds.”
The other trend within the affluent segment is the change to a more advisory-centric approach rather than a product-driven one. As global markets make themselves more accessible to foreign investors, Yeo says conversations with high net worth investors are starting to become more advisory in nature.
“It is how you fit product A, instrument B and asset class C into your portfolio and does that suit you. Should you be overweight in Asia, global or Malaysia? [Our conversations with them revolve around] things like that. Do you go for more fixed-income or do you hold more equities or should you stay away from this and just do forex?
“Depending on the client’s need, the advisory component becomes more important. This is one of the areas that we are focusing on and strengthening as well. We recognise [that] there’s this need. Investors need more advice-driven conversations rather than ‘let me tell you what the product is about’ [conversations],” she explains.
That’s why OCBC has set up a wealth panel in 2013 that consists of investment experts who present global, regional and local views. The panel provides a macro view as well as views on asset classes, industries and countries. On the local front, wealth advisers adapt these views for the offerings they have.
One of the key drivers to the liberalisation of the industry is the recent change in regulations, which has enabled the wealth management segment to grow. Yeo says the change of regulations has allowed them to explore products that were previously not available in Malaysia, like retail bonds.
“Over a period of time, we saw bonds being broken down into smaller denominations for consumers.
“We [also] started seeing [regulations for] wholesale funds being introduced, which allows all these foreign funds to feed into a local fund and be distributed in this country.”
Investors looking at yield returns, shorter tenure
In the current volatile investing environment, Yeo observes many investors turning towards deposits in their hunt for yield returns.
“They are still investing in equities but they [investors] also look for products that can give them some level of certainty in terms of yield, income drawdown or income distribution.
“When markets grow but volatility remains quite moderate, people [tend to] search for capital gains,” she says.
Yeo says her clients are starting to see the need for diversification, and are looking to foreign currency products.
“As they diversify, they do want to look for other foreign currencies as well so they don’t hold all their eggs in one asset class,” she says.
Apart from that, investors are also looking for products with shorter tenures. Yeo says while investors’ returns expectations have not really changed, their tolerance tenures have reduced.
“When there is more uncertainty, investors see markets as being volatile and things bouncing [around], it is more difficult to have a long-term view.
“In the past, structured investment products [for example] used to have longer tenures but now some have been reduced. The market is seeing three-year to five-year product tenures being shortened to three months and even one month.”
Yeo’s advice to investors is not to chase returns or news, but to identify what they need according to their risk tolerance.
“While there are opportunities that come from news flow, these are tactical investments to me. Any prudent investor should always have a core investment portfolio which, depending on his risks, may change between 60% to 90%, or even 100% core.
“Core is the basis of holding your portfolio together. It is meant to meet needs, time horizon and risk tolerance. Their advisers should be able to help them structure such portfolios by thinking holistically and long term.”
Investors can allocate a smaller percentage to tactical investments.
“Your tactical investments can be the things that you punt, or chase news for, have fun with and maybe take higher risks on.”
This article first appeared in Money + Wealth, digitaledge Weekly, on August 31 - September 6, 2015.