By Genevieve Cua

ASSETS advised by independent financial advisers (IFA) plunged in 2008, then rose slightly along with the broad market up to June 2009.

The silver lining is that account openings increased. But the caveat is that competition for IFAs' main clients - clients with over $100,000 to invest - is likely to intensify. Banks are set to redouble efforts to woo this segment, given the backdrop of tighter scrutiny over sales to the mass market. A select few IFAs are targeting private bank clients.

In its annual study of the IFA distribution channel, US-based Cerulli Associates has found that assets under the administration (AUA) of IFAs fell about 34 per cent from $5 billion at end-2007 to $3.3 billion at end-2008. Since then, assets have climbed a notch to $3.8 billion at June 2009.

In the broader mutual fund market, IFAs' share of roughly 8.9 per cent was maintained through 2008 and the first half of 2009. Banks remain the dominant distributor, with a share of 66 per cent at June 2009.

Cerulli says in its report: 'Investors' relationship with banks runs long and deep. This faith may have been shaken in 2008 and will take time to repair, but investors are likely to return, provided banks are proactive in mending the damage.'

Among IFAs, account openings rose 28 per cent despite the asset plunge in 2008, which Cerulli says may indicate a rise in demand for advice amid volatile market conditions. 'New business flows continue to be some way off the peak seen in 2007 and the greater effects of the recovery are likely to come only in the later part of the year,' it says.

The dominant platform is that of iFast, whose share is estimated at 57 per cent, followed by Navigator with a share of 33 per cent. Navigator, says Cerulli, has historically competed on fees, and recently raised them despite tougher economic conditions. iFast, on the other hand, 'continues to maintain its lead by providing not only a wide range of services and products, but also reliable and timely technological support'.

A Navigator spokesman said: 'The new pricing structure is designed to encourage our partners and clients to perform online transactions, which will deliver greater speed, flexibility and cost savings compared with traditional paper submissions.' The firm says it is unable to share more details on pricing.

Lim Chung Chun, iFast Financial chief, notes that fund inflows through IFAs have not recovered significantly, even though markets have staged a strong rally this year.

'In the short term, it seems he financial crisis has had a negative impact on the confidence level of clients and IFAs towards overall investments. Even though the stock market has seen a good amount of recovery, new business inflows from the IFA channel has not recovered very much,' he says. 'This is perhaps because the IFA themselves are handling a major financial crisis for the first time.'

Still, iFast expects its AUA to hit $4 billion by year-end. This suggests growth of more than 40 per cent from the current $2.1 billion as calculated by Cerulli.

Mutual funds continue to be IFAs' mainstay, with a 56 per cent share of assets. Insurance products' share is 26 per cent, and investment-linked products 16 per cent.

The mass affluent segment remains the main client base, accounting for 48 per cent of AUA. Mass affluent is defined as those with assets of $100,000 to $300,000. The mass retail segment (with assets of less than $100,000) accounts for 35 per cent. And the high net worth's share (assets of over $300,000) is about 16 per cent.

Some 86 per cent of IFAs polled expect wrap fees to account for a larger share of their revenue going forward. Wrap fees, says Cerulli, are a stable source of revenue. But it adds that many individual advisers still prefer commissions, which can be more lucrative, transparent and immediate.

On strategy, Cerulli says IFAs may prefer to focus on the higher net worth segments and leave the mass market to the banks. 'Expanding the number of wrap-fee-based accounts will likely give IFA firms the biggest opportunity for both asset and revenue growth,' it says. IFAs, it adds, will need to find a niche or offer more distinctive services to differentiate them in a highly competitive landscape.

iFast, for one, is gearing up to launch a service in the restricted funds space. These are funds available only to sophisticated or accredited investors. Mr Lim says: 'The idea is that to cater to higher net worth individuals (most of whom are Accredited Investors), we need to help the industry raise the level of service and product range available to this group of customers. To do this effectively, we decided to start a new division within iFAST.

'We believe this segment is important in the long run because of the amount of wealth in this segment, and because advisers will increasingly have to be able to advise and service this market segment well.'

This article was first published in The Business Times.