Robo-advisory in Singapore: Bringing new and mature investors on board
As robo-advisory finds wide appeal among both new and mature investors in Singapore, financial institutions are opening up to robotic solutions
- The relevance of robo-driven investment has grown much beyond the original intent and has become an integral part of the business strategy of any wealth manager
- It is estimated that the total assets under management (AUM) under robo-advisory in Asia-Pacific will grow from $ 30 billion to $ 500 billion by 2021
- The market for robo-advisory is at various levels of adoption and maturity across South East Asia
When robo-advisory firms came into the market, it was seen as an opportunity to bring into the investment fold those who have had minimal assets and little experience in investing. But in just a few years, the relevance of robo-driven investment has grown much beyond the original intent and has become an integral part of the business strategy of any wealth manager.
Among the early movers is a Singapore-based brokerage firm, ranked among the top five Asian firms, that is using robo-advisory to cater to both the segments. Besides a transaction fee-based business model for mature investors, it has an advisory fee-based model for both mature and new investors.
Across South East Asia we have seen various classes of investors move towards robo-driven investment platforms, with some markets such as China and Singapore being way ahead of the curve and new markets such as Malaysia and Thailand picking up momentum.
It’s not surprising that Singapore is leading the market, since it has been an eager consumer of technology and financial services. Study findings by Legg Mason Global Investment Survey, that were widely reported here, said that 61 percent of respondents in Singapore have used the services of a financial adviser. This is way above the global average of 46 percent and the Asian average (excluding Japan) of 56 percent. As many as 60 percent said they were “somewhat” or “very” comfortable with using a robo-adviser, as opposed to 57 percent globally and 66 percent in Asia.
It is estimated that the total assets under management (AUM) under robo-advisory in Asia-Pacific to grow from the current $ 30 billion (SGD 40.82 billion) to $ 500 billion (SGD 680.27 billion) by 2021.
Factors attracting investors to robo-advisory
I believe robo-advisory is fulfilling certain innate needs of an investor in Singapore that a bank, insurance company or wealth management firm has not been able to meet.
- Transparency in investments made: Robo-advisory firms offer transparency in their processes and costs as a key service differentiator and have gone to great lengths to ensure that the investor understands everything that he/she needs to know about how his/her money is being invested. The FAQs are extensive and jargon-free. Investors have access to factsheets, reports on trends, annualised rate of return on their portfolio and a health monitor that tracks whether the investments are going to meet the goals or not. Only a mature investor can understand the factsheet of an asset management company, whereas a high school student can decipher one by a robo-advisory firm.
- Catering to personal goals and interests: Goal-based investing has been around but it has not reached the level of maturity that robo-advisors offer. Besides the usual goals such as retirement and children’s education, investors can keep aside funds towards an emergency or a vacation. Thematic investing, the other differentiator, has reached a high level of specialisation where investors can look for funds that appeal to them at a personal level. For example, as an investor if you have confidence in cybersecurity funds, why should you widen your portfolio to a rather generic “high tech fund?” Or instead of investing in a real estate fund, you can now narrow down the theme to Singapore commercial office space.
The launch of the recent platform in partnership with a leading local financial institution allows young and tech-savvy investors with emerging affluence to assign specific goals to each algorithm-driven portfolio which is constructed to factor in the customer’s risk profile. Having a specific goal inculcates investment discipline in the customers which also allows them to gain a body of knowledge towards their personalised goals, e.g. children’s education, buying a house, etc.
Investors can look at interesting and relatable investment themes. For example, “Yummy” is a thematic basket which invests in chocolate, snacks, fast food and non-alcoholic beverages. Customers do have a wide variety of baskets to choose from as these are regularly updated based on the investment themes, i.e. Singapore REITS, US Pharma, etc.
- Enhanced user experience: A basic premise behind robo-advisory is that the control lies with the investor. Investors feel at rest with the freedom to withdraw their investments anytime and to invest more in high performing portfolios. For both inexperienced and mature investors, the digital self-service mode offers a highly engaging and enriching experience. This is the reason why around the world even mature investors are being driven towards robo-advisory. The algorithm-driven investment decision-making and the high level of customisation, including alerts that are contextual and tied to individual goals, greatly enhance the user experience.
One such example is through the adoption of robo-advisory services in banks in order to serve the unserved or underserved wealth needs of its emerging affluent customers. As most banks currently offer services for High-Net-Worth Individuals (HNWI)/Ultra-High-Net-Worth Individuals (UNHWI), the needs of the emerging affluent segment are unmet with their lower ticket size and the bank’s non-viable traditional relationship manager-led model. However, a robo-advisor serves as an appropriate channel for the customers with aligned behaviour in comfortably purchasing digitally.
To add on, the platform in partnership with a local financial institution offers two categories – the first being made up of portfolios with Exchange-Traded Funds (ETFs) and equities, and the second consisting of thematic baskets of stocks, which are suitable for the novice and sophisticated investors respectively. The former would require the investor’s risk levels to be factored in while the second category factors in the popularity.
Singapore – Taking the Lead in South East Asia
The market for robo-advisory is at various levels of adoption and maturity across South East Asia. A number of factors have made Singapore a forerunner in the region. It is the first in Asia to have come out with a consultation paper on the advisory market. Published in June 2017, the proposals to facilitate robo-advisory services, provide safeguards for investor and support innovations in this field set the stage for the licencing. This regulatory support, besides the presence of both established financial institutions and fintech start-ups with innovative solutions, is giving the market a push. Today, Singapore offers niche products that cater to the needs and aspirations of specific segments, for example products for different household incomes or highly evolved thematic baskets.
We are also blessed with a tech-savvy population with a high penetration of smartphones – 93 percent go on the internet every day and 91 percent use their smartphone to access it. Another enabling factor is high internet speed that enables consumers to transact online easily. Singapore is the fourth highest in terms of internet speed globally.
In the days ahead, Singapore will provide direction to the region in terms of how the sector will grow. As artificial intelligence (AI) continues to mature, we will see more sophisticated application of this technology – making way for a higher degree of personalisation, and advice and service quality. There is also a lot of talk on the emergence of a hybrid model, where we will see greater human-machine collaboration both at front and back-end to give Singapore investors a better investment experience.
Bhaskar Prabhakara is the CEO & Co-Founder, WeInvest, a leading robo-advisory firm based in Singapore
Keywords: Robo-advisory, Technology, Investing, AI
Institution: WeInvest, Legg Mason Global Investment Survey, IDC Financial Insights