Recently, there has been recognition of the potential of millennials to shift the wealth management playbook away from the traditional client-relationship manager engagement to one where technology influences how investing occurs.
According to the 2016 UBS/PwC Billionaire Report for most of Asia’s relatively young economies where 85% of billionaires are first-generation, this will be the first handover of wealth. Around 460 of the billionaires in the markets covered by the study are expected to pass US$2.1 trillion to the next generation in the next 20 years – a figure equivalent to India’s GDP in 2015.
One technology-led service that may see its use rise significantly in the coming years is robo advisory services – the provision of online wealth management service using automated, algorithm-based portfolio management advice without the use of human financial planners.
Robo advisory is making its way into mainstream investing. According to Cerulli Associates, a financial services research firm, assets under management of robo-advisors will rise by 2,500% to US$489 billion in 2020 from US$18.7 billion in 2015. Credit Suisse attributes the predicted growth in robo advisory services to three factors: the region’s high Internet penetration rates, the large millennial population and the changing consumer behavior moving towards greater digitalization.
Fintech Innovation spoke to one startup in Singapore that is hoping to make its mark in this burgeoning space is Smartly, a Fintech startup founded by Keir Veskivali Photo above left) and Artur Luhaaar, both from Estonia.
Smartly CEO, Veskivali, attributes the growing interest on robo advisory in Singapore to two factors: first are people interested in these services and secondly the industry itself and the startups who innovate and come out with new solutions.
Smartly may have taken a pragmatic approach to tackling the robo advisory potential of Singapore by targeting a specific segment of the market – the Generation Y, people born into the Internet and technology.
Veskivali says Gen Y uses all the services a lot more differently than their parents did for example. As such while the startup will not turn away from potential customers aged 30 and above, the company’s strategy is “to focus on a specific group of people and build it up from there”.
“I believe Singapore can sustain a couple of players in the B2C market (who are pure passive robo advisors) and we’ll most likely see many hybrid robo advisors for B2B market. Financial institutions today are not worried about the competition and they shouldn’t be because it is still the early days for robo advisors,” he noted optimistically.
“The more important question to ask here would be are the institutions ready to start offering low-cost, passive and transparent robo advisory platforms to their customers and why we haven’t seen this happening already? I believe there is a clear answer for that,” he added.
Smartly is not so different from traditional wealth managers charging a fee for use of its platform. The difference is in how much and the additional fees that may come with more value-added services.
“We charge an asset under management (AuM) fee ranging from 0.5%-1% and that’s it. If you are investing for one week we charge you only for one week. Rebalancing, deposits/withdrawals everything is included in this one fixed fee,” he proudly beamed.
These low fees are hallmarks of Fintechs that have opted to enter the robo advisory space. Two of the largest in the world – wealthfront and Betterment – have management fees of 0.25% and 0.15%-0.35% respectively. Wealthfront has a minimum opening account balance of US$500 but waives its fees for AuM of US$15,000 and above. To entice customers Betterment requires no minimum opening balance and waives manage fees for the first six months for qualifying deposits.
According to Veskivali, Smartly now has close to 2,000 users on its waiting list.
“We are converting on average 19.06% (over the past 7 months) of the unique visitors into signups and we have spent around S$500 dollars on marketing. There are many channels that we are using but the key factor will be partnerships and our educational platform,” he added.
When prodded about incumbents and their options when it comes to automated platforms like Smartly’s, he believed there is an opportunity for traditional players to use the same technology.
“As an incumbent financial retailer you have to show growth (every business has too) which is logical and everybody understands that. Now if you are charging your clients today at let’s say 1.5-3% with maybe some hidden fees on top of it, then how could you start offering low-cost robo advisory platform to your clients and charge them 1% or less?
“I don’t see this happening anytime soon and I haven’t seen this happening in the US or Europe where robo advisories have existed for 8+ years already. Slowly we are starting to see something happening in the US but not on a large scale.
“We will compete with our technology, in being lean and innovative, we have people working in Smartly who truly believe that they are building something that will make people’s lives better and we have more products/services coming out,” he added,
Robo advisory prospects for 2017
The millennial population in Singapore is estimated at 1.2 million, and its influence is impacting how banks and telcos now market their products and services. This is an area that Smartly wants to get an early start and plans to invest in marketing dollars to get the word out.
“I think it is clear that the space is changing extremely fast and I believe that at one point more and more people will start looking at the big players and start asking them what is next for you? Incumbent financial retailers must start taking some bold steps and start innovating their legacy systems.
“I’ve been waiting for some time now to see who might be the first in taking the leap and seeing DBS launching their digital bank in India is good sign of that happening. Personal financial investing and robo advisory services will become more and more normal for the end user and we’ll definitely see these platforms get smarter and more complex,” he predicts.
By Allan Tan