“All [that many B2C robo-advisors] have done is build a faster trading system, but it is not really anything innovative,” Soo told FSA.
Malabar AI’s system, meanwhile, which is initially focusing on providing robo-advisory services to wealth managers and banks, takes into consideration an investor’s goals, such as retirement planning, buying a property and children’s education.
Yet the risk/return profile for each goal is completely different, explained Soo, adding that the platform should be able to combine all goals and then compute for each profile. “You can’t say you’re a balanced investor and then, all of a sudden, apply your 8% return to both your retirement planning and the amount you plan to save to buy a house.”
How the Malabar AI system works, is to take a client’s financial goals plus sources of income, and then apply a simulation, if the goals are realistic.
At the moment, Malabar AI is in beta-testing mode with banks and wealth managers in Hong Kong, Singapore and Australia. Soo said he expects the system to go live by next year.
Easier said than done
However, Soo acknowledged that building such a technology is not easy. “The biggest challenge is the algorithmic modelling. We want to calculate [an individual investor’s] spending habits and we want to calculate if some of the investors’ assets are taxable. We try to understand what your goals are – in other words, we are simulating your own life.”
However, unexpected events are inevitable, which could have a huge impact to an individual’s long-term goals.
For example, a spouse thinking of taking some time off work will affect the long-term planning of an investor. Having children will also entail changes or additional investments in insurance products.
“These are the real questions that advisory-driven models should be answering. It’s like modelling climate change,” he said.
Tax issues
Like most wealth managers, a more sophisticated robo-advisory platform should also be able to account for how much tax an investor needs to pay, according to Soo.
Echoing Soo, Dominic Gamble, Singapore-based chief digital officer at fintech firm Prive Technologies, told FSA in a separate interview that a robo-advisory system should be aware of where an investor is domiciled, given that there are certain funds they would want to invest in to avoid taxes.
“Tax is one important issue when you further go up the wealth management spectrum, and very often, the financial situation of a client becomes more complicated, especially in the ultra high net worth space,” he said.
“There are certain funds that you really need to avoid investing in and the system should be able to handle all those different multi-jurisdictional issues,” he said.
Like Malabar AI, Prive Technologies focuses on goals-based wealth planning and provides robo-advisory solutions to banks and wealth managers.
