Set Up of External Asset Managers in Singapore
External Asset Managers (EAM), also known as Independent Asset Managers (IAMs), are growing in size in Asia; especially in Singapore. EAM first appeared in Europe where many private bankers left the banks to set up independent offices to serve their clients. As Asian markets have matured and wealth has increased, there is a booming client base of affluent young people who are open to different forms of wealth management.
What is an External Asset Manager (EAM)?
An external Asset Manager enables clients to place their money with their choice of bank or one recommended by the EAM. The client gives an EAM authority and power of attorney as a third party to represent them in managing the investment portfolio and asset allocation. In some instances, they come with a bank that they currently use. At all times, the money remains in the name of the client but the EAM makes decisions on how the assets should be managed.
Do EAMs need a Licence in Singapore?
Yes. Even though the EAM does not hold or control the client assets which are typically placed with custodian banks, private banks and brokers; EAMs are considered to be a fund management activity in Singapore. The main activity conducted by EAM is to provide clients with investment advisory services, construct investment strategies and either conduct discretionary or non-discretionary fund management activities for their clients. Fund management is defined in the Securities Futures Act is defined to mean undertaking, on behalf of customers (a) the management of portfolio of Capital Market Products or (b) entry into foreign exchange contracts for the purpose of managing customer’s funds.
The general categories of Fund Management Companies (“FMCs”) in Singapore are:
- Licensed fund management companies (“LFMCs”); and
- Registered fund management companies (“RFMCs”).
LFMCs are further divided into three categories; namely:
- LFMCs carrying on business in respect of all types of investors including retail investors;
- LFMCs generally restricted to carrying on business in respect of “qualified investors” only (“A/I LFMCs”); and
- LFMCs who manage only Venture Capital Funds (“VC LFMCs”)
The decision on which category of licence or registration to apply for depends on the business model and the growth projections for the business. EAM typically falls under A/I LFMCs or RFMCs.
What are the requirements for an LFMC & RFMC licence/registration application in Singapore?
Table 2 illustrates the minimum requirements for LFMC A/I and RFMC in Singapore.
|Amount of Assets under Management||Above S$250 million||Maximum of S$250 million|
|The number of Directors & Experience||Minimum of 2 Directors with more than 5 years relevant industry experience. At least 1 must be Executive and Singapore-resident.||Minimum of 2 Directors with more than 5 years relevant industry experience. At least 1 must be Executive and Singapore-resident.|
|Relevant Professionals & MAS Representatives||Minimum 2 relevant professionals who need to be resident in Singapore and have at least 5 years of relevant industry experience. They can be same as above if both Resident in Singapore||Minimum 2 relevant professionals who need to be resident in Singapore and have at least 5 years of relevant industry experience. They can be same as above if both Resident in Singapore|
|Investor Type||Limited to Qualified Investors||Limited to Qualified Investors|
|Number of Investors||No Limits||Maximum of 30 investors (which may include up to 15 funds)|
|Compliance Arrangements||This function can be outsourced if the AUM is less than S$1 b.||Can be outsourced as per complexity and scale of business|
|Professional Indemnity Insurance||Encouraged to be maintained||Encouraged to be maintained|
|Reporting requirements||Annual and Quarterly||Annual|
|Base Capital Requirements||S$250,000||S$250,000|
|Risk-Based Capital Requirements||120% of Operational Risk Requirements||None|
What is the estimated cost of setting up an EAM in Singapore?
Costs involved in setting up an EAM are split into initial incorporation costs and ongoing costs. The EAM will have to factor in cost of company incorporation, licensing, and setting up of compliance policies and procedures as the initial set up costs. Ongoing costs include operational costs pertaining to rental and staff salaries, ongoing licence/registration costs, and costs for maintaining service providers such as outsourced compliance support, IT support and auditors.
Costs will vary depending on size and business model of the EAM. The EAM may take advantage of various tax exemptions available in Singapore to reduce their cost burden. Typically with good anchor clients the benefits of setting up as an EAM significantly outweigh the costs which can be kept very frugal during the initial phase.
What are the types of fees charged by EAMs?
External Asset Managers charge clients an advisory/management fee. Some banks share commissions earned with trades on clients’ accounts. This type of commission is referred to as retrocession fees. Some EAMs do not engage in retrocession fees to avoid any conflicts of interest. For example, a conflict of interest would arise if an EAM were making unnecessary transactions to increase its revenue.
How can Waystone Compliance Solutions Help?
Waystone Compliance Solutions is an experienced regulatory consulting firm who understands the External Asset Managers model very well and are fully equipped to provide an end-to-end solution for you. We can advise what type of licence or registration is suitable for your firm based on your business model. We can assist to apply for the relevant Fund Management Registration or Licence. We can also assist with drafting policies, procedures and provide outsourced compliance support to maintain your ongoing regulatory obligations.