Commentary: How investing and growing your money has become easier in Singapore
Wealth management or creation has in the past catered to those with money to invest. What fintech has done is to level the playing field, says chief client officer of Endowus, So Sin Ting.
SINGAPORE: French economist Thomas Piketty in his 2015 book, The Economics of Inequality, argued that throughout history, the concept of investing was something reserved only for the wealthy — those who have ample assets to stretch beyond life’s necessities.
He believes that wealth begets wealth, as there is a “tendency of the rate of return on capital to exceed the gross rate of return of the economy.”
In Singapore’s earlier years, access to personalised investment advice and a broad range of investment products were exclusively marketed and made accessible to the wealthy, while salaried workers had to contend with relatively low-interest rates in basic savings accounts or fixed deposit products.
As Singapore built its reputation as a financial center, new investment platforms were developed and more international asset managers arrived, lowering the barriers to entry for wealth growth and allowing more individuals to invest.
One key growth area was the introduction of more investment-skewed insurance products, and this enabled more residents to find new ways to grow their wealth, although arguably many were packaged with high fees and long lock-up periods
While these developments helped pave the way for improved market access and a reduced wealth disparity, the average man on the street still faced high broker fees and unclear investment options - something wealthier investors could handle better.
Fast forward to the present, and the rise of financial technology (or fintech for short), has brought about an extraordinary opportunity to make change and bridge the wealth gap.
Access to institutional quality advice and investments is no longer exclusive only to the wealthy, and the ability to invest to secure a brighter financial future should become a right for everybody.
THE RISE OF FINTECH
While there is no universal definition of fintech, it is generally understood to mean technology that’s used to augment, streamline, digitise or disrupt traditional financial services.
Over the past few years, the fintech sector has rapidly evolved. Singapore alone is estimated to be the base of over 750 entities.
According to SGX, this accounts for 40 per cent of all Fintech companies within Southeast Asia. Specific to the global robo-adviser segment, it is estimated to reach S$6.2 trillion in 2027.
While the pandemic has resulted in a fall in overall fintech funding in Asia, the funding landscape in Singapore has been less volatile, compared to countries around the region, particularly China and India.
We have seen fintechs, including robo-adviser firms, in Singapore receive a total of US$3 billion in funding last year, indicating that investors recognise the opportunities looming in this sector.
Aside from how much money is flowing into fintech and robo-investment companies, it’s also changing the way we invest.
Based on research done by The Insights Partners, the wealth management platform market, including robo-advisers, is expected to grow from US$2.2 billion in 2018 to US$7.2 billion by the year 2027 globally.
With hybrid and robo-advisers expected to increase their market share over traditional human advisers, robo-advisers are set to be one of the primary driving forces behind creating more competitive investment offerings, providing consumers with greater access than ever before.
This by no means sounds the death knell for human wealth managers – it simply means existing talent will pivot, reskill and find more job options when the market takes off with the likes of Grab, Shopee and local banks going digital.
DOORS OPEN FOR MAN IN THE STREET
In Singapore, data shows that specific fintech products that have seen a big uptake in retail investors are online brokers and digital wealth management platforms, especially among millennials and Gen Zs.
The biggest draw for them: The use of technology to dish out advice and boost financial literacy, along with ease of use and much lower fees compared to traditional financial institutions, advisers and brokers.
There are digital financial advisers that have also made institutional share classes of investment funds, which are traditionally only accessible to institutional investors such as pension funds, insurers or ultra-high net worth investors investing over six-figure sums or more, available to the average investor.
In the case of PIMCO Income Fund for example, investing in the institutional share class of the fund versus the retail share class lowers the fund-level fee by over 60 per cent.
This democratisation of investment opportunity means that more of the returns are kept by the average investor, and compounds over time to help build wealth.
Globally, however, there are other innovations that open investment opportunities to the masses. One example is real estate crowdfunding, which is said to offer investors a forecasted return on investment of an average of 10 to 15 per cent.
