More retail investors turning to robo-advisers, a booming space eyed by fintechs and banks
- Digital wealth platforms see sustained investor activity, with more interest from first-time investors such as those aged above 50
- Traditional banks among new entrants in a growing market
- But an analyst says “a huge consolidation” may happen in the industry in five years’ time
SINGAPORE: Months after launching its services for retail investors, robo-adviser Endowus was gearing up for its first MRT advertising campaign in April last year.
But just as the advertisements went up at several MRT stations, Singapore went into a “circuit breaker” to stem the spread of COVID-19, with people urged to stay home as much as possible.
“It was so painful because we had been so tight with (spending) … and the second we spent the money, everything was closed,” said chief executive and founding partner Gregory Van.
In line with the safety protocols, Endowus also had to stop organising physical seminars and switched to online webinars instead.
Mr Van recalled being “extremely worried” about the pandemic’s potential impact. But more than a year on, Endowus' assets under management have grown to more than S$1 billion.
The milestone, achieved within 20 months of its full-service launch in end-2019, made it “the fastest-growing” digital wealth platform in Singapore, the company said in an announcement last month.
Robo-advisers are digital investment platforms that tap on algorithms to help investors buy into a portfolio of assets, based on one’s appetite for risk and financial goals. They typically charge lower fees than traditional outfits, and investors can start investing with just a few hundred dollars. Portfolios are automatically rebalanced in response to market conditions.
These platforms are not new in Singapore, with some players like StashAway being in the market for at least four years now. New players, however, have continued to emerge with some estimates putting it at more than 10 robo-advisers in Singapore now.
Endowus said the number of clients investing on its platform rose by almost 1,000 per cent in the year ending Jun 30. Client assets grew 670 per cent over the same period despite pandemic-induced market volatility.
“I think we did a good job,” Mr Van told CNA in an interview last month.
Syfe was another relatively new entrant that had to brave the pandemic. Launched in July 2019, chief executive officer Dhruv Arora noted how retail customers were “panicking” at the heightened market volatility in early-2020. Venture capital funds were also “taking a step back” and putting investments on hold.
"I think anyone who said they were not worried is probably lying. It was a tough phase for any company, especially younger ones," he said.
Despite the concerns, Syfe saw “signs of recovery” as soon as in the second quarter of last year. Its assets under management grew 10 times in the first nine months of 2020, a trend that continued into the final quarter.
“Being at a much higher base, you would have thought that growth may not remain at that level in 2021 but in the first six months, we have grown four times in assets, which is very encouraging," said Mr Arora.
StashAway, which was launched in 2017, has also observed quick growth over the past year.
It announced in January that it has crossed US$1 billion (S$1.36 billion) in assets under management – a first among digital wealth platforms in Southeast Asia and the Middle East and North Africa, it said.
That growth in investment inflows from both old and new investors has continued “very strongly”, said StashAway co-founder and chief executive Michele Ferrario. "We kept growing as we did in pre-COVID-19 and in a very strong fashion,” he added.
MORE INVESTORS MANAGING WEALTH ONLINE
Industry players told CNA that they continue to see sustained investment activities on their platforms due to people becoming more receptive towards managing their wealth online. Robo-advisers are no longer an unfamiliar term.
Mr Ow Tai Zhi recalled the “very hard start” back in 2017 when he co-founded AutoWealth.
“We were one of the two earliest robo-advisers to receive our licence and as you can imagine, user adoption was very challenging,” said the start-up's chief investment officer.
“We had to run so many workshops and exhibitions just to drum up interest and help people to understand our offerings but fast forward to today, we are doing much less physical and digital marketing (yet) our user adoption has been growing faster.”
In the second quarter of this year, AutoWealth's new users grew by about 56 per cent year on year. The average assets under management for each user rose to US$18,875 from US$13,215 over the same period.
The COVID-19 outbreak has also put digital adoption “on steroids”, said Mr Ow. Other players agreed, noting that the pandemic has pushed many segments of the economy to be increasingly digital and more people to be comfortable with less human touch.
While the digitally-inclined younger crowd remains the mainstay for robo-advisers, the number of older investors is increasing.
StashAway said it has seen a five-fold increase in older investors on its platform, compared with before the pandemic. Around 75 per cent of these customers are aged between 50 and 60.
“What probably happened is that with COVID-19, the older population was forced in a way to try out digital players. They tried it and found that it is actually easy to use, and more intelligent with lower costs,” said Mr Ferrario. “Therefore, there has been an increased speed of adoption in this segment.”
Syfe has also seen more older investors embracing digital investing platforms as a means to grow their wealth while paying less in fees. Syfe's oldest investor is 93 years old, said Mr Arora.
Clients over 50 currently account for about 10 per cent of Syfe's client base, yet they make up 20 per cent of assets under management, highlighting the wealth within the older generation, he added.
