Motley Fool's exit a dent to independent research

THE Motley Fool's impending closure has got the market abuzz with discussion about the shrinking pool of independent research, with some pondering why the investment advisory firm is regulated differently from other similar online platforms.

Motley Fool had announced that it will cease operations completely on Oct 31. Under the Monetary Authority of Singapore (MAS) regulations, it operates with a financial adviser's licence. This requires the firm to maintain a certain amount of net assets, which it says stops it from growing.

Market players are saying that while compliance is necessary, Motley Fool leaving the industry comes at a time where independent research is valued.

David Gerald, founder and chief executive officer of Securities Investors Association Singapore (Sias), said: "It would have been good if Motley Fool could continue, we definitely need more independent research. It is sad that the need for compliance has resulted in Motley Fool going away."

Others said the tough industry calls for the need for more initiatives to support independent research in Singapore.

Earlier this year, MAS launched the S$75 million Grant for Equity Market Singapore (GEMS) initiative. This included the Research Talent Development grant which co-funds the salaries of local equity research analysts. The scheme will be supporting a pipeline of close to 50 fresh graduates and experienced research analysts over the next three years, said an MAS spokesperson.

But Motley Fool had not opted to be part of the scheme.

Chief executive officer of Motley Fool David Kuo told The Business Times (BT): "Our problem was never about cost. It was more to do with the net asset value that kept on rising as we grew our service."

Under the Financial Advisers Act (FAA), the firm is required to maintain a paid-up capital of S$150,000 and net assets sufficient to cover at least three months of their expenses.

"We also wanted to cover not only Singapore mid-caps and small-caps, but stocks outside of Singapore too. GEMS is a great initiative. But we need to be seen as independent," he added.

Motley Fool's situation has sparked discussion on the rationale behind the rules the firm was subjected to.

Stefanie Yuen Thio, joint managing partner of TSMP Law Corporation told BT that what is considered as a financial advisory service is broadly defined as the FAA is meant to protect investors. Such services include advising through publications or writings concerning investment products.

"In the case of websites, it really depends on the nature and extent of the service and information provided," said Ms Yuen Thio.

For instance, online distributor of investment content Smartkarma is not required to be licensed as a financial adviser. Unlike Motley Fool, Smartkarma is exempted from being regulated as a financial adviser as it operates as a "provider or operator of an online information service", according to its website's compliance FAQs.

"Generic information and aggregation of publicly available and verifiable information is unlikely to be seen as providing financial advice," said Ms Yuen Thio.

However, for websites that collect personal details of subscribers or respond to the subscriber's queries individually are more likely to be considered financial advisers, she added.

Beyond regulations, some market players pointed out that the current research landscape also makes it challenging for independent research firms to thrive.

"It is a tough industry and unfortunately, many people don't want to pay for research. The limited market makes it hard to raise funds to have a good pool of analysts," said Terence Wong, chief executive at fund-management firm Azure Capital.

CIMB Private Banking economist Song Seng Wun, however, remains optimistic about Motley Fool's predicament, noting that they can still contribute in other ways. "Ultimately, there are different ways of providing information on different platforms."

Claudia Tan, The Business Times

11 October 2019