Yunfeng Financial Group is expanding its robo-advisory gambit into business-to-business models that could make it an innovative competitor in wholesale markets for investments, including pensions.
The Hong Kong-licensed securities and asset-management firm launched a direct-to-consumer app called Youyu (“have fish”, an expression of bounty) in April last year.
Yunfeng FG is owned by a private-equity vehicle, Yunfeng Capital, owned by Alibaba founder Jack Ma and fellow China entrepreneur David Yu.
Now it is dividing its business into two parts: Youyu Stock, which will continue the company’s B2C robo product, and Youyu Wealth, due to launch in the third quarter, which will go wholesale.
“We didn’t originally plan this divergence,” said Li Ting, CEO. However, the changing costs of customer acquisition along with the firm’s ongoing tech upgrades convinced the team to extend into the B2B space.
Other robos in the B2B space in Asia tend to build client-facing apps for local or regional banks that are looking to upsell their existing depositor base into investment products. Yunfeng’s vision is different: it is moving more directly into wholesale channels, with an institutional-like capability.
The innovation behind the original Youyu is its use of actively managed mutual funds, rather than exchange-traded products, as its underlying investment products. It lined up a long list of big fund houses, from Amundi to BlackRock to Pimco, giving them a new, online means of reaching Hong Kong retail investors.
We didn't plan this divergence
But now Youyu Wealth will be taking on many of these same providers as it seeks to deliver its product to retail banks, wealth-management platforms, and small institutions such as pension funds or insurance pools.
For example, Li says this year a driver of B2C growth for Youyu Stock has been via a related Yunfeng business providing corporate shareholder services. More startup companies in Hong Kong or small businesses need a service provider to manage their shareholding records and communications. Yunfeng has begun providing this service – while suggesting Youyu Stock can be used by shareholders to trade their equity stakes, or that, soon, Youyu Wealth can provide them with a broader investment platform.
Driven by rising costs
She would not reveal the company’s assets under management or number of account holders, other than to claim in one week recently the firm added 40,000 new customers.
It is this customer acquisition that has partly driven the move into B2B. Li would not reveal the company’s unit cost of acquisition (for robo advisors in North America, typically well above $1,000). She only claims it is below the industry average, thanks in part to bundled solutions like the corporate services channel.
(Yunfeng also plans to utilize the 3,000 insurance agents of MassMutual, whose Hong Kong life business Yunfeng acquired in August for nearly $1.7 billion – although the deal has yet to close. Alibaba’s Ant Financial is one of several co-investors in that deal.)
Buying clients costs more than brick and mortar
However, even if it is below average, its CoA is still high, and climbing. “For years, fintech has been about B2C, disruption, lowering costs, and better customer experience,” she said. But partly because of growing compliance requirements in a city of only 7 million people. “Buying clients from other channels now costs more than having a brick-and-mortar branch.”
Futhermore, financial institutions have now woken to the possibilities (and threats) of digital services, and authorities are opening the door to online fund sales. So banks are more able to partner with a tech company like Yunfeng.
Cracking the MPF
Combining the company’s move into human-resources tech, its MassMutual acquisition, and its foray into B2B, its next big disruptive gambit will be pensions.
Hong Kong’s HK$856 billion ($109.7 billion) Mandatory Provident Fund system is archaic, saddled with high costs, too many providers, and often dismal customer service. For example, it is very difficult for people to consolidate MPF accounts when they change jobs. And some local vested interests like it this way.
Can Yunfeng bring its tech savvy to the MPF system? Some things are beyond its influence, such as the presence of 17 trustees serving a total membership of 2.6 million people.
Li says the initial goal won’t be to lower fees, but to make the retirement system work better for members. MassMutual is a small MPF player. “How do we use technology to improve the existing customer experience they provide?” Li asked. “Fintech disruption has not yet come into play in MPF.”