Robo-advisories face headwinds in China

Yunfeng Financial Group, a Hong Kong-listed fintech firm backed by Alibaba’s founder Jack Ma, hopes to provide a platform for the retail investor that is similar to what high net worth investors have by digitising specifics of the investment process.

CEO Li Ting said her firm wants to bring a higher level of wealth management to smartphones.  

“For example, top-down asset allocation based on the risk profile and manager selection on each asset class,” she said at CFA Institute’s Beijing-Hong Kong Fintech Connect Summit in late March. “Who are the best [managers] in the market? It’s not that difficult. A lot of financial institutions are doing that but they are not sharing with [ordinary] people.

“We can do that online. We have a database of almost 1,000 mutual funds [by partnering with about 20 mutual fund houses], and we screen and score them to make recommendations.”

However, others believe robo-advisories will not get traction in China until the market develops. 

According to Gregory Gibb, chairman and CEO of Lu.com, an online wealth management platform backed by Chinese insurance giant Ping An, China doesn’t yet have the proper market for robo-advisors. 

“I looked at this about a year ago, wondering why robo took off recently in the United States,” he was quoted as saying in a report on fintech by the CFA Institute. “Why didn’t it take off 10 years ago? I think it basically [comes] down to two reasons.

“One is the ETF market in the US is becoming extremely efficient and the main investment tool of a robot is allocation among ETFs. Two is that smartphones have created a user interface that makes people feel comfortable doing asset allocation in a reasonably easy way.

“Robo in China will actually not take off that quickly because I don’t think you have the ETF infrastructure in China. You don’t have a low-cost advantage. You don’t have the long-term investment orientation.

“In terms of value from robo, I think someone has done the calculation. You have to put your money to work for three or four years at least to get the fee benefit. In China, the average holding period for a mutual fund is six weeks.”

Frank Wang, CIO of Toumira, a robo-advisor in China, added: “[R]obo-advising is not likely to become profitable in the short run. Customers have not fully accepted the concept of asset allocation and robo-advisory service, and the Chinese capital market has its own unique features and regulatory requirements.”