Platforms using powerful algorithms to assign investors diversified portfolios have taken the US and Europe by storm. This technology is now available to Asian investors, with the launch of 8 Now!, a robo-advisory service provided by Hong Kong-based 8 Securities Ltd.
THE platforms used by robo-advisory firms allow investors to monitor their investments online. 8 Securities, for example, allows investors to keep track of their portfolios on a daily basis and view their historical performance over a period of one, three and five years.
Every three months, investors receive a performance report on their portfolios. The report also includes an economic outlook and portfolio strategy advisory.
The platform automatically rebalances investors’ portfolios to achieve long-term targets. It does so by adjusting the investment proportion of the portfolio according to the performance of certain asset classes.
Robo-advisory services give investors who want to diversify their portfolios another option, instead of only going to a financial planner or wealth manager. These services are expected to have an impact on the wealth management industry as a whole. In fact, according to a report by Swiss research firm MyPrivateBanking Research, entitled “Robo-Advisors: Threats and Opportunities for the Global Wealth Management Industry”, robo-advisory firms will create a risk scenario for conventional wealth managers.
These firms, it says, will be able to “win over clients, mainly the younger segment and more affluent individuals who are instinctively at home on the Internet as service consumers, and put pressure on the fees of conventional wealth managers with their low advisory fees, low fund fees and strictly limited range of services”.
Helleu does not think robo-advisory services will disrupt the financial planning industry in Asia, but they will certainly put pressure on it. “What we know for sure is that there will be pressure on the industry to be more efficient just because there are products [like ours] with significantly lower fees. The quality of our products also pressures the market to improve their existing practices.”
Financial planning firms in the US say their services are still needed as they are able to provide better solutions for their clients, especially those who have complicated financial needs. Helleu agrees that robots will not replace humans when it comes to giving advice, but adds that investors will benefit from having a different option when it comes to investment services.
“I think it cannot [address] all the issues faced by customers. [Robo-advisory services] don’t fit everybody’s [needs] 100%, but it is really a great saving solution for most. I won’t say these services will completely transform and change the [advisory] business, but I think it is a real improvement.”
Gaining traction globally
Robo-advisory services are gaining traction in the US, and the momentum is expected to continue. Swiss research firm MyPrivateBanking Research, in a report entitled “Robo-Advisors: Threats and Opportunities for the Global Wealth Management Industry” published last September, estimates that global assets under management of robo-advisory firms will grow to US$255 billion (RM925.9 billion) within five years.
While 8 Securities Ltd is the first company to offer robo-advisory services in Asia, it was not the first in the world to do so. The concept was introduced by pioneers like Betterment LLC and Wealthfront Inc in 2010 and 2011 respectively. However, their services are only available to US investors.
According to news reports, Betterment had more than US$1 billion worth of assets under management (AUM) at end-January, while Wealthfront had US$1.8 billion worth of AUM.
A number of firms are looking to tap the opportunities in the robo-advisory industry. Charles Schwab Corp, one of the largest discount brokerages in the US, announced last October that it would start its robo-advisory services in the first quarter of this year, while UK-based robo-adviser Nutmeg has plans to extend its services to the wider European market.
Opening an account
Signing up for an account with 8 Securities takes just four steps. First, go to www.8securities.com/trading/en/trading.php to download an application form. Then, fill up that form. Second, prepare all the supporting documents required for the online application process and a cheque for the minimum investment amount addressed to their preferred bank of either HSBC, Standard Chartered or Bank of China.
Third, sign the application form in the presence of a witness. This can be a notary public, justice of the peace, bank branch manager, lawyer or certified public accountant.
Finally, mail the application form with the supporting documents and cheque to 8 Securities’ office in Hong Kong.
This article first appeared in Personal Wealth, a section of The Edge Malaysia, on March 2 - 8, 2015.
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