The development of Australia’s robo-advice market has been hampered by the fact that the companies leading the charge have been small B2C companies that have had to build a customer base from scratch.
That is the view of Graeme Brant, head of strategic partnerships in the local office of Quantifeed, a Hong Kong-based provider of digital wealth management solutions.
Quantifeed is a B2B, with clients including Singaporean bank DBS and Taiwan’s Cathay United. It opened its Sydney office this year.
Brant says: “Financial institutions have the customer relationships, the on-boarding processes and the products already in place. We work with them to enhance all that.”
He adds that large institutions have the marketing muscle to get out the message about digital wealth. “People are still unsure about what digital wealth means. When Cathay started offering it, it sent big to get the message out there.”
According to a World Bank policy brief published in February, the US market for robo-advice services hit US$400 billion last year and is growing at about 30 per cent a year.
The US market has an estimated 200 providers, led by Vanguard, which has US$122 billion of assets under management. Other big players include Intelligent Portfolios, with U$33 billion, and Betterment (US$14 billion)
BlackRock, the world’s biggest asset manager, acquired Future Advisor in 2015. Big banks Bank of America and Wells Fargo are in the market.
There are no firm estimates for the local market. A consulting firm Thinque published a survey recently, which says that 30 per cent of people are willing to try a digital wealth service but it did not say how many had actually done it.
Robo-advice services use algorithms to automatically build and manage clients’ portfolios. They may also provide portfolio management, offering services such as portfolio rebalancing and tax management.
Some services are fully automated, while others offer a hybrid system where clients also have some human interaction.
Robo-advice services have their critics. The World Bank report says a common response to robo-advisers is that they might not be able to know clients as well as human advisers do through multiple interactions, tailored questions and closer relationships.
The brief says: “One size fits all questionnaires might be too simple and narrow to provide a complete overview of a clients financial situation and his/her needs.
“Questionnaires assume that individuals with a similar risk profile would provide the same answers to the same subjective questions, which might not necessarily be true.”
Brant says Quantifeed’s clients usually start with a “vanilla” approach, such as offering a range of actively managed portfolios that fit different risk profiles. As they build their systems they add goals-based and thematic options.
“We have a quant team that builds portfolios around themes like big data and self-drive cars that resonate with investors,” Brant says.
He says Quantifeed is working on decumulation and income capabilities.
Brant says financial institutions in Asia have a greater sense of urgency about introducing digital wealth systems that will head off any incursion by global IT companies in the wealth market.
Australian financial institutions appear to be less concerned about that threat. He adds that the extent of regulation here can act as a brake on development.