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Motley Fool ceasing Singapore operations over regulatory issues
THE Motley Fool Singapore is ceasing operations over a regulatory bind with the Monetary Authority of Singapore (MAS).
The company - a local outpost of Motley Fool in the US - is an investment advisory business that covers stocks and companies, and gives recommendations based on a subscription-based model.
It is classified as a financial institution and operates with a financial adviser's licence under the Financial Advisers Act (FAA).
Its chief executive officer David Kuo said: "We are a subscription service, we don't manage people's funds so it's hard to understand why we have to be regulated the same way as a financial institution."
But nobody is to blame, noted Mr Kuo. "It comes down to regulation and I am not at any point criticising it, it's just that it does not make commercial sense for us to operate under such rules," he said.
Under the 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, subject to a minimum of S$112,500. "This is to ensure they have sufficient financial resources to meet their near-term obligations," said a MAS spokesperson.
Such rules hindered the growth of the company as income from subscription fees have to be booked as assets. "Unfortunately, because we have to keep all of this cash as net assets, we cannot grow the business. The more we grow, the more net asset is required," said Mr Kuo.
According to the MAS spokesperson, most foreign regulators also require financial advisers to maintain a minimum level of liquid assets that are tied to either expenses or cash flows.
Motley Fool, however, continues to thrive in markets outside Singapore including the US, Australia and Japan. "They are not regulated the same way we are and that really is the crux of the matter," said Mr Kuo.
When the company was set up locally in 2013, it started out with Mr Kuo, his business manager and a mere two subscribers. It has since grown exponentially and amassed over 150,000 subscribers. About 10,000 of them pay between S$200 to S$2000 annually for additional services such as seminars and access to exclusive events.
But this very growth caused Motley Fool to become a victim of its own success. The firm had to continuously pump in more capital into the business to cope with the progress it was making. "We needed a huge amount of capital to generate a small amount of revenue. I am not saying it doesn't work, but the return on the investment is not good enough to run the business," said Mr Kuo.
In its response to BT, MAS noted that it had, in February this year, 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. BT understands that Motley Fool had not made any application under this scheme.
Asked if the firm would consider merging with investment funds, Mr Kuo said: "We believe that private investors should look after their own money rather than hand it over to professional money managers. More than two-thirds of fund managers are unable to beat the market. The primary reason is the fees and charges that eat into investors' returns."
Motley Fool has since notified subscribers of its closure and will be providing them with the necessary refunds. In its email notice to subscribers, Mr Kuo said the challenging environment made it difficult for the company to grow meaningfully and it will cease operations completely on Oct 31.
"Even though the Motley Fool Singapore may not be around, we hope the lessons of long-term investing in companies will last in the minds of our community," he said in the email.
Looking ahead, Mr Kuo plans to continue writing his own commentaries to express his views on the financial market through his own website. "The team is very committed to what we set out to do in the beginning - to educate Singaporeans on how to invest," said Mr Kuo.
Two other members from the team, made up of some 16 people including full-time and freelance analysts and writers, are in the midst of setting up their own website to share stock information.
On the possibility of revising current rules, the MAS spokesperson said that the authority "will periodically review its regulatory requirements, factoring in industry and global developments".