Robo-Advisory In Asia/Pacific Set To Cross US$500 Billion In AUM By 2021, IDC Reportsby Fintech News Singapore November 17, 2017
IDC Financial Insights has released its first perspective on robo-advisory titled Robo-Advisory: Changing the Face of Wealth in Asia/Pacific , which highlights the state of robo-advisory in seven hot markets in Asia/Pacific. China, Singapore, Australia, South Korea, Hong Kong, India, and Taiwan lead the way, with combined total assets under management (AUM) estimate on robo-advisory to reach US$500 billion by 2021.
IDC Financial Insights defines robo-advisory. also known as automated or digital advice, as a set of automated systems that rely on algorithms to construct, manage, optimize, and rebalance wealth and asset management portfolios. In its purest form, the entire process of robo-advisory is completed without human intervention from start to finish.
Michael Araneta, Associate VP, IDC Financial Insights, says,
“The growing adoption of digital platforms by customers has created a huge opportunity for robo-advisors. The combination of digital gadgets, innovative analytics, and advanced algorithm-based engines has enabled new ways to interact with tech-savvy customers and meet their investment requirements. The automation of advice enables risk assessment and portfolio construction for each investor, regardless of the investor’s portfolio size.”
“The typical approach involves assessing the risk tolerance of the customer (although some algorithms factor in more heavily the customer’s goals) and coming up with suitable model for portfolios of funds based on that assessment. At this point, the portfolio of robo-advisory options is mostly exchange-traded funds (ETFs), and very few have started to include stocks as well,”
This IDC Financial Insights report covers the fundamentals of robo-advisory, discusses the key changes in the consumer behavior with respect to personal finance management and business economics that compel wealth management providers and banks to develop strategies in this space. It also highlights the readiness of each market with respect to regulatory compliance and state of deployment, as well as the opportunities that will impact banks’ and wealth management companies’ future IT strategies.
“Although compared with the share of total wealth of AUM, the robo-advisory opportunity is still miniscule, growing from 0.2% in 2017 to 1% in 2021. The entire story seems to be more about its lightning speed growth of 100% compound annual growth rate.
This strong optimism rides on the quick, yet outstanding, successes of a few robo-fintechs in the United States (Betterment), Europe (Nutmeg), and Japan (Money Design’s THEO), therefore encouraging movement in Asia/Pacific as well, “
adds Anuj Agrawal, Senior Research Manager at IDC Financial Insights. Robo-advisory in China merits special mention as it is expected to manage around US$450 billion in assets by 2021, accounting for 90% of the estimated market for the region.
IDC sees traditional wealth management players moving quickly in terms of adoption of this advice – we see them either creating their own proprietary robo-advisors or partnering with robo-fintechs. To be sure, it will take a long time before the current robo-advisory model matures into an advanced level of portfolio design and investment.
Eventually, it will add more asset classes and investment options and offer more power to investors to customize their portfolio in a real sense. Positive drivers and strong regulatory support will ensure that the ideal time required to mature into robo-advisory 2.0 is considerably reduced.
Robo-advisory ought to become an integral part of a business strategy for any wealth management firm to be future-ready, regardless of size of assets, breadth of operations, or number of years in existence. Firms need to start with defining their value proposition for their existing and future business. Other key decisions to be made concern partnerships (with existing robo-advisory companies and technology providers), the revenue model, customer channels, and risk mitigation.
Sneha Kapoor, Senior Research Manager at IDC Financial Insights, highlights,
“We expect that there will be a bigger preference for a hybrid advice model in the future, a conclusion that will be achieved from two factors. Firstly, we are seeing more robo-fintechs riding on the success of mass market investors and expanding to launch their premium versions with access to human advisors.
Secondly, traditional players, which continue to have human advisors, are starting to embrace the robo-advisory model for support. We believe that traditional players with hybrid advice models are more likely to dominate the market in terms of AUM, but we will also see a few successful robo-fintechs evolving into a full-service robo-financial planning model.”
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