TheWall: Fintech and asset management firms disrupting fund distribution

This article first appeared in Wealth, The Edge Malaysia Weekly, on October 26, 2020 - November 01, 2020.
TheWall: Fintech and asset management firms disrupting fund distribution
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An increasing number of asset management firms are working with fintech firms — in particular, robo-advisors or digital investment managers (DIM) — to transform the way they distribute products through new platforms.

The platforms vary from firm to firm but, in general, they make it easier for investors to access unit trusts, as they can now buy them directly online and create personalised portfolios. The minimum investment amount and sales charges are also lower.

For instance, BIMB Investment Management Bhd partnered investment tech provider Valuefy Solutions to launch the BEST Invest app in April. With this, investors can rely on a robo-intelligence system to build a shariah and environmental, social and corporate governance (ESG)-compliant portfolio.

In July, Permodalan Nasional Bhd (PNB) launched Raiz, a micro-investing app developed with Australian fintech firm Raiz Invest. Eastspring Investments, meanwhile, works with robo-advisory platform Stash­Away on the latter’s cash management solution.

Other firms that have announced similar plans include Affin Hwang Asset Management (AHAM), which is launching a digital cash management app with fintech firm Versa Asia Sdn Bhd.

“Our intention is for our solutions to reach Malaysians of all walks of life and income groups in the most effective way possible. It has to be convenient, provide 24/7 access and be easy to use,” says BIMB Investment Management CEO Najmuddin Mohd Lutfi.

“With technology and artificial intelligence, we are able to customise investment solutions based on investors’ goals and financial objectives that match their risk tolerance. This can be done in our BEST app in 10 minutes. With technology, we can now remove the barrier to entry, as many people were not able to invest prior to this due to high initial capital requirements.”

The major driving factors of this transformation include the digitalisation of the financial industry and younger investors’ preference for digital investing solutions. The Covid-19 pandemic accelerated the usage of digital investment products as well.

“The path of digitalisation would essentially mean that the process of buying funds will be digitalised, done either through your computer or your phone. The integration with online banking or e-wallets means that the account opening and transactions can be executed seamlessly,” says Yap Siok Hoon, chief sales and marketing officer at Eastspring.

“Partnerships with fintech companies allow for learning opportunities and enhancements to improve the overall experience. However, even without the partnerships, most asset management companies are already exploring their own digital platforms. The partnerships open up more possibilities in terms of payment options, enlarged market segments and potential new product features,” Yap adds.

Other than its collaboration with StashAway to launch StashAway Simple, which invests in Eastspring’s money market fund, the company allows for investment transactions to be paid via e-wallet Boost.

According to data from the Securities Commission, most users of the fintech-driven peer-to-peer financing and equity crowdfunding platforms are below the age of 35. The same is true for Rakuten Trade, the first completely online equities broker in Malaysia, and robo-advisors, according to reports.

This is pushing asset management firms to change their ways to attract younger investors, a new growth segment.

“The online distribution mode cannot be ignored, especially with the younger generation, who are fully digital and tech natives. They represent a future market,” says Ahmad Najib Nazlan, CEO of Maybank Asset Management Malaysia.

“Online investing is another channel where we can package and deliver our products differently by allowing customisation and simplifying the investment processes.”

How does it work?

In general, these new platforms allow investors to register and purchase funds online. Some only function as a cash management solution and invest in money market funds, while others operate like a robo-advisor that creates personalised portfolios for investors.

For instance, BIMB’s BEST app suggests a portfolio of unit trusts from BIMB Investment based on their preferences. Investors can also choose the DIY function and select their own BIMB funds. The minimum investment amount is RM10.

“We made it affordable so you can focus on your goals and financial objectives. You can leave other matters like the selection of funds to technology, which will make the assessment for you,” says Najmuddin.

Since its launch in April, around 20,000 individuals have signed up on the app, according to Najmuddin. While it is not specifically targeting younger investors, it aims to reach new segments of investors with this product. “We’ve been seeing new flows into our assets under management (AUM), so it’s very positive,” says Najmuddin.

There is no sales charge or transaction fee involved, he adds, other than the fees some banks may charge for fund transfers.

PNB’s Raiz rounds up the user’s transactions and invests the change into a diversified portfolio of Amanah Saham Nasional Bhd’s unit trust funds. The portfolio is recommended based on the investor’s preferences. Similarly, there is no minimum investment amount or commission charged.

Another type of platform being launched by asset management firms focuses only on cash management solutions. It enables investors to have easy access to money market funds that could have higher returns than fixed deposits.

StashAway Simple is one example. It is a cash management portfolio within the StashAway app that invests in Eastspring’s money market fund. There is no minimum balance required nor are there any deposit requirements or withdrawal restrictions.

AHAM is also building a cash management platform with Versa that will be launched later this year.

“Preserving sufficient liquidity while searching for decent yields in a lower-for-longer interest rate environment is among the topmost concerns of any investor today. The digital cash management platform that we built will simplify access to our money market funds,” says Allen Woo, chief innovation officer of AHAM.

Will this upend the industry?

Unit trusts have traditionally been distributed via unit trust consultants, banks and financial planners. Fintech firms have disrupted the landscape by allowing investors to purchase unit trusts directly online with lower initial investment amounts or fees.

Now, asset management firms are also partnering fintech companies or developing their own technology solutions. Will it replace the traditional model of distribution?

The view is that the traditional method of distribution will co-exist with these new initiatives because some client segments have different needs.

“The same method of investing [online and via apps] may not appeal to the older generation,” says Eastspring’s Yap. “However, the growth of the asset management industry will be driven by the younger generation eventually, and such partnerships allow for a wider reach.”

Some investors also still prefer advisory services to help them plan their investments, says Najmuddin.

“Ultimately, we will respond to the needs and wants of customers in whatever form they are comfortable with. We think that right now, we have the right mix of digital and non-digital channels to serve all investors.”

Nevertheless, the firms believe that the use of technology will become commonplace in the industry going forward, whether it is used in the back-end or consumer-facing processes.

For instance, Kenanga Investors Bhd is in the midst of enhancing the engagement tools that its relationship managers (RM) use to serve their investors.

“The need for RMs to assist investors in discovering investors’ investment needs shall largely remain … Investors will also be equally equipped with tools to manage their investments and remotely interact with their respective RMs,” says Ismitz ­Matthew De Alwis, CEO of Kenanga Investors.

“We envisage positive incremental AUM flow from new investors as we enhance our RM tools and customer experience at large. With a stronger digital bridge built with our new and legacy investors, we will be able to better market products suited to our investors’ needs.”