Asia’s incumbent wealth managers are likely to increasingly invest into robo advisers or buy companies as they seek to supplement their services and fend off competition from technology upstarts, say industry observers.
This is the second article in a two-part series; the first outlined the obstacles that robo-advisers face in gaining traction in Asia and why they may struggle to achieve sufficient scale to survive.
There is a widely held view that robo-advisers, which employ algorithms to allocate investors’ money to exchange-traded funds, are likely to be most effective as part of a broader investment offering.
They will be much more successful taking such an approach than trying to replace private bankers, because they wrap themselves into existing advice and distribution models rather than disrupt, said Jeroen Buwalda, Asia-Pacific wealth and asset management advisory leader at consultancy EY.
In other words, robo-advice could enhance high-net-worth individuals' experience and help private bank relationship managers to be more productive and compliant.
Credit Suisse Private Bank is one institution moving along this trajectory.
Speaking on a recent panel in Hong Kong on robo-advice, Francois Monnet, head of Greater China at the Swiss firm, said banks were not in the business of competing with robo-advisory firms but would rather use digital advice to augment their current services.
Along with Singapore's DBS and rival Swiss firm UBS Wealth Management, Credit Suisse is among the private banks in Asia that already offer digital banking, providing a self-service-type offering for clients.
But even with the advent of digital banking, said Monnet, clients inevitably still want to have a conversation with RMs at some point on what they should do with their investments.
Incumbents assess the options
Frank Troise, Asia head of digital distribution at Swiss fintech firm Leonteq, told AsianInvestor there were good reasons why wealth managers were not immediately jumping on the robo-advice bandwagon.
“They have to assess it relative to the existing business model,” he said. “There are customers who still want to use the legacy process and won’t change.”
“I think there is a reason why banks are not terribly worried about it," added Troise, "but at the same time they are educating themselves about the value of it [robo-advice]."
Buwalda agreed that there was no compelling reason to hurry to offer clients a truly digital offering. “They have good business models and make reasonable margins,” he said of the industry’s leading players, which currently have “bigger fish to fry” in the shape of regulatory change.
Neither Troise nor Buwalda expect wealth management incumbents to lose clients to robo-advisers.
“Everybody thinks of [robo-advisers] as disruptors, but I think that disruptors themselves, if successful, will be disrupted,” Buwalda said.
“That’s what we see in the US," he added. "Some of the firms that had a huge amount of success in the US have started to struggle because incumbents have either bought or developed their own and rolled out to existing clients. They don’t start from scratch. To them it’s not client acquisition but client conversion.”
Investment industry incumbents to have successfully developed robo-advisory services in the US include Vanguard, Charles Schwab and Fidelity. Buwalda expects something similar to happen in Asia, where each market is dominated by just a handful of private banks.
The bigger threat to incumbents is in the shape of the region’s existing telecommunications and technology titans such as Baidu, Alibaba and Tencent – all of which have recently expanded into digital banking or fund distribution.
Alibaba’s Yu'eBao product is distributing retail investor capital into money-market funds, while Tencent is is building financial services on the back of its popular WeChat messaging system.
Such firms are using big data to address client needs, such as in the area of payments, although industry insiders still see it as something of a quantum leap to jump from there to private banking.
Credit Suisse’s Monnet does not see Tencent or Alibaba being able to challenge the big banks when it comes to global research or global investing.
Nevertheless, the threat from tech firms like Alibaba may force banks to improve their own digital platforms.
Troise suggested that financial institutions in Hong Kong or Singapore were likely to partner or indeed become platforms like Baidu or Alibaba. “At the end of the day, the most successful player would be a hybrid, such as DBS, a traditional bank becoming a technology company.”