The world is changing faster than ever. Traditional wealth managers in Asia are now at immediate risk of being disrupted by dynamic new platform technology players, particularly those targeting the next generation of Asian investors. Wealth managers must address fundamental aspects of their business models and find new sources of income if they are to remain competitive.
The time to act is now. Recently, a number of asset management opportunities have emerged through evolving demographics, driven by a surge in digital natives and a rapidly aging Asian population. There is now an untapped and newly available pool of assets, an opportunity which can be taken if wealth managers can also fulfill increased demands for product differentiation from investors.
The Asia Pacific asset and wealth management industry is widely tipped to become the epicentre of growth over the next five years, with global AUM poised to reach USD30 trillion by 2025, according to PwC’s 2017 Asset & Wealth Management Revolution: Embracing Exponential Change report. Deloitte highlight how Southeast Asia, a nascent player in this sector, could well account for up to USD4 trillion of that AUM over the same timeline with roughly half being sourced from institutional investors in its Capturing the multi-trillion dollar asset management opportunity in Southeast Asia research.
However, despite this enormous macro opportunity, the traditional growth and distribution model of the average wealth manager and private bank is poorly aligned to capture the opportunity efficiently. Reliant on traditional marketing mechanisms, word of mouth or, in the case of a private bank, other parts of a financial institution to provide client referrals, the mechanism for onboarding new clients has barely evolved for decades, failing to match the huge rise in wealth in the region.
TAPPING THOSE UNDER THE RADAR
Although these traditional models served the wealth management industry well, the sand is shifting underneath them. To understand why this is the case, it is important to analyse the major investment trends affecting Asia Pacific. The biggest is the move to hugely accessible passive wealth management products. ETFs, for example, are growing faster than mutual funds in Asia and that pace is only increasing, with China, India, Korea, Taiwan, and India accounting for USD24.2 billion in the first half of 2018, compared to USD8.1 billion in all of 2017, according to data from Broadridge.
Crucially, the passive investment market has provided competitors with mass market connectivity, a chance to tap an entirely new customer base – those previously unbanked and below the traditional wealth manager radar. This development makes new entrants naturally more agile, which could pose problems to those for wealth managers operating traditional marketing and distribution models.
Customers in Asia are also more discerning and tech savvy; they demand lower fees, and are happy to interact with DIY digital wealth managers (such as robo advisors) as well as robo-enabled advisory services launched by banks, to obtain the services they need. StashAway, for example, is the first robo-advisor to receive a full capital-markets services license from MAS and has seen its user base grow to over 100,000 in September, an increase from 80,000 users at the end-July. Another example is Kristal.AI, a global, digital-first private wealth platform, which positions itself as a no-frills wealth management solution company for both high net worth individuals and first-time investors.
To add to the burden, new entrants to the market have two distinct advantages over their traditional peer group: built-in distribution and cutting technological infrastructure. There is plenty of talk that virtual banks will incorporate robo-advisory services into their product suite to strengthen their investor appeal, similar to the AI-powered virtual assistants already introduced at several major banks.
GRAB THE OPPORTUNITY
Earlier this year Grab Holdings acquired Singapore’s robo-advisory start up Bento giving the technology company the opportunity to offer retail wealth management services to its existing users, drivers, and merchant partners via the Grab app – effectively reaching more than 187 million users.
Named GrabInvest, the company is attempting to democratize access to retail wealth management services – provide individuals the opportunity to save and invest in financial services in the manner typically reserved for wealthier individuals and investors. With its huge reach in Southeast Asia, Grab has the advantage of directly educating its marketplace to the benefits of investing, leaving the traditional wealth manager distribution model out in the cold. To secure its advantage, GrabInvest has partnered with Calastone to automate their trading processes, bringing seamless and secure experience for their users.
Those who doubt this model has any chance of success should look back to what was a defining moment in the democratisation of asset management in Asia, possibly globally. In 2013, Tianhong Asset Management the Tianjin-based firm teamed up with Alibaba to launch a money market fund that investors could access with just a click on the e-commerce giant’s website. The fund, named Yu’e Bao, secured more than USD 81 billion from tens of millions of investors in just nine months. By 2017 it was the largest money market fund in the world by AUM (it now stands at number three).
Yu’e Bao’s success was largely down to its ability to tap a new marketplace via Alibaba’s huge customer network. But aside from great distribution, its user-friendly client experience was also a major competitive advantage. In contrast, many asset managers are still hampered by operational inefficiencies, manual and outdated onboarding processes, and dependency on older legacy systems.
NOT OUT OF THE ORDINARY
And while clients do have higher expectations today, they are not asking for anything outside the ordinary: easy access to a suite of easy-to-understand products and services. In failing to reach their expectations, traditional wealth managers run the risk of losing out on the opportunity to build a long-term relationship with them.
Some wealth managers may find themselves relying on a sense that their brand has “prestige” and that is enough to win over new digital savvy clients – this is dangerous. As competition arises from companies with flexible models and different strengths, they would do well to access leading-edge thinking and observations that can help them reposition and respond to the new normal.