Robo-advisors changing the game of wealth management with AI

January 9, 2020

Robo-advisors changing the game of wealth management with AI

Wealth management can help people reach their life goals more easily and quickly. Meanwhile, a PwC report reveals people in Asia Pacific are not investing sufficiently in retirement funds and savings, threatening the sustainability of aging populations. This concern has brought about more investment in retirement funds in the region, especially in Japan, China, Singapore, Hong Kong, and Thailand. Across the region, retirement funds investment has grown from US$2.1 trillion in 2007 to US$4.6 trillion in 2017 and it is expected to reach US$6.8 trillion by 2025. In addition to this, PwC reports investment for passive income is increasing in the United States and Europe. 

With a rise in technology in both everyday life and the financial sector, more interest is being driven toward efficient management of wealth and investments through what are called “robo-advisors”. As investment for passive income grows in prominence, the use of technology in this area of investment is starting to play a role in Asia Pacific.

Robo-advisors: Financial advisors for the future 

A “robo-advisor” is an online program that manages investment portfolios and provides financial planning advice for individuals like a financial advisor would. It gives consumers easy access to up-to-date financial services that helps them to understand their financial needs and risks. The value of assets managed by robo-advisors reached US$18.7 billion in 2015 and is expected to reach US$489 billion by 2020, according to InvestmentNews. There is a great opportunity for robo-advisor technology to support the growth of Thailand’s financial sector in the near future. 

Robo-advisors leverage analytical artificial intelligence (AI) to make predictive assessments and decisions based on data gathered, such as transaction history or investment risk appetite. They can assess loan approvals, investigate the transparency of financial services, calculate investment risks, and analyze investment opportunities. 

Robo-advisors can develop personalized strategies that best fit each individual’s goals — they can lay out financial plans for retirement, plan savings for high expenses, set up emergency funds, or even develop an investment portfolio based on an individual’s income and risks.

KPMG projected that robo-advisors will open the door to greater transparency of financial services, more financial inclusion, and increased flexibility for High Net Worth (HNW) investors to adapt their portfolios according to real-time fluctuations on mobile platforms. 

What’s more, robo-advisor services reduce the current high cost of financial consulting. Online services with minimal human intervention eliminates traditional processes that can be time-consuming. At the end of the day, the robo-advisor is a highly efficient tool that reduces both risks and costs for users. 

The role of robo-advisors in today’s world 

The use of robo-advisors and the value of the assets managed by them globally are rising steadily. As many as 6.8 million people in North America use financial and investment planning services provided by robo-advisors for assets worth more than US$296 billion. The Asia Pacific region is not far behind at 17.9 million users trading in US$86 billion assets. Though Europe is in the early stages of adopting this technology with only 900,000 users, the value of assets traded by robo-advisors reached US$17 billion. 

US leads robo-advisor services where they are so established that investors have come up with ranking and rating systems based on the financial planning method, user-friendliness, transparency, efficiency, value of assets managed, and access to human staff working alongside the robo-advisor. 

For example, Vanguard PAS and Schwab Intelligent Portfolios manage the highest value of assets with robo-advisors in the world today. A 2017 Barron’s report revealed Vanguard PAS and Schwab Intelligent Portfolios managed investment assets valued at US$83 billion and US$19.4 billion respectively.  In the previous year, Schwab Intelligent Portfolios had the highest returns among financial service providers at 11.94 percent while Vanguard PAS had the highest long term returns at 7.86 percent. Robo-advisors from each had unique and attractive investment options. Vanguard PAS chose to invest mainly in the US stock market, international stock markets, and US bonds whereas Schwab Intelligent Portfolios had stronger diversification, investing in currency and commodities.  

Wealthfront and Betterment were the first startups to use robo-advisors to provide wealth management. Wealthfront enables investors to change their portfolio at any time and provides real-time investment information based on risk level, time period, and the users’ investment goals. Betterment is the first robo-advisor unicorn to cater to those who may not have vast amount of funds or specialist investment knowledge, supporting users’ financial security, retirement planning, and savings accumulation. 

Given that the Asia Pacific boasts the largest population in the world, robo-advisors will play a crucial role in increasing the efficiency of financial and investment consulting services and create opportunities for people to have easy access to the financial ecosystem. In Asia, tech startups play an important part in developing AI for the financial and investment sector. One startup that has received much attention is 8Securities, which launched an application named “Chloe” which provides automated financial advice. The application uses AI to create a database based on client information and daily behavior.  This data is then used to formulate investment goals and find investment channels that best suits each investor.

Robo-advisors in Thailand 

In Thailand, the government has started to change various regulations to support technology innovation in the financial sector, including those governing robo-advisory services. 

The main businesses using robo-advisors in Thailand are securities companies and 

FinTech startups that have requested licenses from the Office of Securities and Exchange (SEC) to run as stock brokerage firms. They cover two types of investor groups: 

  1. General investors: Companies offer services via mobile applications to the general public so they can invest by themselves without needing prior trading experience. Users can choose either to invest with a lump sum of money or gradually invest in the form of a Dollar Cost Average (DCA).  
  2. HNW investors: Robo-advisors could tailor personalized advice to HNW investors. For example, for an investment of over 10 million Baht, the robo-advisor can calculate the best channels to invest according to market fluctuations, complementing human financial advisors. 

Though robo-advisor service providers are readily offered in Thailand, the most important step now is increasing knowledge and understanding among the public about financial and investment planning. According to the SEC, only 3-4 million people in Thailand invest in funds. Many people still do not know how to analyze and select from the wide range of investment products available or only invest in one type of product.  

With the government pushing financial institutions to provide wider access to affordable financial and investment planning services, wealth management will no longer be just for high-income earners. 

This move will further drive the use of technology to open up more investment opportunities and the robo-advisor will be one of the key tools used. In future, there will also be more funds where FinTech startups work with financial institutions. Overall this movement will transform the traditional process of investment to one that will reduce social inequality. 

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