A big challenge for digital platforms offered by private banks – such as Credit Suisse Invest, which launched this week – is how they deal with the more complex products sought by wealthier, more sophisticated clients, note industry observers.
As robo advisers typically offer fully automated portfolio management, private banks are increasingly depending on hybrid models – using a combination of man and machine, like Credit Suisse’s new tool – to provide relatively bespoke solutions to their clients.
Liew Nam Soon, Asean managing partner for financial services at EY, agreed: “Robo advisers can work when the products are relatively uncomplicated and limited. But when the product requirement becomes complicated, as it often does with private banking clients, such advisory models need to be complemented with human advisers.”
“While technology will surely evolve, the question right now is how to build a comprehensive range of offerings into your digital advisory without losing the cost advantage,” he added.
Tan Wei Mei, Credit Suisse’s Asia-Pacific head of portfolio solutions, acknowledged this. “One big challenge is to provide as large a range as possible,” she said, “so as to provide diversification and sufficient choices to clients.”
Credit Suisse Invest will cover all the 300-odd funds (both in-house and third-party) on the bank's master list and about 2,000 stocks vetted by its analyst team, along with bond and alternative strategies.
These products will be offered on a retrocession-free basis, in that fund managers will not be paid commission fees. However, this model will take time to gain traction in Asia, given that the retrocession-based approach is so ingrained.
“It’s hard to tell right now whether retrocessions will be banned outright in Asia or if there will be greater push towards more transparency and disclosure in fees,” admitted Tan. “But we are definitely moving towards a more transparent regime.”
Meanwhile, the platform will also offer other solutions to clients, including structured products, FX forwards, etcetera, she noted. They can create bespoke portfolios and reference a model portfolio comprising funds and direct securities. Some investment functions may be carried out online, but a product specialist will be consulted for the more complicated activities.
Meanwhile, client demand is rising for portfolios that invest directly – perhaps even 100% – in securities, Tan noted. To cater to that, Credit Suisse Invest allows for model portfolios that can be fully invested in either equities, bonds or hedge funds.
The ability to provide a broad range of products has become a crucial hurdle to overcome for digital platform providers. And with everyone from technology startups to big banks experimenting with fintech, the competition is set to get fiercer.
While tech start-ups might be more innovative than traditional banks, they lack a customer base. The hunt for customers is leading to an increasing number of tie-ups between large financial firms and tech companies.
Meanwhile, the next step in the evolution of digital investment models will come soon enough, said EY's Liew: “Big data will be used to look at transactional and behavioural models to provide even more informed recommendations on investment decisions.”
This will provide the additional level of confidence that investors need, even though they might still approach a relationship manager for more information, noted Liew. In addition, artificial intelligence embedded in robo advisers could enable more effective decision-making, he added.
Meanwhile, platform providers will clearly have to work with – and to an extent take the lead from – regulators on how they build their offerings.
Financial watchdogs are working on how to address this fast-growing area, in both the private banking and mass-retail space. The Monetary Authority of Singapore and Hong Kong's Securities and Futures Commission, for instance, are moving to develop rules for digital channels such as robo advisers.
Credit Suisse's Tan said: “Compared with traditional banks that would have covered all the suitability framework requirements, it is possible that regulators may allow robo advisers to be exempt from fulfilling the full set of KYC [know your customer] requirements.
“It is also possible that they could be exempt from product due diligence,” she added, “although regulators will still want to ensure they can protect investors adequately.”