E.Sun Bank, the fastest-growing distributor of funds in Taiwan, plans to launch a robo-advisory platform, but is being cautious in onboarding new asset managers, amid tightening regulation around foreign product sales.

Robo-advisers, which provide automated portfolio management based on an algorithms, are not likely to be mainstream businesses in the next three to five years, but will be a future trend, said Louis Chang, E.Sun's head of wealth management. Hence the bank has set up a department to develop its own robo-advisory offering, with a view to launching it in the next three to six months.

“Robots may play the game of ‘Go’ well, but investment is much more complicated, involving government policies, FX rates and other human factors,” Chang told AsianInvestor. “For example, if an investor plans to invest $1 million, they’d still prefer to consult with an expert.” But automated offerings can be a supplement to the current human-based advisory process, he added.

The bank's plan comes as the local markets regulator, the Financial Services Commission (FSC), has been promoting Taiwan's credentials as a financial technology hub in Asia.

Separately, E.Sun will be cautious about adding new fund houses, because new international asset managers must show solid commitment to the local market, said Chang. In addition, having too many products on the shelf will make it difficult for relationship managers to have a good understanding of each offering, he noted.

Moreover, E.Sun is considering stopping working with some fund managers, Chang said – those with unsatisfactory performance or that have reduced their service coverage in Taiwan.

As of end May, E.Sun was working with 60 fund houses (up from 50 at end-2012), of which 42 were foreign managers. In the 12 months to the end of May, the bank added five (mainly foreign) new fund houses and cut two, one being an overseas player.

The FSC has been tightening regulations since 2012 to encourage offshore asset managers to contribute more to the local market. It started a “deep cultivation plan” in 2013 to this end; part of this scheme comprised a scorecard scheme to assess firms based on criteria such as their employment of local individuals, level of domestic investments and amount of tax/revenue contributions.

Despite this, E.Sun has posted the largest growth in fund sales among its Taiwanese peers in recent years. Its wealth management fee income rose at an annual average of about 38% in the past four years – from about NT$2 billion ($66 million) at end-2011 to NT$7.3 billion at end-2015, according to Taipei-based consultancy Keystone Intelligence.

Asked about where he was seeing investment demand, Chang said Taiwanese investors preferred products with low volatility, stable returns and diversity, following the stock-market volatility in 2015 and with negative interest rates in Europe and Japan and expected rate hikes in the US.

More specifically, they like bond funds, multi-income balanced products – with popular underlying assets including high equity dividends, option premiums, bonds and real estate investment trusts – and long/short strategies that can help reduce the volatility of income funds by using covered calls or other derivatives-backed products.

Investors also like directly buying offshore bonds, which give them stable cash flow with fixed interest payments and clear fixed returns if investors hold to maturity and get back the 100% par value of the bonds, he noted.

Savings-type insurance and discretionary investment-linked insurance products are also popular, Chang said.

 

Wealth management fee income of five major banks in Taiwan (NT$ million)
    (Source: Company data, Keystone Intelligence, AsianInvestor)
Bank 2011 2012 2013 2014 2015 Compound average
growth rate 
CTBC 9,685 12,200 13,396 15,595 16,484 14%
Fubon Bank 6,143 6,257 6,212 8,168 8,801 9%
Cathay Bank 3,310 3,890 6,673 6,673 8,779 28%
E.Sun Bank 2,045 2,829 3,929 5,407 7,313 38%
Taishin Bank 3,374 4,517 5,149 6,288 7,155 21%