Market veterans say it's unclear how soon retail investors in the Asia-Pacific region could become a significant contributor to ETF market growth.
The dominance of "intermediated" bank and broker-driven distribution in the region — as opposed to the fee-based advice model ascendant in the U.S. — continues to inhibit the growth of the retail ETF market here, sources say.
None of the big bank platforms in Asia will be eager to distribute low-margin ETFs unless and until the products achieve significant scale, said Ken Yap, Singapore-based managing director, Asia, with Cerulli Associates Asia Pte Ltd. For Asia's huge, fragmented market, it's a "chicken and egg" problem, he said.
The dominant commission-based, bank distribution model leaves distributors with "no incentive to push ETFs," agreed Jackie Choy, Hong Kong-based director of ETF research with Morningstar Asia Ltd. And without a regulatory sea change in the direction of fee-based advice, it's hard to anticipate a catalyst that would unleash retail demand for ETFs anytime soon, he said.
In Japan, one veteran manager predicted institutional investors will continue to dominate the market. Growing appreciation of the flexibility ETFs provide in areas such as asset allocation should ensure institutional investors remain the driving force behind growth in demand, said Kohei Sasaki, Tokyo-based senior manager and head of ETFs with the marketing group, institutional sales division of Mitsubishi UFJ Kokusai Asset Management Co. Ltd. And while the rise of online securities companies now is creating an opening for ETFs, that movement in Japan now is probably similar to what U.S. markets were experiencing 10 years ago, he said.