Fiduciary, Fee-Only Friends Found All Around the World

A Wendy’s Wednesday Whimsy

As we reflect on the outcome of yesterday’s presidential elections, you may enjoy a reminder that, big picture, the world has a way of continuing to turn, come what may. My personal inspiration came last week when I took a little longer than usual to knock off for the day, scheduling a 6 pm Skype with a new friend I’d recently met: Phil Stockton of Private Capital Ltd.

BREAKING NEWS: As I was putting together this week’s whimsy, I was delighted to see that my British communications colleague and Evidence-Based Investor author Robin Powell published a podcast conversation between us. In “What’s With the Name?” we explore the origin and meaning of Evidence-Based Investing. I also happened to mention my conversation with Phil toward the end. I do hope you’ll give the show a listen. We’re all one, big happy global family!

Now, back to my own post: I was willing to delay happy hour last week, because my Wednesday evening was Phil’s Thursday morning, and another busy day for him as he and his partners Rick Adkinson and Mathew Bate are spreading the mostly unheard-of word on evidence-based investing to families sorely in need of hearing more about it – in Hong Kong.

My husband joked that I should have been in touch with Phil yesterday morning (Tuesday, Nov. 8) to get an advance report on the day’s election results.

Mind-boggling time zone calculations aside, the rest of my Skype conversation with Phil was a reminder that, no matter where in the world you are, an evidence-based adviser can expect similar challenges.

The names of the regulatory agencies and the levels of consumer protection they offer may differ. The level of financial literacy among the general public may be more or less advanced. The availability of factor-based fund solutions may be more or less abundant – as may like-minded, evidence-based colleagues helping to spread the word.

But, as Phil observed, one universal truth remains:

“If your morale code points in a given direction, evidence-based investing is the logical conclusion.”

Here are excerpts from our conversation.

Why Hong Kong?

Before becoming a co-owner at Private Capital Ltd., Phil was with the Royal Bank of Scotland. Something didn’t feel right, though, and he was ready to spread his wings. He chose Hong Kong somewhat arbitrarily, at first seeking to set up his own business in a way that wouldn’t be too “salesy.”

As he was looking around for opportunities, he was introduced to Rick, who had relocated from England to Hong Kong under similar circumstances, and had founded Private Capital Ltd. in 1998. As their website proudly proclaims, their shared vision to pioneer fee-only investment advice in Hong Kong brought them together. That was about 14 years ago, and the pioneering continues.

How has Private Capital Ltd. evolved?

“From day one,” says Phil, “we tried to do things right. Early on, we turned our back on commission-based products and have been fee-only for the past 10 years. We also transitioned away from traditional active funds, especially in 2006–2009.”

Up to about a year ago, their fund line-up was about 50/50 active/passive. Based on availability of appropriate solutions, that was by necessity rather than desire. At least in part through Phil’s raw drive (let’s just say the man doesn’t seem to need any coffee to keep a conversation going full-tilt), Dimensional Fund Advisors (Dimensional) recently opened up its fund offerings to Hong Kong’ Professional Investors, via approved firms like Private Capital.

What is the financial industry like in Hong Kong?

Here in the U.S., we’ve been fortunate to have made significant advances in financial practices such as fee-only, fiduciary and evidence-based investing. These same practices remain considerably more revolutionary in Hong Kong. “We’re probably at least 10 years behind the rest of the developed world,” says Phil.

A British colony until 1997, Hong Kong is now a Special Administrative Region of China, in theory to be governed under the principle of “one country, two systems” for at least the next several decades.

“Hong Kong is tiny in many ways, but in some metrics we’re huge,” says Phil. He notes that the region is the sixth largest financial center in the world.

Every country also has its regulatory red tape, and Phil describes how Hong Kong is no exception. Immediately reporting to the government is the Financial Services and the Treasury Bureau, or the FSTB. Under that are four regulatory pillars, respectively tasked with overseeing the banks, markets and securities, insurance agencies and pensions. Each often compete or rub against one another, as you might expect. To add to the fun, the industry’s law-making body is largely overseen by industry professionals (functional constituencies) rather than government officials.

“It’s hard to [get them] to enact laws that would hurt their businesses,” Phil observes, although he also describes international pressure pushing on them to improve things. “The wind is blowing,” says Phil. “Dimensional’s coming in right on the cusp.”

What does the future hold?

Without getting too deeply into global politics, Phil feels that, while civil liberties are far more limited, there is a financial openness in Hong Kong and China alike. “China has embraced capitalism in a big, big way,” he observes.

In short, Phil is optimistic about the future. He believes Private Capital is the only Hong Kong financial advisory firm that has been fee-based for as long as it has, but he is glad to be welcoming other companies as they transition to a like-minded view. Already, they and another firm based in Singapore have formed a study group, with an inaugural meeting scheduled to discuss best practices as they and Dimensional continue to make inroads into Hong Kong.

“The environment in Hong Kong is like being in a petri dish,” says Phil. “Everything is so small and yet so in your face.”

Personally, I’m looking forward to more face-time with Phil and friends.