Smart robo-advisors are securing market share with canny tech partnerships that protect margins and enhance their offerings ______

Blog / 17 Oct 2021

Leo Chen, Managing Director - Head of Asia, Calastone

While the digital wealth management sector has yet to peak, banks offering a combination of human expertise and robo technology threaten to make life more difficult for pure-play robo-advisors that don’t stay on the front foot, writes Leo Chen, Managing Director – Head of Asia, Calastone.

It’s taken just over a decade for wealth advice delivered by a robot to go from science fiction to science fact. And the speed at which these services have been developed and then adopted by customers is extraordinary.

Over the past two years, demand for robo-investment advice, largely delivered by digital wealth managers, has continued to rise. Betterment and Wealthfront, for example, both reported double digit increases in account openings in the US, Canada and UK during the pandemic.

Asia Pacific, however, is emerging as one of the more interesting crucibles for the growth of digital wealth management. The combination of a young, digitally nimble population and greater appetite for investing in global and more diverse funds is a potent mix. Last year, Ant Financial, for example, revealed that 128 out of 143 fund management firms in China were offering products and services on its digital platform[1]. Looking ahead, Statista predicts that those using robo-advisors in Hong Kong alone will rise by 28 per cent to 215,500 this year, reaching 368,800 by 2025. Assets under automated management in the territory are expected to increase even more steeply, more than trebling from US$1.74 billion today to US$6.4 billion by 2025.

However, while there have been notable early robo-advisory successes in Asia, this kind of automated advice has yet to go mainstream. Asia Pacific robo-advisors GrabInvest and StashAway are doing well, along with Wealthfront and Betterment. But further expansion of robo-advisory services is being slowed by cost, lack of trust, uncertainty and lack of transparency, according to a report by Kaplan.

Nevertheless, the potential prize is so great that traditional players like banks, reluctant to let the fintechs become dominant unchallenged, are starting to muscle in. Some, such as Singapore’s DBS, with its digiPortfolio offering a combination of human expertise and robo-technology, are going it alone. Others, such as US bank BNY Mellon Investment Management, have found local partners – in this case Lu International, the Hong Kong arm of New York-listed Lufax. Together they will offer robo-advice via a “consultant” called Lucy.

This raises some interesting questions: how do the robo-advisors maximise their head start as disruptors within the wealth management industry in the face of rising competition from traditional players? How do they continue to attract and engage new customers and make a profit? Yes, their digital technology and scalable business models provide faster, cheaper services than traditional banks, which are still largely lumbered with outdated, complex, expensive technology stacks and manual processes. But the latter – with their established reputations and personalised, hybrid options – are working hard to catch up, and their presence is affecting how much customers can be charged and the level of service they expect.

Customers are drawn to robo-advice by its convenience, ease of use and personalised services at affordable fees. Taken together, they make wealth management services more accessible to those with less money to invest, especially millennials and generation X.

Asia’s robo-investors are digitally savvy. They generally possess a global mindset and place a big emphasis on technology-driven services that offer good value for money. Their appetite for retail investment has grown significantly during the pandemic. Looking at just Hong Kong, for example, our Global Investor Behaviours and Attitudes report reveals 73 per cent already invest in stocks and shares and 84 per cent say being able to use a digital platform to manage funds is important.  Meanwhile, in Singapore, central depository account openings with SGX, the country’s exchange, grew by more than 2.5 times between February and July 2020 year-on-year. But cost matters. According to our survey of the region’s industry professionals only 10 per cent of respondents believe investors are willing to pay more for advice.

So it’s not enough for existing digital wealth managers to rely on their shiny new brand. As competition intensifies, they need to access cutting-edge thinking as well as first-hand knowledge and experience of how the sector is developing to maintain their lustre. They also need easy, real-time access to a wider range of global funds and lower transaction costs. This will help reposition them to respond to today’s more dynamic circumstances.

For our client GrabInvest, staying ahead has meant automating its trading processes, bringing a seamless yet secure experience for its customers.

Another robo-advisor on the front foot in this fast-changing market is StashAway. It was the first robo-wealth manager to win a banking licence in Singapore, in 2017, and has continued innovating and enhancing its offer. Last year, it turned to us to help it gain access to a wider range of global funds, greater visibility of fund status and more cost effective connectivity to transaction services such as payments processing.

By means of a single connection, StashAway now has on-demand access to all its fund trade data passing through our network, vastly improving its ability to adapt quickly to any market changes – for example by automatically optimising portfolios or selecting new funds. This is a critical advantage as fee competition and rising costs continue to undermine margins.

Robo-advisors like GrabInvest and StashAway will thrive in this new, more competitive environment because they are not resting on their laurels. They are making sure they can always offer the widest choice of funds and faster, slicker services that are scalable, while keeping costs as low as possible. Keeping the digitally savvy customer squarely in their sights, they are making the most of this expanding market.

List of robo-advisors in Asia ranked by portfolio construction maturity[2]:

[1] Technology and digital engagement, https://www2.calastone.com/asiafundsglobal2020

[2] Top robo advisors in Asia: https://privetechnologies.com/wp-content/uploads/Top-Robo-Advisors-Asia-Report-ORIGINAL.pdf

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