Fintech companies are witnessing quite a boom as they continue to create wealth for investors. The quick emergence of startups, cost-efficient strategies, business agility, and most important is customer experience are a few of the contributing factors.
A primary characteristic of the fintech sector is its constant evolution that has introduced a significant value addition in this segment.
Robo-advisory provides unbiased financial advice with the help of Artificial Intelligence (AI), Big Data, Analytics, and Deep Learning, to ensure minimum human intervention.
Robo-advisors have seen significant growth over the years; a solid 30% to be precise from 2019 to managing $460 billion in 2020. With growing support from millennials and Gen Z, Robo-advisory is expected to become a $1.2 trillion industry by 2024.
Brian Concannon, head of Digital Advisor and Mass Affluent Advice at Vanguard points out, “Investors historically have had two options when it comes to managing their investments. They could do it themselves through something like an online broker or you can work with a financial advisor. Now, with the advent of Robo-advisors, there’s a third option, and that’s to merge the benefits of professional money management and advice with the convenience of an all-digital application.”
As per Statistica, the rob-advisors segment in Asia alone is predicted to have about 346,458K users by 2025 with average assets under management per user expected to touch US$917 in 2021.
It's time we acknowledge the growing importance of Robo-advisory and the indomitable place Robo-advisors hold in our financial lives. Today, it is revolutionizing the insurance and wealth management sector across the globe with convenience, customization, and cost benefits.
Key drivers
As digitally savvy investors continue to explore their financial horizons with the help of Robo-advisors, we highlight the key drivers that are helping this sector grow in value and potential.
Read on.
Fierce competition
Robo-advisory services hold a solid position in China where the market is expected to have been doubled every year from 2017 to 2021 from its USD 27.1 billion value in 2017. During this period, Chinese investors using Robo services grew in large numbers from less than 2 million to 79.4 million.
The competition comes from large fintech companies as well as the smaller companies that have forayed into Robo-advisory. The growing competition only means cheaper fees and more aggressive growth in investments for the average investor in times to come.
Within the Asia Pacific region, there is a sizeable pool of Robo-advisory users and assets under management (AUM) with Hong Kong and Singapore being the primary markets. According to Deloitte, the usage of Robo-advisors in Singapore is the highest among those in the age group of 25-34 years, and women with limited investment experience are willingly using them for lower investable assets.
Cost advantage
Rising innovations in the finance and insurance sectors have contributed to their growth. They have also been a boon for small investors who can now invest with the help of sound advice. Robo-advisors are extremely cost-effective since investment advisory fees can otherwise cost a large amount.
With little or no human intervention, Robo-advisors present an incredibly cost-effective method of managing investment portfolios. The advice often comes from algorithms based on market research and analysis to ensure better returns on investment. This increased level of automation makes Robo-advisors both resourceful and dependable.
Superior client experience
Client-centric experiences are now expected more than ever before, and Asian private banks are taking a cue from this growing demand. They are now becoming agile embedding client-facing Robo-advisors in their offerings to secure a better reach and lasting client relationships. Robo-advisors are now helping them manage individual portfolios automatically and periodically to re-balance assets every time economic and market movements are observed. Investors are offered complete transparency through dashboards allowing them to add or withdraw at any point in time.
Singapore-based fintech 360F has already been helping insurance companies and financial institutions with their flagship product 360-ProVestment® which offers financial foresight as part of their unbiased and hyper-personalized financial advice.
Explains Clarie Kwa, 360F’s Chief Market Officer says, “With computing-intensive simulation and optimization techniques on the back of Behavioral Science, we bring customer-centricity to a new level. Because the solution offers product recommendations that are self-evidently apt, we help instill trust in the financial advisor, yet we also want clients to be able to check that for themselves.”
Unmatched value
Diverse wealth management platforms are now being deployed for the business intelligence they offer based on performance and risk analysis of portfolios. They factor in the investment goals of clients along with their risk tolerance levels. Services being offered include automatic portfolio balancing for risk mitigation, accurate P&L reporting, and tax lot harvesting to reduce tax.
Robo-advisory works across the value chain and can be successfully integrated into every step of insurance and wealth management. Despite its robotic qualities, a high level of customization makes Robo-advisors extremely sensitive to your specific financial requirements to offer tailor-made solutions in a self-service, automated format. Today, Robo-advisors play an important role in every aspect of insurance including automating the insurance sales cycle, underwriting, policy management, claims process, and customer support.
Key features
The Robo space is up for some major growth and technology will continue to empower it. A Robo-advisor can be an invaluable tool for those who are eager to invest but do not have the time or the competency to research and evaluate every mutual fund on the market.
The most prominent features and benefits of modern Robo-advisors include:
- Great user experience - Simple and intuitive features
- 24X7 accessibility - Constant online support
- Low costs - no human intervention
- Transparency - Fees, trades, and portfolios are accessible at all times
- Efficiency - Allows frequent changes in the portfolio
- Low minimum balance – ‘0 minimum balance’ option is also available
- Minimal taxes - Investments are tax optimized
- Regular rebalancing - Shifts and movements in markets are considered to balance portfolios and minimize market risks
Not without a human touch
AXA in its survey has already iterated the importance of online interactions in insurance. It states 34% of millennials want to interact online only, while 8% do not want to interact with their insurers at all. Robo-advisors then serve as the perfect bridge for insurance companies to reach out to their customers.
But does that mean human intervention is passé now? Not entirely.
As Jason Snipe, chief investment officer at Odyssey Capital Advisors points out, “Clearly, there’s always going to be a human element that’s missing. My problem always will be the emotional response. Take a situation like last year when we’re going through Covid-19 and markets are moving a lot, dramatically. ... You can’t talk to the technology, right?”
Perhaps we are not entirely suited for Robo-advice especially since there are older people that still prefer face-to-face interactions. But given the current social distancing norms imposed by the pandemic, we are in need of services like Robo-advisory that close the communication gap in a big way.
Many companies are now exploring hybrid models where customers can manage their investments on their own with the help of Robo-advisors and digital tools, but also leverage human advice as and when necessary.
As organizations move towards expanding their current capabilities, they need to ask themselves - What role will the robots play? How can we improve Robo-advisory to maximize it to clients’ advantage? How effectively can we contribute to this evolving ecosystem to deliver superior customer experiences? The right questions will help them move from reactive to proactive advisory with initiatives that will put their clients at the center of everything they do.
Lead with TransformHub
TransformHub is a leading and trusted digital transformation company focused towards offering services in Banking, Finance, Insurance, and Retail Industry. TransformHub innovates with 360F, AWS, RedHat, Affinidi, Snowflake, and Automation Anywhere as our partners.
What we offer is a unique blend of strategy, experience, and technology. We've partnered with 360F - Advisory revised one of the finest firms in the insurance sector to empower you to offer the best financial solutions including Robo-advisory. We are passionate about helping institutions of all sizes, in all sectors, around the world, to dramatically accelerate their digital transformation.
So, if you are looking to innovate, trust TransformHub to be your like-minded partner that can help you cut the costs and digitally transform your business with our expertise. Our team does the thinking and focuses of getting the Return on Investment (ROI) and controls the Total cost of ownership (TCO).
Allow us to help you align your goals with fast-evolving technologies to ensure customer centricity and deliver trust. Call us at +65 9198 4440 or write to us at info@transformhub.com to request a free consultation.
TransformHub Insights Team
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