How this works is that a group of people, using social media or crowdfunding platforms, can invest for a share to buy a property or as a loan to a developer to finance the property development. Returns are then proportionately shared between the individual investors.
It is estimated by Ernst & Young that this segment would have funds of around US$9 billion in 2021, and an estimated compound annual growth rate of 18.5 per cent.
This example highlights how an asset class previously inaccessible to the average investor – a single real estate investment could be prohibitively expensive, let alone a portfolio of investments – is now available for the masses to help grow their wealth.
Other innovative platforms like Moonfare and ADDX make alternative and private equity investments available in smaller bite sizes, with the latter also removing lockups for private markets.
Consumer education remains the key plank to avoid unnecessary loss – but The Monetary Authority of Singapore (MAS) regulates financial institutions to ensure that they are not marketing products as risk-free.
LOWERING BARRIERS TO INVEST
A key trigger that brought not just money but everyone with a smartphone into this space was the approach to fees and commissions. You may have seen many online brokers advertising low to even no commission fees.
For those who do charge a commission, it is usually a fixed fee, with many as low as S$1 per transaction. This is compared to traditional brokers who charge on average 0.25 per cent of your trades, with a minimum of S$10 per transaction.
Trailer fees are often given as incentives for financial advisers to promote certain funds to their customers, and this results in a major conflict of interest, as advisers are more motivated by the commission they earn, rather than identifying which funds are best suited for their customers.
What this means is that a young and budding investor, say a 21-year-old tech-savvy university student, can not only set up an account independently, but have access to an appropriate investment solution based on his risk profile.
Without the obligation to commit to a locked-in investment plan with high transaction fees, the young investor is free to set up a regular savings plan, investing consistently across global market peaks and troughs and building good investing habits.
They may also invest their retirement nest egg, such as CPF and Supplementary Retirement Scheme (SRS) or try out investing in specific sectors or themes (satellite investing) using advised portfolios as they begin their foray into the working world.
BANKS ARE MOVING IN TOO
Banks are also focusing on developing digital-only banking solutions, with the central banks of Singapore and Malaysia issuing digibank licenses. Traditional financial institutions are trying to launch their own fintech solutions, serving fintech as a service rather than trying to block fintechs from thriving.
According to Statista and BCG, as of November 2021, there were 6,268 fintech startups in Asia Pacific, as compared to about 50 digital banks that provide financial services directly to consumers and businesses.
NO SUCH THING AS NO RISK
While fintech firms have created a niche for the tech-savvy, young investor who appreciates immediacy and a sense of ownership, it is also essential to assess the risk of each fintech product, in the same way one would diversify their investment portfolio traditionally.
Some products focus more on access but leave the choice and risk-taking entirely to the investor while others balance access and advice. Both have a part to play in lowering the risk of losing their money and growing one’s wealth.
The fintech product offerings, however, are set to grow even more diverse in future. Online brokers and digital advisers might even be just the tip of the iceberg, as fintech start-ups around the world look for more ways to bring wealth growth to the masses.
You even see in other parts of the world, Buy Now Pay Later fintechs start introducing savings accounts. Locally, you also have Grab, built up on the back of ride hailing and food delivery services, as well as e-commerce giant Sea being granted digital banking licences.
It is also worth noting that MAS played a big part in the rise of the fintech industry locally. The FinTech Regulatory Sandbox framework created by MAS allowed fintech players to experiment with innovative financial products or services in a live environment within a well-defined space and duration.
This resulted in the industry learning how to contain failures without affecting the security of the financial system, under relaxed legal and regulatory requirements. Such innovation also fuelled the safe and secure growth of the fintech industry in Singapore.
This type of public-private partnership has also helped foster a new generation of investors who, having been raised by mobile phone nannies, will be the future of investing.
So Sin Ting is Chief Client Officer of Endowus, Singapore’s first and only digital adviser to invest all sources of funds.