This article was first published in the May 2018 China edition of Accounting and Business magazine.

Since the 2008 financial crisis, consumers worldwide have been increasingly trusting ‘robo-advisers’ with their investment decisions, putting faith in a set of computer algorithms rather than a human financial planner.

In Singapore, which leads the world in its appetite for financial advice, demand has grown to the extent that assets under management in the robo-adviser segment amount to US$1,750m in 2018, and are expected to show an annual growth rate (CAGR 2018-22) of 44.4% by 2022, according to analytics projections by Statistica. A recent report by IDC Financial Insights goes further, forecasting that seven ‘hot markets’ for robo-advisory services in Asia-Pacific – China, Singapore, Australia, South Korea, Hong Kong, India and Taiwan – will have a combined total of assets under automated management of US$500bn by 2021.

To date, automated advice has been most prevalent in wealth management – which, as Deloitte notes in a recent report, is not surprising, given the quest for higher net returns from savings in a low-interest-rate environment. However, going forward, it’s not only high-net-worth individuals (HNWIs) who will drive demand for the low-cost, high-convenience and consistency of automated advice. Deloitte sees a hitherto unmet need in large markets such as retirement products and mortgages, but also wider scope for businesses.

‘There’s no reason why digital advice services can’t be deployed by employers to help their employees – for example, upon enrolment into a pension scheme, when approaching retirement or simply to help them with other financial concerns,’ says Deloitte partner Gavin Norwood. ‘Ultimately, we would not be surprised to see digital advice services evolve further, not just to support more need areas for individuals, but also to start supporting smaller businesses with aspects of their finances and tax.’

One factor driving this trend is generational, he adds. Deloitte’s research shows that demand for robo-advice is clearly higher among younger age groups.

Unlock new segments

In 2017, Singapore’s OCBC Bank became the first bank in South-East Asia to pilot a robo-advisory service for select customers, launched in partnership with local fintech company WeInvest. Aditya Gupta, head of e-business Singapore at OCBC, says the aim was to unlock new segments and make quality wealth solutions more accessible to a much broader base of customers. 

‘We are targeting customers who are keen on investing, but who are time-starved and who may want a simpler, more guided and personalised investment experience,’ he says. ‘We plan to commercialise and extend this robo-advisory service to the rest of our customer base by the middle of this year.’

The bank believes that the convergence of digital technologies and wealth can make quality wealth management advice and solutions more accessible and inclusive for all customers. ‘We call this the “democratisation of wealth”,’ Gupta explains. ‘This helps expand wealth advisory beyond traditional segments and unlocks new consumer segments to engage with, including the emerging affluent, millennials and first-time investors exploring digital wealth services. 

‘With more customers turning to digital channels to serve their financial and investment needs, we are expanding our reach to digitally savvy and time-starved customers by making investments personalised, simple and easy.’

The bank has learned how customers interact with the platform – from onboarding to their preferences for alerts on portfolio performance. ‘We made tweaks and fine-tuned the product journey along the way to ensure that our customer experience is simple, seamless and frictionless,’ Gupta says. 

He is confident that such a robo-advisory service will widen investors’ choice to lower-cost investments and make wealth accumulation accessible to everyone. 

‘Robo-advisory solutions will help drive democratic access to investment advice but these will complement – not displace – financial advisers, and I believe advisory models will be a hybrid of automated and human-based advice.’

Complementary, not competitive

Of course, financial advisory is a highly regulated area, which is why Simon Hawkins, counsel in the Hong Kong office of law firm Latham and Watkins, believes that some technology startups have found a niche playing a complementary, rather than competitive, role to traditional providers. Rather than aspiring to be licensed financial institutions in their own right, he says, technology companies ‘are finding interesting and innovative ways to use data, in particular though data analytics and artificial intelligence, to help assess risk much better and quicker than institutions have been able to do before’.

Robo-advice is also being utilised to produce bespoke investment portfolios for consumers and to take advantage of what’s sometimes referred to as the advice gap. ‘There is a huge pool of people in Asia who currently don’t have access to any kind of reasonable financial advice because getting bespoke investment advice is expensive,’ Hawkins explains. ‘This advice gap can be filled by robo-advice solutions, which provide tailored investment advice for a much lower cost than a traditional adviser.’ Traditional institutions and new entrants alike are using robo-advice technology to service this segment of the market, he adds.

Digging deeper

Hawkins cites Singapore-based Bambu as one of the successful innovators in this space. The company was founded in 2016 by Ned Phillips, a long-time Asia-based finance professional who has been involved in fintech since its formative phase. One of Bambu’s products is White-Label Robo, a customisable goal-based platform for HNWIs that digs deeper into a client’s lifestyle. Enquiring about the things that interest them – for example, reading habits – helps to build a more accurate risk profile and hone the types of financial products that are suitable for them, Hawkins explains. 

‘Utilising a combination of online, algorithmic advice mixed in with human intervention, they often provide a user-friendly interface that helps the institution to tailor the investment advice and the type of financial products that will be sold to that person,’ he adds.

Hawkins sees this kind of robo solution, known as ‘white-label’ advice – also offered by Singapore startups such as Smartly and Pivot Fintech – as becoming increasingly popular with financial institutions, too. Phillips believes that robo-advisory is available to all sectors of the market. ‘Potentially, it could also be used by business as cash management and as investment tools,’ he says.

What about regulation? There is greater concern around fully automated systems, especially where complex financial products are involved. If a number of banks are using the same algorithmic system and a technical error results in erroneous trading decisions being made on a large scale, then investors are at risk, Hawkins says.

Regulators are looking closely into online investment advisory and distribution models, with both the Monetary Authority of Singapore and the Hong Kong Securities and Futures Commission launching consultations in 2017. While their conclusions are yet to be released, the aim of the proposed regulatory policies is to ensure that online and digital advisory platforms must be properly designed, fully audited, and have systems and controls in place to ensure the security and reliability of the platform, including personal data. 

‘Robust governance is also absolutely crucial; someone needs to be accountable for the online platform,’ Hawkins says. ‘This is very important to all regulators because they obviously can’t go after a computer but they can go after a human.’

That in itself kicks off a separate discussion, he notes. ‘In Hong Kong and in other parts of the world there is a greater focus on senior management accountability and we think that algorithmic investment advice is likely to be an area of focus for regulators as this type of technology becomes more widespread,’ he says.

‘If you’re in management in a wealth advisory firm or another financial institution, how willing are you going to be to put your neck on the line for algorithmic advice?’ 

Peta Tomlinson, journalist