The global robo-advisory market is now more than $1.3 trillion, of which the U.S. accounts for $1 trillion. Asia is just getting started but could offer a bigger growth opportunity. Here we profile four of the industry’s leaders driving retail-facing robo.
The term “robo-advisor” has become unpopular among the people who are leading the industry. “Why not call it wealthtech?” one executive suggested.
Wealthtech is a broad term that can include digitalized investment services designed for banks and brokers, specialist platforms to help wealthy investors access alternative investments, or crypto plays.
These are all exciting areas but the most challenging may be direct-to-consumer digital investment services, perhaps because they represent the only disruptive challenge to established fund management companies.
Searching for scale
Of course, on many platforms, fund managers (especially purveyors of exchange-traded funds) are product providers, and robo-advisors are simply another distribution arm – and a small, not very lucrative one.
But as has already occurred in China, the biggest platforms can amass a dominant position. So far, the rest of the region has not been able to support a scalable, fully digital wealth offering.
Therefore banks, the dominant wealth-management portals in Asia, do not feel threatened by robo. Instead they have been working with vendors such as Bambu, FNZ, Quantifeed and Privé Technology to develop their own digital platforms to serve their captive audience of depositors.
Digital brokers such as Saxo, eToro and Futu Securities have also risen, along with the likes of Robinhood and efforts by incumbents such as Charles Schwab and E-Trade to make investing and trading fun and easy – as the incumbent world learned in last year’s Gamestop/Robinhood saga.
There are other structural reasons why retail-facing robos haven’t scaled: they are usually confined to operating where they have a domestic license, whereas private banks (for example) compete with cross-border offerings.
Robo is also dependent on local regulatory infrastructure that supports remote onboarding, which may explain why retail robo AUM in Singapore is about three times greater than in Hong Kong.
But the traditional wealth industry has also enjoyed bull markets since 2009. What might happen if market conditions change? Will consumer and private banks be nimble enough to adjust? Who is best positioned to capture opportunities over the horizon, such as tokenization – which could do to illiquid assets what ETFs have done to stocks?
Most of all, robo is growing fast. That $1.3 trillion global AUM represents about 1 percent of global funds AUM, but it is on track to hit $2.9 trillion by 2025, according to HSBC.
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Founders in Asia are optimistic the industry will be able to win a much bigger percentage over the coming decade, which should create a number of unicorns (private firms valued at $1 billion or more). All of the founders interviewed said, however, it is too early to identify which firms can reach that size: there is no Asian champion like a Wealthfront or Betterment in the U.S.
Most importantly, robo is more than just a slicker way to sell funds. Despite the prominence of day-trading on mobile trading apps, robo-advisory is meant to shift people’s habits from speculating to investing.
This suggests a profound change especially for Asia, where investing in funds has never met its potential: most Asian consumers treat real estate as their safety net, and use funds and ETFs for short-term trading. This has been equally true of the region’s wealthy, who usually treat their private banks as transaction machines rather than European-style long-term family advisors.
The rise of robo is therefore potentially very good for those incumbents that can leverage the tech – and the mindset – to create businesses based on advice, rather than on product. This would be, of course, a huge gain for their customers. Retail-facing robo may only be 1 percent of the industry’s assets today – but as it grows, it heralds a massive shift in service across the board.
Read on to learn what some of Asia’s most prominent retail-facing robo founders are doing to drive the industry (profiled in alphabetical order).