- IDC Financial Insights has released its first perspective on robo-advisory titled Robo-Advisory: Changing the Face of Wealth in Asia/Pacific, which highlights the state of robo-advisory in seven hot markets in the Asia Pacific region.
- Mainland China, Singapore, Australia, South Korea, Hong Kong, India, and Taiwan lead the way, with a combined total assets under management (AUM) estimate on robo-advisory to reach US$500 billion by 2021.
- Compared with the share of total wealth of AUM, the robo-advisory opportunity is miniscule, growing from 0.2% in 2017 to 1% in 2021. The entire story seems to be more about its lightning speed growth of 100% CAGR.
- IDC believes that traditional players with hybrid advice models are more likely to dominate the market in terms of AUM, with a few successful robo-fintechs evolving into a full-service robo-financial planning model.
IDC Financial Insights believes the hybrid advice model (traditional and robo-advisory) will be the winning strategy for financial companies which hope to dominate the market. IDC Financial Insights has released its first perspective on roboadvisory titled Robo-Advisory: Changing the Face of Wealth in Asia/Pacific, which highlights the state of robo-advisory in seven hot markets in Asia Pacific.
Mainland China, Singapore, Australia, South Korea, Hong Kong, India, and Taiwan lead the way, with the combined total assets under management (AUM) on robo-advisory estimated to reach US$500 billion by 2021. IDC Financial Insights defines robo-advisory, also known as automated or digital advice, as a set of automated systems that rely on algorithms to construct, manage, optimise, and rebalance wealth and asset management portfolios. In its purest form, the entire process of robo-advisory is completed without human intervention from start to finish.
Michael Araneta, Associate VP, IDC Financial Insights and one of the authors of the report says, "The growing adoption of digital platforms by customers has created a huge opportunity for robo-advisors. The combination of digital gadgets, innovative analytics, and advanced algorithm-based engines has enabled new ways to interact with tech-savvy customers and meet their investment requirements. The automation of advice enables risk assessment and portfolio construction for each investor, regardless of the investor's portfolio size.
“The typical approach involves assessing the risk tolerance of the customer (although some algorithms factor in more heavily the customer’s goals) and coming up with suitable model for portfolios of funds based on that assessment. At this point, the portfolio of robo-advisory options is mostly exchange-traded funds (ETFs), and very few have started to include stocks as well.”
"Although compared with the share of total wealth of AUM, the robo-advisory opportunity is still miniscule, growing from 0.2% in 2017 to 1% in 2021. The entire story seems to be more about its lightning speed growth of 100% CAGR. This strong optimism rides on the quick, yet outstanding, successes of a few robo-fintechs in the US (Betterment), Europe (Nutmeg), and Japan (Money Design's THEO), therefore encouraging movement in Asia Pacific as well, " adds Anuj Agrawal, Senior Research Manager at IDC Financial Insights, a co-author of the report.
Robo-advisory in China merits special mention as it is expected to manage around US$450 billion in assets by 2021, accounting for 90% of the estimated market for the region. IDC sees traditional wealth management players moving quickly in terms of adoption of this advice, predicting that they will either create their own proprietary robo-advisors or partnering with robo-fintechs.
IDC also says that "it will take a long time before the current robo-advisory model matures into an advanced level of portfolio design and investment", though it will ultimately add more asset classes and investment options and offer more power to investors to customise their portfolio in a real sense. Despite the early days, the research firm recommends that robo-advisory is an integral part of a business strategy "for any wealth management firm to be future-ready, regardless of size of assets, breadth of operations, or number of years in existence".
Other key decisions to be made will concern partnerships (with existing robo-advisory companies and technology providers), the revenue model, customer channels, and risk mitigation. Sneha Kapoor, Senior Research Manager at IDC Financial Insights and a report co-author highlights, "We expect that there will be a bigger preference for a hybrid advice model in the future, a conclusion that will be achieved from two factors. Firstly, we are seeing more robo-fintechs riding on the success of mass market investors and expanding to launch their premium versions with access to human advisors.
"Secondly, traditional players, which continue to have human advisors, are starting to embrace the robo-advisory model for support. We believe that traditional players with hybrid advice models are more likely to dominate the market in terms of AUM, but we will also see a few successful robo-fintechs evolving into a full-service robo-financial planning model."
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IDC Perspective: Robo-Advisory: Changing the Face of Wealth in Asia/Pacific (AP43074317, October 2017)
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