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Who will be the winners in the robo game?

Banks are better positioned to offer robo-advisor services to clients than start-up fintech firms, argues Dominic Gamble, Singapore-based chief digital officer at fintech firm Privé Technologies.

“It is hard for clients to jump in to start-ups,” Gamble told FSA. “Yes, they may not trust banks [with the global financial crisis still at the back of their minds], but they would default to the position where they will trust a banking name over an unknown.

“The problem for start-up B2C robo-advisory firms is client acquisition, which should not be an obstacle for banks.

“The banks have clients already. The opportunity is to shift a lot of deposit, credit card or mortgage holders to a more digitised investment service,” he said.

Dominic Gamble, Privé Technologies

In the US, financial firms such as Vanguard and Charles Schwab have been the real winners with robo-advisory services, he said. Like banks, they already have an existing client base.

The AUM of Vanguard’s robo-advisory platform is $101bn in assets, which is already half of all the assets managed by robo-advisors in the US, according to a Barrons report. Charles Schwabb is the second largest robo-advisory player, with $27bn in assets.

However, Gamble noted that the investor landscape in Asia is more complicated, as investors generally have more appetite for advisory over discretionary management.

“Also, the [much larger] appetite for pay-per-transaction in Asia rather than paying a management fee makes it a tough proposition for a classic robo-advisor,” he added.

There only a few banks that offer robo-advisory services.

Singapore’s OCBC Bank, for example, recently launched its robo-advisory platform and claims to be the first bank in Southeast Asia to launch such a service.

Other banks, such as Standard Chartered, are starting to explore robo-advisory.

In the US, JP Morgan, which has 47 million users for its banking app, last week launched a portfolio-building tool for retail investors, according to a CNBC report.

Limited wealth segments

Banks looking at launching robo-advisory platforms should target their “premier” or “priority banking” clients, according to Privé’s Gamble.

Premier banking clients are usually digital savvy, and because of that, banks are now looking for ways to improve their advisory tools that are used by relationship managers when interacting with clients.

Although premier banking clients still meet with their advisors, some prefer to have self-service tools.

“Not everybody wants to go in to a branch. The thing about the premier and priority banking clients is they are not just adopting more of the advisory-assisted approach, but they also want self-service. So they also search for robo-portfolio construction or goal-based planning that they could access by themselves,” he said.

But the case is not the same for ultra high net worth clients, according to Gamble.

Private banks, such as UBS Wealth and Credit Suisse, have launched digital advisory platforms for their clients in response to increasing demand for more digital solutions.

However, these digital advisory platforms are used as tools to improve the interaction between relationship managers and clients, Gamble noted.

“Private banks are interested in advisory tools that the advisor can take to the client, but they are less interested in some of the self-service tools [such as robo-advisory],” he said.

Although ultra high net worth investors have also become digital savvy, they also want to have the face-to-face relationship with their advisor as the advice they ask for is more complex compared to premier banking clients, Gamble said.

“When you have a far-broader range of investment classes, including private investment opportunities and property, that is going into the portfolios of the ultra high net worth, creating a portfolio in minutes [which is one of the selling propositions of robo-advisory platforms] becomes less of a priority for these individuals.

“It is much more about having a deeper, more sophisticated conversation, and the advisory tools support that. It is not [a wealth segment] where they typically want to play around with their app and set a few goals and get a portfolio.”

Part of the Bonhill Group.