This article first appeared in Personal Wealth, The Edge Malaysia Weekly on September 21, 2020 - September 27, 2020

Over a 15-year career in the investment banking industry, Julian Ng found himself becoming increasingly frustrated with the amount of fees retail investors needed to pay when investing in unit trust funds.

“When you buy unit trust funds as a retail investor, you are required to pay the sales charge, annual management fee and other charges. To set up an actively managed fund, the bank needs to employ and maintain an active investment department, and the cost to employ the fund managers will be passed back to consumers in terms of fees,” says Ng, the co-founder of Akru Now Sdn Bhd.

Ng, a former fund manager, explains that not only is a portion of the money invested in unit trust funds used to pay the fund manager’s salary, there are also commissions for stockbrokers and financial advisers as well.

As a result, the fees required at each stage within the value chain can add up and become high for investors. When this amount is compounded after many years of investments, it will eat into the long-term returns of the average retail investor, says Ng.

With the help of technology, however, Ng believes retail investors are able to invest in both local and foreign markets without paying a hefty fee. This got him interested in starting his own ­robo-advisory platform.

“I have been looking at ­robo-advisory platforms since their early days in 2012, when overseas platforms such as Betterment and WealthFront were first launched. I always thought these platforms are amazing, because of the positive impact that a robo-adviser has on the average person’s personal finance,” says Ng.

“I believe robo-advisory platforms have made retail investing so much more effective and cheaper. So I quit my job [as a portfolio manager with the aim of] creating a product that meets the needs of Malaysians. Along the way, I worked as a presenter for BFM89.9, while working on a robo-advisory platform.”

Ng and his team started developing Akru in 2017 and the platform was officially launched on Aug 28. Unlike other robo-advisory platforms in Malaysia, which have the backing of foreign companies, Akru is the first home-grown robo-advisory platform. It provides investors with exposure to both local and foreign securities as well as selected unit trust funds.

Ng explains that the platform was developed primarily with investment goal-setting in mind. Users first answer a detailed questionnaire, which includes questions such as their income level and monthly financial commitment. After that, they are able to create multiple funding goals — such as retirement savings or a house deposit fund — each with its own investment portfolio, monthly deposit requirements and expected returns.

Ng points out that Akru will be continually fine-tuned to improve its features, and he envisions the platform to eventually give equal attention to the “advisory” portion of robo-advisory platforms by providing financial education to its users. He explains that Akru aims to emulate the role of a typical financial adviser by answering basic financial questions commonly posed by the man in the street.

“Many retail investors find financial planning a very [tedious process] and the calculations too complex. Rather than asking what instruments they should invest in, they should ask how much they need to save to retire comfortably for 20 years? What about 30 years? How do I take EPF savings into account so that I am not over-saving? Akru is able to calculate all of that for you if you fill up the questionnaire,” says Ng, adding that in the future, he hopes to provide more financial education content via Akru’s blog site, social media channels, videos and podcasts.

Akru currently has 10 portfolios that are constructed to take into account various risk profiles and investment goal requirements, which are determined by answering a series of questions. At present, the portfolios are parked under three risk profiles, categorised as Low-Risk Larry, Moderate Mary and High-Risk Harry.

The portfolio holdings primarily consist of exchange-traded funds (ETFs) that provide global exposure to both equities and bonds. A quick check on ­Akru’s platform shows that some of these ETFs are Vanguard S&P 500 ETF, iShares Core MSCI EAFE ETF and Vanguard Total Bond Market ETF.

Ng explains that most of the portfolios are constructed in such a way that they would reflect global growth, and are weighed in a similar way as how a global index fund would allocate funds based on a country’s stock market capitalisation. He adds that investing globally allows investors to tap investment opportunities all over the world, especially US-based ETFs, which have returned an average of 10% to 12% a year.

“We invest according to how index experts would invest in a global portfolio, which means about half of the weightage would go into the US. Between 20% and 30% would be invested in developed markets such as Germany, Japan, France and the UK. The rest would be invested into emerging markets,” says Ng.

While Akru’s moderate- and high-risk portfolios are made up primarily of ETFs and cash, its conservative portfolios also include Malaysian unit trust funds, such as KAF Bond Fund and Nomura i-Income Fund.

Ng recognises that investing in unit trust funds might contradict Akru’s investment philosophy, but he says it is still vital to include Malaysian securities in conservative portfolios.

“For conservative portfolios, the focus is on capital preservation, so we do not want to be exposed to foreign exchange movements that come from ETFs, which is why we look at investing in local unit trust funds. Although investing in unit trust funds is costly, it is one of the easiest ways to gain exposure to the local market. We are looking at minimising the usage of unit trust funds so that we can ensure that there are savings in cost, which will be reflected in higher returns,” says Ng.

He further explains that he chose to invest in KAF Bond Fund and Nomura i-Income Fund rather than opting for local bond ETFs because of their active and discretionary investment management style and healthy performance track record. He notes that there are uncertainties regarding the movement of interest rates in the current market environment, and an actively managed bond fund is more likely to outperform than a passively managed bond ETF.

Despite the exposure to unit trust funds, Akru currently charges 0.7% in annual management fee for the first RM100,000 invested. The fee is progressively lowered as the investment amount increases. A quick online search shows that the annual management fee charged by Akru is on a par with that of other robo-advisory platforms in the country.

There is no minimum investment amount required to invest via Akru. However, investors need to be mindful of cash transfer costs charged by third party-payment gateway providers if they invest in small amounts, says Ng.

Akru currently operates only through its official website akrunow.com. However, retail investors are able to access Akru via their mobile web browser while still retaining the full functionality of the platform’s desktop webpage counterpart.

Ng explains that Akru has decided to go with a web-based model for the time being because app development is expensive and the company is looking to conserve cash during the Recovery Movement Control Order period. He recognises that having a proper mobile app is necessary and the team aims to develop one in due course.

Ng notes that starting a home-grown ­robo-advisory platform without external support is no easy task. To obtain the proper licences to run a robo-advisory platform, Akru needs to have operating capital of at least RM2 million. Ng is grateful that he was able to raise RM2.6 million during the seed round from private investors.

Akru is currently raising additional funds via Leet Capital, a local equity crowdfunding (ECF) platform. The company is looking to raise a minimum of RM500,250 before the fundraising campaign ends on Oct 24.

Besides funding the company’s operations, the funds will be used to increase Akru’s technological capabilities, expand the company and widen the product offerings to include shariah-compliant securities.

Ng says for every RM1,000 invested using the Akru platform, the user is entitled to five shares of the company via Leet Capital. He highlights that Akru is the only robo-advisory platform in Malaysia that is raising funds via ECF, which gives retail investors the additional option to invest in the platform itself.

“Raising funds via ECF has given us a chance to pitch to normal investors [as opposed to venture capitalists] and let them know more about our business. It makes us much more accountable to our users, and it also gives them an opportunity to invest directly in a fintech robo-advisory platform,” he adds.

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