Building a Better Business Environment for Taiwan’s Asset Management

In the past year, positive steps have been taken by the Financial Supervisory Commission (FSC) to build a better business environment and stimulate financial product innovation in Taiwan. In the newly published 2017 Taiwan White Paper, the Asset Management Committee of the American Chamber of Commerce in Taipei commends these reforms.

The Asset Management Committee notes with gratitude the FSC’s recent efforts to promote fintech, establish an online mutual fund platform, increase opportunities for onshore mutual fund investment, and strengthen the business relationship between the asset management and insurance industries. The Committee’s position paper underscores, “these changes demonstrate the FSC’s vision and ambition to upgrade Taiwan’s asset management business and bring it in line with global practice.”

While acknowledging the progress already achieved, however, the Committee points out some key areas where additional efforts are needed and offers suggestions to the FSC on how to sharpen the asset management industry’s competitive edge, create more business opportunities for industry participants, and offer consumers a wider range of investment choices.

The Committee hopes that revisions to the Securities Investment Trust and Consulting Act “will contribute to building a better regulatory framework for Taiwan’s asset management industry by increasing the competitiveness and operational flexibility of onshore products, assuring a level playing field between onshore and offshore funds, and relaxing investment restrictions on onshore products.”

Implementing a self-choice labor pension scheme is not only of great importance to the Asset Management Committee but also one of top priority policy issues of the 2017 Taiwan White Paper.

Under the current labor pension scheme, there is no opportunity for individuals to customize their investment plans. All employees are issued an identical portfolio and return model, and as such, they have no control over their investment risks and returns.

The Asset Management Committee advises the FSC to work closely with the Ministry of Labor (MOL) to implement a self-choice labor pension scheme, which has been implemented by many advanced economies, including the U.S., Australia, Hong Kong and Singapore. The position paper notes that a self-choice retirement scheme is “critical to every worker’s retirement arrangement and should partially solve the current difficulty the government is facing with the Labor Pension Fund.”

Taking into account the continuation of low interest rates, the rapid aging of Taiwan’s population, and employers’ need for a diverse set of retirement plan options, the Asset Management Committee “strongly encourages the MOL to expedite the process for implementing a self-choice labor pension scheme.”

The Committee further notes that the current design of distributors’ commission on fund sales is based on the transaction amount, which wrongly incentivizes the distributor to frequently churn funds. The Committee recommends the adoption of the Assets Under Management or “AUM-based” methodology to calculate distributors’ commissions on fund sales to promote long-term stabilization of the investment environment.

To read the full Asset Management position paper, click here.

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