Can robo-advisors really compete with wealth managers?

WEALTH management is a competitive space in APAC and elsewhere around the world.

As regulators such as the Monetary Authority of Singapore and the Hong Kong Monetary Authority bring in more transparency in commissions earned by traditional wealth managers, customers tend to increasingly look for alternatives offering lower fees and more unbiased recommendations.

At the end of the day, the ultimate goal for investors — individual or institutional — is to maximize their returns.

One of the best options for investors seems to be digital, automated platforms powered by artificial intelligence (AI) that uses algorithms to help customers find and invest in portfolios that suit them.

In the past, traditional wealth managers benefited from the fact that investors were slightly afraid of entrusting their entire portfolio to such platforms — but that fear is slowly dissipating.

According to new information from GlobalData, traditional wealth managers across the globe have a widespread level of agreement that robo-advice will seize market share.

“The growing adoption of digital platforms by customers has created a huge opportunity for robo-advisors,” said IDC Financial Insights Associate VP Michael Araneta.

“The combination of digital gadgets, innovative analytics, and advanced algorithm-based engines has enabled new ways to interact with tech-savvy customers and meet their investment requirements. The automation of advice enables risk assessment and portfolio construction for each investor, regardless of the investor’s portfolio size.”

According to the IDC’s analysts, the total assets under management (AUM) under robo-advisory in Asia/Pacific is expected to reach US$500 billion by 2021.

In the US, robo-advisory has made great progress, with companies such as Wealthfront and Betterment making waves disrupting the financial services industry enough to prompt traditional businesses to join in the action.

Companies such as Vanguard and Charles Schwab have launched their own versions of robo-advisors, with fees ranging from 0 percent to 0.40 percent, competing effectively with digital-native robo-advisory firms in the market.

In the APAC, however, although traditional financial services players haven’t made much of an entry in the robo-advisory space, several startups have developed their own robo-advisory offering.

In fact, many have established their service in Singapore or Hong Kong first, as a result of the more favorable (or clearer) regulations they offer, before moving to other parts of the region.

Those startups are winning customer’s hearts and a share of their portfolio quite quickly, and it seems as though the market will deliver on IDC’s US$500 billion forecast soon.

The robo-advisory category is something that’s not only of interest to wealth managers but also to other financial services professionals such as accountants and tax consultants.

In Malaysia, for example, professional accounting body ACCA recently organized an evening session for its members to speak with robo-advisory platform StashAway (and also digital-p2p lending platform Fundaztic) in order to help gain an intricate understanding of the new segment.

Such sessions, of course, are common in Hong Kong, Singapore, Australia, and the rest of the APAC, as robo-advisory platforms expand their scope and begin offering allied services such as accounting, tax planning, tax optimization, among others.

Although the bulk of the robo-advisory offerings seem to be suitable for investors, there’s actually a chunk of offerings tailored to the needs of bankers and advisors who would like to augment their offering and equip their clients with a digital solution that can deal with their needs in a more cost-effective, personalized, and objective manner.

In the coming months, robo-advisory platforms could make big headlines, as they move into new geographies across the APAC and offer more value to customers compared to their traditional portfolio managers.

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