- Automated advice now offered by Hong Kong, Australia firms
- Asia-Pacific set to be world's richest region in 2016
Picture the scene. A table for two in your favorite restaurant and a 2007 Domaine Leflaive chardonnay chilling on ice as you gaze into the eyes of your latest dinner date: a banker taking instructions from an app that appears to know you inside out.
Welcome to the future of wealth management.
After automating their back-end processes, banks are now doing the same with client-facing services. So-called robo advice, which uses algorithms to suggest investments based on clients’ goals and risk tolerances, is now in Asia-Pacific after creating a buzz in the U.S. and Europe. Its providers are tapping into the region’s growing wealth that surpassed Europe in 2014 and is poised to pass North America next year.
“Historically, the robots were seen as the automation in the process. They were the dumb person communicating a task,” said Keith Pogson, a senior partner for Asia Pacific Financial Services at Ernst & Young LLP, who envisions the richest people accessing the technology through a human interface over, say, dinner. “In this environment, we actually have the human being as the automaton. They are just communicating what the robot or artificial intelligence is telling them.”
No Human Required
Less well-heeled customers are likely to access such advice online without any flesh-and-blood contact, said Hong Kong-based Pogson, whose views are based on his discussions with senior private bankers. Mid-tier clients will probably do similar, but with the added perk of accessing a real human periodically to review their portfolio. The wealthiest are likely to share more intimate meetings with a personal banker plus tablet.
Robo advisors offer a cheaper alternative to traditional wealth managers such as private banks, which many investors can’t afford. Growing compliance needs may mean the technology will also be used by private banks themselves, according to Pogson. Assets under management by U.S. robo advisers are estimated to increase 68 percent annually to about $2.2 trillion in five years, consulting firm A.T. Kearney said in June.
“Robo-advisors are good for banks from a compliance standpoint, where the software will be suggesting to clients consistently what the bank’s view is,” said Pogson. “The bank won’t be criticized for giving the advice, which they give everybody, to a particular customer.”
U.S. to Asia
Robo advice was made popular in the U.S. by companies such as Betterment LLC, Wealthfront Inc. and FutureAdvisor, which was acquired by BlackRock Inc. in August. The software was brought into Asia this year by Hong Kong’s 8 Securities Ltd. and Australia’s Instreet Investment Ltd. Credit Suisse Group AG, which is prioritizing wealth management and relying on growth in Asia, in March debuted its digital private banking platform in the region in Singapore.
“In the private banking space, it’s about looking at the repetitive tasks that the banker is currently doing,” said Marcel Fuerst, global head of private banking technology and operations at Standard Chartered Plc. “The banker should care about relationship management and engage with clients about strategic priorities, while the few standardized investment decisions -- that’s something the robo advisor can do.”
Regulators in Singapore, Taiwan and -- starting this month -- Hong Kong have set up units to oversee and boost the broader financial technology sector, more commonly known as fintech. In Australia, the impact of such “digital disruption” has prompted the government to set up a robo-advice task force, according to Greg Medcraft, Chairman of the Australian Securities and Investments Commission.
ASIC sees robo advice providing benefits such as improved compliance, record keeping and reducing conflicts of interest. Still, it sees potential issues such as how providers comply with investors’ best interests and develop and test algorithms, Medcraft said in a statement last week.
For now, investments recommended by robo-advisors remain limited to instruments such as exchange-traded funds. The technology may be a solution for markets like Australia, where advisers have a bias against tools such as structured products as a result of stricter rules.
"As the technology becomes better, products offered by robo-advisors will be more holistic," said George Lucas, Sydney-based managing director at Instreet. In terms of technology, "we’re probably even before the baby stage, more like baby-in-the-hospital stage. But this baby is going to grow up really quickly."