Which robo-advice platforms will pull ahead in Asia?
It's the incumbent banks vs direct-to-consumer platforms.
If you were betting on which robo-advice platforms will pull ahead in Asia, there is a strong case for siding with those run by well-entrenched financial institutions.
Direct-to-consumer robo-advice platforms similar to Betterment and Wealthfront may be mushrooming in the region, but even with their fancy features and splashy promotions, they are starting from a disadvantage, argue analysts, compared with robo-advice platforms from incumbent banks that Asian consumers prefer more by default.
“Asian consumers tend to typically entrust financial servicing to well-known brands, which benefits the established financial institutions in the region and makes it harder for direct-to-consumer robos to attract customers,” says Alex Ypsilanti, CEO at Quantifeed.
Ypsilanti reckons incumbents have the advantage of tapping in to their existing customer base, which has emboldened some of them to launch more robo-advisor services during the last six to nine months. He adds that many Asian financial institutions make the lion's share of their revenues from about 20% of their clients, which include high net worth individuals,but developing online serviceshelps them become relevant to the other 80%. In particular, robo-advice platforms can cater to the mass and emerging affluent segments whose portfolios are scaling upbut remain underserved in wealth management.
“We see two seismic shifts taking place in Asia at the moment: growth of wealth and growth of online penetration,” says Ypsilanti.“This perfect marriage of shifts presents a huge opportunity for financial institutions to provide wealth management services through an online medium.”
“Financial institutions are no longer contemplating whether they should have an automated platform, but how and in what capacity. Firms are actively looking to monetize the growing mass and emerging affluent segment, recognizing digital is a huge opportunity - not a threat,” he adds.
A tool not a time bomb
Some human wealth advisors may view automated investing as a ticking time bomb that will eventually make them obsolete, but wiser institutions will perceive the robo-advice platform as a tool to manage clients more effectively and reduce manual tasks, according to wealth management insiders.
For example, Ypsilanti believes a hybrid robo-advice model will automate tasks and free up valuable time for human advisors to focus on higher-value functions such as client acquisition, effectively increasing their efficiency. He also reckons robo-advice platforms, even for all their purported advantages, still cannot completely replace human advisors for now.
“We don’t see the human element disappearing from wealth management any time soon – it remains important for the more complex aspects of wealth planning."
Personal relationships are hugely important in wealth management and automated platforms cannot fill that function in their current form,” says Ypsilanti. “This being said, no one knows what robo-advice will look like in the future, for example with further progress in artificial intelligence and big data.”
Another reason why human advisors will remain in demand, especially in Asia, is because of customers in the region deeply yearn for face-to-face interactions when managing their wealth and finances.
“Understanding a customer’s evolving needs and building a long term flexible wealth management plan requires trust and a relationship built on face-to-face interactions between financial advisers and their clients,” says Mark Christal, head of region (NE Asia) & CEO Hong Kong at Old Mutual Investors, which provides cross border wealth management solutions to high net worth individuals and expratriate investors.
But Christal notes that even as customers prefer a human face, they are also embracing the convenience that technology brings as they become increasingly mobile, moving to and from different markets.
He sees a trend of increasing awareness and globalisation of the standards and services that customers expect from financial institutions, including the ability to engage digitally with their adviser and financial institution, as well as carry out transactions online.
In order to keep up with the growing sophistication of Asian wealth customers, institutions including advisory firms are looking to financial technology (FinTech) firms to introduce efficiencies, change how they engage with customers and to enhance their overall service and value proposition.
Ypsilanti says it is costly and time-consuming to build an automated investing platform, so many financial institutions choose to partner with FinTech companies to minimize upfront in-house development and maintenance costs. Outsourcing the service also allows financial institutions to maintain a level of product innovation and technological agility without having to completely overhaul their core business, but it will still depend on financial institutions to nurture the human connection that Asian customers' desire.
“Although there is increasing use of FinTech in the industry, the need for face-to-face interaction will remain as this is the cornerstone for long term holistic wealth planning,” says Christal.