This article first appeared in Personal Wealth, The Edge Malaysia Weekly on December 31, 2018 - January 6, 2019
Millennials are increasingly the focus of banks, asset management firms and financial product distributors. This group of investors, aged 20 to 35 this year, are poised to become the primary income earners and investors in the country over the next three to five years.
According to data provided by the Department of Statistics, the median age of the population in Malaysia last year was 28.3 years old. The department’s most recent data breakdown available online shows that about 28.94% of the population was aged from 20 to 35 in 2015. By comparison, those aged 55 to 74 made up 11.34% of the population.
“These numbers are meaningful. They tell you that, by and large, Malaysia is a millennial nation. That is why the financial industry is increasingly focusing on millennials,” says Danny Chang, head of managed investments and product management at Standard Chartered Bank Malaysia Bhd.
Ismitz Matthew De Alwis, CEO of Kenanga Investors Bhd, concurs. He says millennials are already driving changes in the market. “Millennials are mainly asking for three things — immediacy, transparency and simplicity.”
Immediacy refers to the ease and speed of purchasing a financial product. De Alwis uses the McDonald’s self-service kiosk as an example. “The kiosk allows people to place their order and pay their bills quickly. After that, they don’t mind waiting for their meals to be served because the transaction is done. This is the psychology of millennials. They are very used to everything being done fast,” he says.
Transparency means millennials want to know what they are paying for and what investments they are getting into while simplicity refers to a clear and straightforward explanation of the financial product’s features.
De Alwis says millennials are also more price-sensitive and adventurous. “Yes, they spend their money easily. But it does not mean that they do not care about prices. In fact, they are more price-sensitive than their parents.
“For instance, you may notice that your parents do not mind paying a premium for good quality products and services. Or they may say, ‘It is fine. Let’s just pay him. He needs to earn a living.’ But millennials are different. They want to know what they are paying for.”
This generation is also more willing to try out new investment products and financial instruments that could excite them, he adds.
Millennials prefer to buy things online, says Wong Weiyi, general manager of Fundsupermart.com Malaysia. “The reports published by the Malaysian Communications and Multimedia Commission seem to indicate this. The mobile cellular penetration rate is increasing and more people are buying things online.
“Yes, it seems that the growth traction for online sales of financial products is slower than expected, compared with products such as electronic devices, air tickets and apparel. But it is growing.
“This growth is partly reflected in the sales of unit trusts on our website in Singapore, Hong Kong and Malaysia. It is interesting to note that of the three countries, Malaysia has seen the highest growth over the past three years.”
He adds that millennials’ habit of purchasing things online without the need of a third party has caused some of them to feel uneasy when meeting up with agents. “It is not because they do not appreciate human advice or the human touch. It is because they feel obliged to buy a product when facing an agent.”
Products to look out for
Financial industry players are looking to embark on several initiatives to cater for their younger customers. For instance, StanChart is looking to launch an online platform next year that will allow users to research, compare and buy into the unit trusts of local fund houses.
Why launch an online platform? Chang says it will appeal to millennials, who are demanding higher transparency, low sales fees and greater accessibility to investment products. The platform aims to help them make their own investment decisions rather than aggressively selling them products.
“Millennials, in general, do not trust financial institutions that reach out to them to sell them products. They want access to the information that could help them make their own decisions. The platform will also provide existing customers with more convenience when buying investment products,” says Chang.
“Yes, there are existing online portals in the country. But you do not have a bank account with them and will have to perform a bank transfer when making a purchase. The process can be more streamlined if you have a bank account with us,” he adds.
“Currently, there are very few of these platforms in Malaysia and we think there is a gap to be filled. It is a blue ocean.”
Besides Fundsupermart.com, another platform that sells unit trusts is eunittrust.com.my, owned by Phillip Mutual Bhd.
De Alwis says Kenanga Investors is looking to launch a series of exchange-traded funds (ETFs) to cater for the millennial demand for innovative and low-cost products. “These ETFs are low cost and can be transacted and traded online. If millennials feel that buying a single stock is too risky, they can buy into ETFs.”
He adds that the firm has been in talks with the regulators to launch two inverse and leveraged ETFs that could excite younger investors, who tend to be more adventurous and eager to try out new investment products.
“We also think it is a good time to launch such ETFs. The market has fallen and investors who view that it will rebound would want to have some leverage. Meanwhile, they can protect their downside by utilising the inverse features,” says De Alwis.
Other firms have announced similar plans. Affin Hwang Asset Management Bhd revealed last month that it had entered into a partnership with Samsung Asset Management (HK) Ltd to offer leveraged and inverse ETFs on the local stock exchange going forward.
Firms such as Kenanga Investors are investing in the upskilling of their staff to provide more holistic services. De Alwis says the firm is encouraging its unit trust salespeople to attend financial planning courses to become certified financial planners. The move coincides with the low-cost investing trend, which is primarily driven by millennials.
