CISL: Levelling The

Playing Field

Outline

• Key Developments

• Who Can Distribute CIS?

• Growth of CIS Industry

• Changing Distribution Landscape

• Regulatory Developments

• Trends in Southeast Asia

• Summary

Key Developments

• Emergence of mutual fund supermarkets via online stockbrokers – starting with

COL Financial Fund Source in 2015

• Banks slowly shifting to open architecture model by offering funds from third-party

fund houses

• BSP’s cross-selling framework allows distribution among affiliates, non-bank

affiliated fund houses are able to sell their funds at banks through the latter’s trust

business or brokerage license

• (BSP) has allowed UITF providers to feed into target funds that invest in

exchange-traded funds (ETFs) and other collective investment schemes (CISs).

• More foreign insurance groups are looking to set up shop in the Philippines

following the entry of Ageas Insurance International and Allianz SE.

• CISL ongoing deliberation in Senate

Who Can Distribute CIS?

Fund manager

Investment house

Any bank, financial, or

trust institution under BSP

Any insurance broker

under IC

Stockbroker duly

accredited by SEC

Independent

Financial Advisors

Fin tech companies

✓

Direct sales agents

✓

✓

✓

✓

✓

✓

?

What are the requirements to distribute CIS?

Agent

• Certified Investment

Solicitor (CIS) license

• Insurance Agent License

• Mutual fund distributor

license from SEC

• Certified Investment

Solicitor (CIS) license

• Trust license issued by

BSP

• Trust program accredited

by BSP

Bank/Financial

Institution under BSP Brokerage firm

• Insurance broker

license issued by IC

Insurance broker

under IC Fund manager

• Fund manager license

issued by SEC

• With the expanding PH economy and

CIS industry, fund houses have

started targeting the growing mass

affluent.

• With areas outside Metro Manila being

underpenetrated, large players have

started establishing distribution

channels outside NCR.

• Total MF and UITF AUM in the

Philippines is seen to grow at a

compounded annual growth rate

(CAGR) of 12.6% over the next five

years, according to Cerulli

Source: Cerulli Associates

Growth of CIS Industry

Source: Cerulli Associates

• Distribution capabilities of fund

houses continue to be strengthened

through direct sales teams.

• Inflows remain to be largely sourced

from high-net worth individuals.

Thus, there is a need to expand

distribution by tapping new client

segments.

• With the success of COL Fund

Source, other brokerage firms are

seen to follow suit on exploring

mutual fund distribution through their

ICA license.

Growth of CIS Industry

Changing Distribution LandscapeWhich of the following distribution channels do you

intend to increase the use of over the next three years?

Source: Cerulli Associates

• According to a survey done by Cerulli,

fund houses still put much importance

on their direct sales team as its core

distribution channel.

• Fund houses recognize the value of

third-party online platforms as an

emerging distribution channel, which

may drive a change in the region’s

distribution landscape.

• However, market share of online

distribution platforms remains small,

which presents an opportunity for fund

houses to expand their distribution

networks.

Bangko Sentral

ng Pilipinas

Regulatory Developments

• Released Circular No.884,

setting the guidelines on the

establishment and operation

of trust and standalone trust

corporations

• Allowed UITF providers to feed

into target funds that invest in

exchange-traded funds (ETFs)

and other CIS

• Released cross-selling

framework which allows

distribution of third-party CIS

only among affiliates

• Issued rules granting

insurers limited trust

powers to allow them

to raise and manage

employee provident

funds under a tax

exemption status

• Upcoming release of new

set of Implementing Rules

and Regulations (IRR) of

the Investment Company

Act which will allow mutual

funds to do feeder funds

• Less stringent approval

process in allowing mutual

fund houses to offer fund-

of-funds

Securities and

Exchange

Commission

Insurance

Commission

Distribution in Southeast Asia:

How are the dynamics changing?

Snapshot of Online Fund Platforms in Southeast

Asia ex-Singapore, 2016Sources: Federation of Investment Managers Malaysia, Cerulli

Associates

• Distribution channels in the region

have expanded in recent years, as

regulators liberalize and expand

markets through alternative

distribution channels.

• Most common strategies for foreign

players are through product

partnerships, M&A, and setting up

onshore presence.

• Southeast Asian CIS companies

are keeping a close eye on Fin

Tech/ digitalization, with the recent

spur in the development of online

platforms to cater to new segments.

Challenges

• Standardization of licensing process for CIS distributors poses a challenge for the

regulators, as CIS companies continue to grow their core distribution channels.

• KYC and AMLA procedures persist to be an important issue as well, as CIS

companies diversify their client segments.

• As the local CIS industry is in its infancy stage, there is an increased need to

elevate financial literacy among CIS distributors and the investing public.

• Rising competition in the region has put more pressure to CIS companies in

diversifying their distribution capabilities. However, the trend of tighter regulations

in global markets and the slow pace of local regulation in catching up with other

markets has limited their ability to explore other modes of distribution.

Summary• The CISL aims to provide a comprehensive and unified distribution framework with the

aim of levelling distribution amongst CIS players and ultimately protecting the interest of

the investing public.

• However, the country’s geographical structure remains to be a challenge in CIS players’

objective of expanding to other regions outside NCR. New means of distribution are

needed to spur the reach of CIS in this market.

• With the growing CIS industry, there is much emphasis on the need to respond to new

client segments through alternative distribution channels.

• CIS companies should work hand-in-hand with the regulators in keeping the market at

par with our regional peers in terms of regulations.

• The Implementing Rules and Regulations of the CISL shall provide greater guidance and

understanding to level the distribution of CIS across different players.

• Timing of deliberation in the Senate is crucial in defining the next steps after the passage

of the CISL.