The Rise of Robo Advisers in Wealth Management
Asia is on the verge of a significant disruption in financial management. Rising income levels coupled with the prevalence of smartphones are enabling robo advisers to offer everything from automated saving products to more complex investment solutions.
As the name describes, a robo adviser platform provides financial recommendations for users based on their financial profile, usually without human input. Upon the user’s response to various questions, the machine-learning algorithm suggests potential investment goals to the users, accompanied by suitable investment strategies.
The primary users of robo advisers are the digitally savvy millennials. Living in a digitized world, those of the younger generation are more likely to move toward such innovative solutions, compared to individuals in their 40s or 50s, due to their familiarity and trust in these technologies. However, research has shown that the older generation is also adopting robo advisers to manage their portfolios in increasing numbers. As the demand for robo advisers rises, financial institutions are starting to change their views and integrate these technologies within their systems.
A Different Focus
The first robo adviser companies emerged ten years ago, when Betterment, Nutmeg, FutureAdvisor and Wealthfront began using model portfolio theory to offer automated, low-cost, seamless user experiences. This innovation is where the real battleground began in the West, with the aim of improving services and reducing fees.
In Asia, the focus is slightly different—it is on people who have received no financial advice due to their minimal investment size, yet own a smartphone. The change is being led by the tech, telco and consumer brands that have large amounts of data and a trusted e-wallet relationship with their customers. These companies can tailor personalized experiences and portfolios that are data-led rather than customer-led. Financial advice has always relied on the customer knowing the most suitable product based on their financial behavior; however, having a record of a customer’s spending and saving habits and their risk profile enables a company to auto-suggest strategic savings and investment plans.
Robo platforms can offer investment solutions directly to clients in a matter of months, with a much lower capital expenditure.
The leading example of this is Yu’e Bao, managed by Ant Financial money market, which is part of Alibaba’s Alipay ecosystem. It pioneered the robo saver model across Asia and saw the platform grow to over $100 billion. The next step is to turn users—or savers—into investors. The process may be long, but Alibaba has enormous capability. I foresee a major growth in asset under management funds becoming investment funds, driven by these savers becoming investors in the coming decade.
Adding Value to Services
Robo advisers can also offer a variety of different benefits for business owners and customers.
Relationship managers’ productivity. On a typical day, administration work can take up to five hours of a relationship manager’s time. This translates to less time spent on client relationship building. Through integrating a robo adviser tool, human advisers can automate a lot of the manual administration and research steps and focus more on client-specific value-added work. We shouldn’t see this technology as a replacement but instead as an augmentation to an adviser’s productivity.
Direct-to-consumer. Fully automated self-service platforms can create new business opportunities in markets or customer segments. Instead of years of preparation for new market entry, robo platforms can offer investment solutions directly to clients in a matter of months, with a much lower capital expenditure than a traditional setup.
Customer experience. Being digitally focused requires full attention toward the overall user experience. Providing a seamless journey adds to the process of giving a comprehensive experience to the customers. Robo advisers can help deepen understanding of the requirements of the users.
Looking to the Future
Most financial firms are still targeting affluent clients in developed countries using traditional means such as face-to-face meetings initiated by sending letters and emails or by attending conferences. Customers are used to being sold to, rather than making informed buying decisions. On the other hand, the customers of tomorrow live their lives online. They are glued to their smartphones and engage through their digital personas. They rely on the Internet, and they gather recommendations from family and friends. They are buyers who want to be technologically savvy.
Asia is moving toward new data-led investment and saver experiences over the next decade. The region’s unprecedented income growth coupled with ubiquitous digital connectivity will lead to substantial new assets under management that financial firms and tech firms should take full advantage of.