Amid the pandemic, more people are also thinking about the need for financial planning, and have found robo-advisers a great way to start investing, especially for beginners, said the industry players.
That said, there were some retail investors who requested for withdrawals from their portfolios.
Mr Ow said AutoWealth observed a spike in withdrawal requests during the first and second quarters of last year when global financial markets endured big swings. Such requests went up from around 3 per cent to 8 per cent of its total user base.
“People were anxious,” he told CNA, adding that the start-up responded by publishing explainer articles and having its team of wealth managers contact those who made withdrawal requests.
“Eventually, more than half stopped the withdrawal requests and by the third quarter, it has moderated back down to where the usual withdrawals would be at around 2 to 3 per cent,” said Mr Ow.
BANKS JUMP ON TREND
The burgeoning robo-advisory market has also attracted traditional banks and even non-financial firms.
UOB Asset Management (UOBAM), for one, rolled out a mobile robo-adviser targeting retail investors in July last year. As COVID-19 accelerated demand for digital solutions, including in investments, it saw sign-ups for new accounts rise 40 per cent year to date. Those aged 30 to 39 formed the fastest-growing group of users.
OCBC’s RoboInvest platform also grew “exponentially” during the pandemic, with new investors up three-and-a-half times since last May. Its biggest growth came from investors aged below 30, whose numbers grew 250 per cent in the past year. There was also a 10 per cent increase in first-time users over the age of 50.
When asked about their competitive edge, OCBC told CNA that it offers the “widest range” of 34 portfolios across six geographies, while UOBAM noted that retail investors can now tap on its "decades-long fund management expertise" through its platform.
Meanwhile, Grab acquired robo-advisory start-up Bento Invest in February, marking the ride-hailing giant’s move into the retail wealth management space.
Even then, financial technology (fintech) players reckoned that the local market is far from being overcrowded.
A key reason is that robo-advisers currently account for only a tiny fraction of the “sizeable” wealth market in Singapore. With much of the shift from traditionally people-fronted investment advisory to algorithms and bots yet to pan out fully, there are ample opportunities for all, said Mr Ow.
Mr Van echoed that: “If you add up all the digital wealth platforms, we still make up a very small percentage of the total wealth market. We are talking about well under 1 per cent.
“We are just at the beginning of adoption. Singapore is a S$1 trillion wealth market … and that will only continue to grow so that is the opportunity we see.”
THREAT OF CONSOLIDATION
Mr Anton Ruddenklau, partner and head of financial services at KPMG Singapore, said banks have embraced the burgeoning robo-advisory trend due to a “fear of missing out”.
While they may have added to the competition, the entry of traditional financial players are “in some respect validating” the digital model and will give consumers more confidence, he added.
Globally, the robo-advisory market is in for further growth and may reach a tipping point to “become mainstream” in 2026, said Mr Ruddenklau. However, Singapore may see “a huge consolidation” by then.
“It's the unit economics of running a robo-adviser fintech. The question is how do they make money (given the low fees they charge), how many customers will they need and how long will it take for them to be profitable?”
The key is hence “fast growth”, not just in Singapore but more critically, overseas where they can scale up, added the KPMG expert.
Already, there are casualties. Local robo-adviser Smartly threw in the towel in March last year due to “intense” competition, according to The Business Times.
“The issue is fundamentally, they need scale to make money and there's not enough people (in Singapore) to go around … I would predict in five years’ time, there’ll be a huge consolidation in this sector and only the large ones will survive,” said Mr Ruddenklau.
NEW PRODUCTS, NEW MARKETS
Robo-advisers said plans to keep up with growth, such as expanding into new products and markets, are already under way.
Endowus has introduced multi-asset portfolios with environmental, social and governance metrics, as part of meeting growing demand for sustainable investing. Take-ups for these offerings have tripled since the launch in March, said Mr Van.
The firm is also eyeing an expansion into Hong Kong this year.
Likewise, AutoWealth rolled out a new thematic offering which it described as “high risk, high return”. It did so in response to demand from some users with a bigger risk appetite.
The offering was launched in January with a cap on S$10 million in portfolio value – a rare move given its decision to "co-share risks" and charge annual fees only if investors make positive returns. It was fully signed up for within two days, said Mr Ow.
AutoWealth is also hoping to set up shop in Malaysia by the end of this year.
Without giving details, Mr Arora said Syfe’s venture into overseas markets will take place over the next six to 12 months. Meanwhile, its users can look forward to being able to customise their portfolios – an option it is rolling out based on feedback gathered.
StashAway will soon be available in Thailand, after venturing into Hong Kong and Dubai over the last six months, said Mr Ferrario. The company has also taken its first step to branch out of investments by launching a group term life insurance policy in May.
The new product, underwritten by Prudential Singapore, is in line with StashAway’s broader plans to become an “all-in-one” wealth management platform, it said in its press release then.