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Robos face headwinds in Hong Kong

Hong Kong-based 8 Securities is preparing to launch a new robo-advisory platform, but investor education efforts are sorely needed.

Three years after launch of its robo-platform Chloe, brokerage firm 8 Securities finds that the market for robo-advisory services in Hong Kong has not yet opened wide, according to Mathias Helleu, Hong Kong-based executive chairman and founder of the firm.

“It is difficult to build a marketplace from scratch when none of the [huge market leaders, such as the banks], are participating,” he told FSA in a recent interview.

Only two other fintech firms are known to have launched robo-advisory platforms in Hong Kong: Yunfeng Financial and Magnum Research. Yunfeng launched Youyu Wealth in 2017, while Magnum Research rolled out Aqumon a year after.

Helleu declined to give figures for the number of Chloe subscribers. Yunfeng also declined in an interview last year, while Magnum said it had around 5,000 users as of the end of December.

Given the difficulties in the B2C space, Helleu said that having a B2B business is essential for firms offering robo-advisory services.

In Japan, for example, 8 Securities partnered with Nomura Asset Management to launch a robo-advisory service for asset management clients. The partnership is exclusive in Japan, Helleu said, noting that Nomura AM holds a majority stake in 8 Securities’ subsidiary in Japan and a minority stake in the firm’s headquarters in Hong Kong.

8 Securities has also partnered with banks and brokerages in Southeast Asia and the Middle East, Helleu added, but declined to disclose names.

Similarly, Magnum Research also established B2B partnerships, specifically Shenzhen-based China Resources Bank of Zhuhai and BOC International in Hong Kong.

Version 2

Robo-advisory services are generally believed to appeal to millennial investors. However, a goal-based robo-advisory platform may not suit everyone.

“The classic robo-advisor answers the needs of a certain segment of the population in Hong Kong, but certainly not all of them. So we are looking at launching the second iteration of our robo platform, which should be more suited to more customers,” Helleu said.

Without revealing much detail, Helleu said that the firm plans to launch a single app that will combine robo-advisory and brokerages services. The majority of 8 Securities’ customers have brokerage accounts and prefer to trade stocks directly, he said.

“You have everything in one app, mobile only, making everything as simple as possible.”

The firm’s Chloe platform invests only in Hong Kong and US-based ETFs, which are not well-understood in Hong Kong. “The penetration of ETFs in Hong Kong is not huge,” he said.

There is a strong need for education, not just on robo-advisory but on ETFs and also on the risks of investing in individual stocks.

For example, Helleu finds that most client risk profiles do not match their investment decisions.

“Some would just buy the big technology companies, such as Tencent and Google, but they indicated that they are conservative investors and their portfolios are actually very aggressive.”

In Hong Kong, a client typically does not consider portfolio construction when buying a stock.

“A lot of people buy stocks here, but [most of the time] the decision to buy a stock is made on the advice of a friend or a family member.

The firm is now planning to roll out a series of investor education videos on its website, beginning with the basic explanation of what a stock is, what an ETF is and what it means to have a diversified portfolio.

Part of the Bonhill Group.