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Robo-advisors gain ground in China

Robo-advisors are posing challenges to the people-oriented wealth management industry in China, according to panelists at Fund Forum Asia 2017 in Hong Kong.

“Financial institutions in China are thinking about creating digital platforms to utilize index products for trillions [of renminbi] in assets,” said Richard Tang, CEO at ICBC Credit Suisse Asset Management. “And when they move, they move very fast.” 

China Merchants Bank, the biggest non-state-owned bank in the mainland, launched a robo-advisor service last December called Machinegene Investment, or Mojie in Chinese. It is the first big lender in China to launch such service. Allowing to invest in mutual funds with minimum RMB 20,000 ($2,900), the app has gathered RMB 3bn of assets in a few months’ time, according to a Reuters report.

The middle class and retail segment within the wealth management industry will become very technology-driven, creating opportunities for robo-advisors, unlike the high net worth clients who would remain driven by human interactions, according to Yudong Zheng, CEO of Xuanji, a robo-advisor.

“Rich people in China still very much like talking to a real person. As most of them are the first generation of wealth, they want to be very hands-on and have customized services,” he said. “They are hard to please. I think it is not going to change in the next five to ten years,” he added.

For the middle class and retail customers, “fintech will help standardize the service and distribute products in this market”.

The example of China Merchants Bank’s new robo-advisory service also showed that traditional big financial institutions are starting to look at new ways to distribute products.

“Companies with a huge distribution power will also have advantage in this space,” he noted, whether they are financial institutions or not. 

Yuebao, the money market fund under Alibaba’s online payment affiliate Ant Financial, has benefited from the broad reach of the group’s e-commerce platform.

Lefinance, the online financial platform under Leeco which is known for its LeTV and entertainment platform, said in a Weibo post last week that it has been granted a license to sell mutual funds. It has also secured licenses to offer other products, from microfinance loans to insurance and private funds in China (more commonly known as hedge funds, private equity and venture capital funds).

Zheng thinks it is less likely that these distributors will develop their own products in the near future. Instead, they will work with asset managers to distribute products in an innovative way.

Greg Van den Bergh, CEO of Micai, a robo-advisor, said he expected the margins for distributing investment products, especially mutual funds for retail customers, to drop in the next five years amid intense competition.

There are a lot of opportunities for product generation using technology such as artificial intelligence, he noted. “Tech companies such as Alibaba, Tencent and Baidu, have a lot of data about what is happening in the market.” Using this knowledge, “[they can] create funds themselves, directly competing with traditional asset managers.”

Blair Pickerell, strategic advisor at Creditease Wealth Management, a leading third-party independent financial adviser in China, agrees. “I do believe a lot of these companies with strong distribution will compete with the fund managers. First of all, there is not that much differentiation between the products, especially domestically. Fund managers keep jumping between firms.”

But Belle Liang, head of investment advisory at Hang Seng Bank, believes that so far the online distributors have been successful in selling only money market products. “The products are simple to understand and people think there is almost no risk. So they are very comfortable to buy [them] online with just a few clicks,” she said. “But it takes a much longer time for them to understand more sophisticated products.”

Part of the Mark Allen Group.