Robo-advisors storm into Southeast Asia to change wealth management
ROBO-ADVISORS have become increasingly popular for providing investment options for the non-millionaire, and are quickly becoming a staple in financial institutions everywhere, challenging the role of traditional wealth managers.
The technology emerged in the last two to three years in response to the issue that a large segment of the market could not gain access to professional advice on how to invest their money as they didn’t have enough capital.
Soon, firms began to roll out this new form of fintech that could leverage on client information and algorithms to automate the entire process.
Some traditional wealth management companies have also been incorporating robo-advice into their portfolio of services as a way to capture some of the lower-income markets they’ve lost.
The benefit of robo-advisors has driven up growth in the market exponentially; at the end of 2014, according to professional services company Deloitte, 11 of the leading robo-advisor firms recorded near 65 percent growth compared to 2013.
Research firm Cerulli Associates said that assets under management of robo-advisors are expected to hit a whopping US$489 billion in 2020 from US$18.7 billion in 2015.
The market is also further segmenting.
All kinds of different robo-advisors are emerging for specific demographics, such as Wahed Invest, which is bringing options to invest in halal products for the Islamic markets; and Smartly, a new startup that is looking to disrupt the wealth management market in Southeast Asia, with a specific focus on young consumers.
“Everyone understands that to ensure a financially safe future, you need to save money and invest it,” said Artur Luhaäär the CEO and co-founder of Smartly in a statement.
“It was frustrating to see a world where the average person faces investment options that are made deliberately complex, forcing them to trust a system blindly, or disregard their future wellbeing.”
The biggest impediment to people investing is the lack of knowledge or accessibility to good advice.
This is particularly true in Southeast Asia, where there are huge middle classes that don’t qualify for traditional financial services because they don’t have enough capital, or the know-how is quite far removed.
“We’re solving [the issue] of product availability—people investing less than US$20,000 are only left with [the option of] putting together their own stock portfolio or unit trusts,” Luhaäär said to Tech Wire Asia in an email interview.
“Unfortunately, unit trusts are full of financial jargon and too complex for the customer to understand, which results in them putting off the investment process as a whole.”
The issue of information asymmetry is how financial firms make their buck, of course. If someone has less information about the markets, firms will be able to capitalize on that weakness to charge a premium.
Robo-advisors have the capacity to bridge those gaps by essentially flattening the inconsistencies and introducing democracy into the mix. The difference then makes for a high-quality investment product that is accessible and affordable.
“We originally started building it as a tool for our friends and family, since then it’s changed quite a bit into a fully fledged high-tech platform,” Luhaäär explained. He and his co-founder, Keir Veskiväli, were frustrated by hidden fees and confusing systems in the traditional advisory industry, and set out to create a product that would mitigate all those issues.
Both men are from Estonia, but are based in Singapore, which is likely why their product is focused on helping out the Southeast Asian millennial. Luhaäär said that their product’s digital nature should be an attractive point for young users who tend to quickly adopt online services as compared to older generations.
The product is also great for a young investor because it doesn’t require huge sums of money, which millennials tend to lack.
This doesn’t mean that only young people are allowed to use it of course. “A globally diversified portfolio is something suitable for an investor aged 21 as well as those aged 65. [It works] well as a US$50 and a US$5 million investment,” he said.
Furthermore, Smartly is also looking to localize their offerings in Southeast Asia by rebalancing their customers’ portfolios on a monthly basis, indicating the awareness of the lack of long-term financial stability for many across the region.
So how will this affect traditional wealth managers in the long run? Technologies today have an unfortunate tendency of making some jobs redundant.
However, Luhaäär said that robo-advisors would likely service the lower end of investors as individuals with complex portfolios would need more specific specialized advice.
“A financial advisor offers a lot of value to a person who is investing in the millions, as they can take into account the client’s specific circumstances, such as assisting in estate planning and so on,” said Luhaäär.
“However, for the US$5,000 to US$10,000 investor, it’s time it became clear that the ‘advisor’ is actually just pushing the products that make them the most money. It’s a problem of misaligned incentives. This is an unspoken truth in the entire industry.”