Until recently, wealth management services were the prerogative of the seriously rich. Each client received personalised advice on financial and investment matters, retirement and estate planning and even accounting and tax services. Of course, all these benefits didn’t come cheaply.
Clients were expected to pay at least 1% of the value of their assets under management as fees every year. Many traditional wealth managers charged a lot more. But in recent times, a number of new financial technology companies have digitalized wealth management services and made them available to investors at a fraction of the rate which the incumbents charge. Another advantage that these new fintechs or robo advisors provide is that an investor needs to put up only a few thousand dollars to open an account. Traditional wealth managers usually require a minimum portfolio of several hundred thousand dollars.
Robo advisors are rapidly gaining popularity across the world. Betterment, which is located in the US, is one of the most successful and well known fintech companies providing these services. It already has US$6.2 billion under management.
Singapore’s automated wealth management platforms
Several companies are competing to provide Singaporeans with specially designed portfolio planning and asset management tools. They are entering the market with financial products that allow young and tech-savvy investors an enhanced level of control over their portfolio.
Singapore’s robo advisors also have the advantage of offering their services at lower rates than traditional services like brokers or mutual funds. Investors looking for an alternative to the rock-bottom returns on banks deposits now have an option that allows them to allocate their funds in a manner that suits their risk appetite and costs little in fees. While not all of these offerings are yet friendly to an average person, we believe robo advisers will gradually put forth more consumer friendly products with low fees as they scale their platforms (as it happened in the US).
Using this Singapore fintech’s automated platform, individuals can invest in a globally diversified portfolio of exchange-traded funds (ETFs). ETFs are selected by Smartly on the basis of each investor’s risk profile. Investors are required to provide some basic information about themselves. Smartly’s proprietary algorithms will then recommend a personalised investment portfolio based on the individual’s profile. If an investor does not agree with the recommendations, it is possible to change the allocation of funds.
Smartly caters to all segments of investors. It is possible to open an account with an investment of just S$50 per month. The fees are very affordable: * 1% per year, if you invest less than S$10,000 * 0.7% per year for sums over S$10,000 * 0.5% per year for S$100,000 and above
What are the benefits that an investor gets by paying these charges? The amounts cover risk assessment, recommendations based on an investor’s profile, unlimited deposits and withdrawals, and real-time monitoring of the portfolio.
This startup is targeted at Americans working in Singapore. Subsequently, the firm will offer its services to Singaporean as well. According to a press report, the company’s initial customers will be accredited investors, meaning high net worth individuals and hedge funds. Infinity Partners has a capital market licence and its expatriate customers will be able to buy exchange-traded funds in the US.
The firm will offer its services at a fee that will be about 1% of the assets under management. This compares with 3% to 5% charged by traditional wealth advisors for similar services. Singapore’s accredited investors can start buying into ETFs using Infinity Partners’ robo advisory services from 2017. Subsequently, the company will expand into Hong Kong and Japan as well.
This firm has chosen to adopt the B2B route to market its robo advisory products. It is currently marketing a robo advisory platform that can be offered by financial service companies to their customers. Why is Bambu deviating from the usual B2C model that most robo advisory startups have embraced? In an interview, founder and CEO Ned Phillips explained that he estimates that it would cost his company US$1 million to acquire 3,000 customers. With the low fees that robo advisors charge, it would not be possible to sustain the business.
Established as a wealth management firm eight years ago, Crossbridge Capital has recently launched a robo advisory platform for Singapore’s accredited investors. The service has been introduced in association with Bambu. Accredited investors are defined under Singapore government regulations. They need to have net personal assets of at least S$2 million or a yearly income of S$300,000.
Crossbridge Capital has US$3 billion under management and caters primarily to HNIs and families based in emerging market economies.
The future of robo advisory services
Although robo advisory services have been popularised by financial technology startups, even financial institutions providing traditional wealth management services have much to gain from automated investment allocation methods. Singapore’s banks have already seized this opportunity. OCBC recently launched OneWealth, an automated system that provides investors with advice and monitors their portfolios. DBS Bank has partnered with IBM to launch Wealth Adviser, a service that matches research reports with a client’s risk appetite and investment objectives.
In Singapore, robo managers are not yet prevalent or scaled enough to offer a truly low-cost offering to most retail investors. While most of these platforms currently only cater to high net worth clients (i.e. accredited investors) and institutions, they likely will gradually expand their product offerings and lower fees as they grow. If the US market is any indication, a growing number of robo advisors can make these platforms cheaper, allowing Singaporeans to choose the robo advisory service that best meets their individual needs more easily.