“The wealth generation in Asia is growing faster than anywhere else in the world,” said Stewart Aldcroft, chairman of Cititrust, as a panelist at this week’s Morningstar Investment Conference in Hong Kong.
“Yet the proportion of the population in Hong Kong that now owns a mutual fund or a unit trust is more or less half of that 10 years ago. We’re going backwards.”
Inexpensive, automated robo-advisors could be a solution, but unlike in the large markets of US and Europe, in Asia they face difficulties stemming from regulatory fragmentation, lack of scale and investors’ preference for human contact.
Hybrid approach
Rather than offering purely online advice, the way forward for providers of these services is a hybrid approach, according to Charles Wong, co-founder and chief executive of Privé Financial, a technology provider.
The hybrid approach uses automated financial advice systems, but provides a layer of personal contact when dealing with the institution. Some call this approach “cyborg-advisor”, others “bionic advisor”.
In addition, the focus on servicing clients needs to switch from selling products to addressing clients’ financial goals, such as education or retirement, in a highly personalised manner, enabled by technology, Wong argued.
The common behaviour of investors in the region, however, make providing comprehensive financial advice more difficult. “Asian clients want service, they want to meet you, they want to eyeball you, they want to be sure they can trust you,” observed Aldcroft.
“But they will do that with three or four other people as well. They never have one advisor, they have multiple advisors.”
Aldcroft added that the preference for human contact is mostly true for investors older than 45, who have had previous – often disappointing – experience in investing. The ones younger than 35, who spend much of their time online, should be more open to fully automated advice.
“They don’t have a lot of money at this point,” he said, “but they are the ones who will have money in the future.”
Fund houses and robos?
Due to low profit margins of robo-advisory services and the necessity to achieve scale in order to be profitable, independent robo-advisors are not likely to succeed in the region under current regulations, according to Aldcroft. “The rate of failure is going to be high,” he said.
Instead, Aldcroft expects that the fund management industry will start providing robo- or cyborg-advisory solutions within a couple of years.
The current regulatory environment in Hong Kong and Singapore does not allow asset management companies to enter the advisory business, but the regulators, in particularly the Securities and Futures Commission in Hong Kong are working to change the rule, he said.
When that happens − in 2019, Aldcroft speculated − Hong Kong might start resembling the investment environment in China today, where people have easy access to funds online, even though in China they don’t use this ability to its full potential, focusing instead on money market funds.
Robo-advisory services provided by well-known financial institutions would also benefit from brand recognition, Aldcroft argued. “If you go to Citi and use their robo-scheme, you feel much more comfortable than with Betterment, Wealthfront or Nutmeg, or some other rubbish name,” he said.
