Key Takeaways
- The finance industry accounts for the 1st and 3rd largest shares of the Hong Kong and Singaporean economies, respectively, employing 318,450 professionals across both markets in roles offering not only 1.7-3.0x higher compensation compared to the average worker, but also involving strict PAD compliance regulations. While these regulated industry professionals were estimated to earn a sizeable USD 9.38 billion worth of investable income in 2025, they experience significant investment restrictions across the pre-, during, and post-investment stages of their investment journey that leave them with:
- Limited Choices: A significantly smaller investment universe hampers employees’ ability to adequately diversify their portfolio. Moreover, many employees are frequently forced to close their account with their existing broker when changing employers if it’s not on their employers’ approved broker list;
- Heightened Risk: Complex PAD policies can confuse employees and carry a constant compliance overhang due to risk of potential PAD policy violation(s), even if by accident, with minimum holding period requirements adding a liquidity risk to the mix, leading regulated FI employees to frequently invest more conservatively; and
- Inferior Experience: Compared to the average individual, employees at regulated FIs experience slower transaction speed, lack of access to advice, and a need to put in greater administrative effort.
- The negative impact of stringent PAD compliance requirements isn’t just limited to employees, as it has a domino effect on their employers, who suffer four notable pain points:
- Operational Strain: FIs, irrespective of their size, are required to have an operating model that is compliant with regulations, placing a sizeable strain on their resources;
- Lingering Risks: FIs are continuing to experience instances of PAD violations despite their best efforts, highlighting that vulnerabilities remain, with compliance lapses carrying significant consequences for violating firms;
- Higher Costs: FIs bear a sizeable cost burden due to PAD regulations, with an estimated 30-40% of costs being attributable to staff compensation, 10-20% to RegTech software, and 5-15% to external consultant spend, with an additional hidden bankroll cost burden of 40-55% due to employees managing their PAD obligations while at work; and
- Employee Dissatisfaction: Employees continue to struggle to save adequately for retirement. Many want more support from their employers. However, employee benefit costs remain the #1 concern for employers, creating a significant gap between employee expectations and employer offerings.
The Future Picture
- Different financial instruments carry different levels of PAD compliance risk. While single security investments (e.g., options, futures, stocks, and bonds, etc.) carry a significant level of risk pertaining to misuse of Material Non-public Information (“MNPI”), front-running, and market abuse, open-ended mutual funds and batch-executed ETFs that can be pre-approved by employers are often not classified as “Covered Securities” due to key investment decisions (e.g., when and what security to buy / sell, etc.) being outsourced from the employee to the fund manager or index, thereby mitigating the risk of self-dealing.
- In addition to substantially reducing compliance risk for their employer, open-ended mutual funds and batch-executed ETFs’ adoption by employees also reduces the operational burden by shifting the compliance focus from an individual security transaction-level with infinite possibilities to the product-level consisting of a finite set of pre-approved funds, reducing risk (and effort) for both employees and employers. This can lead to:
- Improved Workforce Outcomes: Improved employee financial preparedness is found to result in greater employee satisfaction (82%), productivity (78%), and loyalty (71%); and
- Improved Financial Outcomes: Employers may enjoy a positive P&L impact as a result of cost savings (e.g., lower operating expenses to maintain regulatory compliance, staff attrition-related costs, etc.) and revenue gains (e.g., higher talent quality, employee productivity, etc.).
- To unlock these gains, we believe there is an opportunity for employers to explore a third-party funds-based employee investment solution that allows them to seamlessly offer their employees an easy-to-use platform with a broad – and pre-approved and compliant – set of fund options for building a suitably diversified investment portfolio.
