Robo-advice seen posing threat to fund houses
Most product distributors will implement robo-advice in some form in the next 12 to 18 months, potentially posing a threat to asset managers, argued a consultant.
The growing shift by wealth managers and advisers into manufacturing is worrying for fund houses, which do not have that direct relationship with the clients, said Mark Wightman, partner for wealth and asset management advisory in Asia Pacific at EY.
It works the other way too, he noted, with asset managers – such as Aberdeen, BlackRock and Schroders – starting to acquire distribution capability. “The question is: which side is more at threat, distributors or fund managers, or does the line simply blur between them?”
The conversations around robo-advice are focusing on whether to buy, build or partner, said Wightman, who was a panel speaker at the IMAS conference in Singapore last week and also spoke to AsianInvestor on the sidelines of the event.
Whichever approach they take over the next 12-18 months, he expects most distributors and advisors to put some form of robo-advisory infrastructure as part of their offering.
Robo-advisers – which provide algorithm-based portfolio management advice without the use of human financial planners – tend to be American or European, but the model is gaining traction in Asia. Wightman is seeing activity in the region, including in China, Hong Kong, Malaysia and Singapore. EY has wealth management firm clients in Asia talking to robo-advisers about partnering on distribution, he said.
However, questions remain over the product mix and target segment, as the US-style model, which focuses on exchange-traded funds, is limited by the range of ETFs available in the region if clients want local-currency-denominated product.
EY research suggests that mass-affluent and high-net-worth clients are more viable targets than the mass-retail segment. Firms must also consider affect whether to go direct-to-customer (D2C) or to use the business-to-business-to-consumer (B2B2C) approach by offering robo-for-adviser solutions.
Meanwhile, asset managers offering robo solutions face the decision of whether to be open-architecture or tied to their in-house product.
“To date most have been open-architecture, irrespective of whether the underlying is ETF- or mutual fund-based,” said Wightman. “This echoes what we have seen with the mutual fund platforms in the region and offers clients a better selection.”
Even if the flow goes to external fund products, the manager that owns the platform still makes money by charging distribution fees, he added. “It provides a revenue stream while allowing the manager to build relationships with the end customers.
“The industry is changing,” noted Wightman. “People are looking at additional revenue streams and they do not want to be completely disassociated from the end clients.”
Certainly, large fund managers are increasingly acquiring robo-advisers. Notable examples include BlackRock’s purchase of FutureAdvisor acquisition, Invesco buying Jemstep, Goldman Sachs snagging Honest Dollar, and Aberdeen taking a stake in Parmenion.
Parmenion, a UK-based robo-for-adviser is seeking distribution partners in Asia, as reported.