Statista estimates that total assets under management in the robo-advisory segment will reach US$327,596 million in 2020, with compound annual growth rates (CAGR 2020-2023) of 40.4% creating a US$906,932 million industry by 2023. The company also estimates the number of robo-advisory users will reach 127,001.9 thousand by 2023.
What is driving these numbers? According to Statista: underperforming ETFs and falling commodity prices. “Large investment funds are implementing robo-advisory technology as the efficiency of automated portfolio management promises high return rates compared to old-fashioned alternatives.”
Setting aside those numbers, we look at the way and how of robo-advisory. Robo-advisory started out because investing by normal people is not possible. Why? There is a minimum amount of monies you need to have before you can hire an investment company to manage your finance for you.
Exemptions are retirement funds because the volume is big enough to warrant an investment firm taking on individuals as clients – but usually, the investment firm will only do when they secure everyone in a company as a client.
For the small investors like you and me, robo-advisories are growing popularity because these offer greater transparency, low-priced accessibility, and web-based experiences.
Perhaps banks saw the writing on the wall with the early successes of wealthfront, Ant Financial and Lufax has caused traditional financial institutions and banks to reconsider the technology/service. Some have built their own while others have partnered with tech companies like MiCai and Xuanji.
Ant Financial is not limiting its success for its own use. It’s Caifu Hao platform is being used by 27 fund management companies to increase operational efficiency by 70% while reducing overall costs by 50%. These companies have seen a tenfold increase in the number of daily visitors, a threefold increase in the amount invested by returning investors, and an 89% increase in the holding period among all investors, according to Fintech Hong Kong.
FutureCFO spoke to Kenneth Shih, head of Sales & Marketing, Wealth Management Group at AQUMON.
Shih noted that individual investors in Hong Kong are not taught how to invest – hence they are reluctant to invest on their own.
“When presented with numbers, the untrained investor would not know what to do. It is like starting at a bunch of trees in a forest. You don’t know what to pick, you can’t read between the lines,” he commented.
“Advances in artificial intelligence and automation can help us to read both quantitative and qualitative data, to make intelligent decisions,” opined Shih.
Watch the video as he dissects for the slow pick up of robo-advisory services in Asia (1:00-1:20). He also talks about the on-going mutation of robo-advisory solutions in Asia (1:22-1:53).
Robo-advisory and banks
The Deloitte report, Robots are here – the rise of robo-advisers in Asia Pacific, technology is disrupting the distribution channel for wealth management.
PwC says robo-advisory platforms will favour partnering with large institutions to provide a quick go-to-market digital service platform rather than strike out on their own as independent financial advisory channels.
According to the PwC report, Asset & Wealth Management 2025, robo-advisory solutions offer the possibility to reduce costs and increase flows in the back, middle and front offices.
“Making use of large data sets and technology to test investment strategies, find connections, and process data is changing the way asset managers operate, and is blurring the lines between traditional financial services companies and technology companies. Adopting tech throughout the whole value chain will help managers reduce fees and maintain current margin levels,” noted the report.
Elements that are music to the ears of investment business heads at banks in Asia.
Shih observed that adoption of robo-advisory solutions among banks in Hong Kong is on the rise. “For banks, it’s about how can I offer additional service or at least maybe even of equal if not better service to my own clients, and offer it at a low-cost, and preferably in an intelligent manner that is not possible if we rely solely on people,” he opined.
Future of robo-advisory
Statista predicts a “consolidation between independent players in the industry as profitability is strongly related to scalability and high volumes under management.” While robo-advisory has been adopted by banks as part of their services, Statista has reservations about the longevity of the service as the technology has yet to prove itself in a recession.
Harsh!