“Unit trust sales charges have already been knocked down by the younger investors. Some agents cannot afford to charge investors 5% anymore. They may charge 3%. Sometimes, investors ask for even lower fees,” says De Alwis.
“Millennials are asking what value-add is being provided by the agents and why they should pay these agents a 5% sales charge. Why can’t they buy products online for about 1.5%?”
The value-add, he says, will be the services provided by a certified financial planner. The firm’s salespeople will be able to provide clients with a variety of unit trust products based on their financial needs. With an appropriate advisory fee, they could also offer insurance or estate planning advice.
In fact, in a previous interview with Personal Wealth, De Alwis said the asset management firm should adopt the term “assets under advice” (AUA), instead of “assets under management” (AUM), as a metric to measure performance.
In March last year, Kenanga Investors introduced an online wealth management platform known as KenWRAP. The platform is designed to capture the profile and financial status of clients before providing them with financial planning services. At its launch, the platform had formed partnerships with more than 20 other investment product providers and featured more than 350 investment solutions.
Enhanced user experience
While it is already the leading online platform distributing unit trust funds to retail investors locally, Fundsupermart.com is not resting on its laurels. Its plan is to improve the platform’s user experience to make it more attractive to millennials and other investors.
Wong says the process is ongoing. “The IT team is working on making improvements to our website.”
With these improvements, users can expect to open a new account and perform transactions more easily. They will also be provided with more charts, tools and insights into their investment portfolios when using the mobile application.
“We need to improve our user experience a lot more. It is definitely one of the key things we are focusing on,” says Wong, adding that the company is exploring the idea of social investing, which will allow investors to see what their peers are trading and investing in.
On the engagement side, the platform will be putting more effort into marketing via social media. One of the ways that will be considered is asking social media influencers to market its products and services.
“We tried this marketing method about eight years ago, but it was not the right time. Many influencers back then wrote about fashion, travel and food. And when they started talking about investing, they were not very successful. However, today, we see more personalities emerging within the personal finance space whom we can consider,” says Wong.
In the longer term, the company expects to personalise its products and services by utilising the power of artificial intelligence (AI). “We have some clients in the region, but we have never really made good use of the data we have harnessed from them. By using AI, we may be able to see what funds a specific group of investors is buying and how can we better advise them. This project is in the pipeline,” says Wong.
“The Singapore banks are doing well in this area. We can see the trend already happening and this is the direction we are heading towards.”
Channel conflict and other challenges
Wong says the move towards more online options, however, will take time to materialise and it will not be plain sailing. The main reason for this is the conflict between the different distribution channels of a financial institution if it were to change its business model and distribute investment products online.
“I call this the ‘channel conflict’. Financial institutions have their own products and agents who sell unit trusts to retail investors and impose a 5% sales charge. Now, they are introducing online platforms,” says Wong.
“If they impose a 5% sales charge online, why would people want to buy it? If they charge, say, 1% online, it will cannibalise the sales of their agents [and affect their profit and revenue]. This is a significant issue in Malaysia as the unit trust industry has a large agency force.”
On top of this, some large financial institutions are reluctant to spend money to implement new technology that could lower investment costs. That is because these investments entail a considerable sum of money and do not promise a return on investment (ROI) in the shorter term, says Wong.
“The management of large financial institutions, especially those that are more traditional, make decisions based on ROI. I see many that are still not willing to take this step, which is to invest in technology and shift their business model,” he adds.
However, it is now at the right juncture for financial institutions to get less fixated on ROI and start investing and learning about technology, says Wong. “If they are thinking about profitability in the next three years, they probably won’t do anything. However, they have to start doing it now if they look at the longer term. There is a vast population who have grown up with the internet entering the workforce and starting to save and invest. It is a no-brainer that they will go online.
“This is what I shared with the people in asset management firms during our meetings. You don’t want to be the last to make these changes. It will be the most costly changes you will ever make if that happens.”
Kenanga Investors’ De Alwis says asset management firms should take a longer-term view when planning for future generations. Beyond millennials, there are Generation Z (those born between 1995 and 2010) and Generation Alpha (those born after 2010).
“These are the generations growing up in the digital age, which is very different from us. We need to think about that,” he adds.
De Alwis says the business models of asset management firms are already changing in the developed markets. Locally, these changes are taking place at a slower pace. Instead of relying on agents to sell investment products, asset management firms will have to offer low-cost products and services that depend on transaction volume to be profitable.
For instance, Kenanga Investment Bank Bhd has teamed up with Rakuten Securities Inc to launch Rakuten Trade, dubbed the country’s “first completely online equities broker”. It allows investors to trade equities easily at a low fee.
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