2020 Year in Review

It’s hard to believe that the year has flown by so quickly that we are a couple of weeks away from welcoming 2021. To wish 2020 farewell, we’re recapping our top 10 most memorable milestones. Here’s a look back at 2020.

New projects: 9 

Employees: 70+ globally

Sales: Doubled in 2020

New markets: Africa, Saudi Arabia, and the USA

Total countries using Bambu technology: 10

 

#10 Introduction of new corporate logo, new domain, and upgraded website

Welcome Bambu 2.0. The rebrand has provided an opportunity to improve and evolve our service offerings. We aim to be the world’s leading wealthtech company. The firm is also expanding its services geographically with new clients in America, Africa, and the Middle East

#09 Nominated and Awarded on an international scale  

We’re fortunate to have been recognized internationally for several awards and nominations. Some examples include:

 

#08 New Clients, New Regions

At the beginning of the year, we started with 3 new projects in the works. Eleven months later, we can proudly say that we’re ending the year with 7 additional projects. 2021 is looking like it will be our busiest year yet.  We now have clients in almost every continent.

 

#07 Highway to a 100 Unicorns Program

We were selected for Microsoft’s Highway to a 100 Unicorns Initiative, which discovers high potential technology startups across APAC. We were one of the 79 startups worldwide to globally receive access to enterprise clients through Microsoft’s unique co-sell program, world-class mentors, and funding. An exciting opportunity for the company!

 

#06 Beanstox Launch – a custom-built Bambu GO platform in the USA

Designed and launched Beanstox, a Robo-advisor platform targeted at US retail investors and owned by Shark Tank investor Kevin O’Leary. The simple designed platform caters to individuals, mostly the young, who have not invested before. Read more

 

#05 WealthTech Unwrapped Podcast

We are always finding ways to be different and provide insights into the Fintech industry. So we decided to launch our very own Podcast featuring our CEO and Founder Ned Phillips, anchored by Daniela Galarza. It weaves the narrative between a startup founder, Ned, a newbie to the fintech, Daniela, and special guests, bringing their unique insight into this growing industry.

Guests who have appeared on WealthTech Unwrapped so far include:

  • Debbie Watkins, Founder and CEO of Lucy
  • Tricia Rothschild, President of Apex Clearing
  • Paolo Sironi, Fintech expert from IBM Industry Academy
  • Geoff Leeming, Cybersecurity Expert 
  • Rich Turrin, an Innovator and author of ‘Innovation Lab Excellence.’ 
  • Edmund Lowell, Serial entrepreneur and Founder of KYC Chain
  • April Rudin, Wealth Marketing Expert
  • Kiaan Ebrahim, Child Investor
  • Walter de Oude, Founder and Owner of SingLife
  • Olivier Berthier, Founder and CEO of MoneyThor

Check it out on Apple Podcasts, Spotify, or wherever you get your podcasts!

 

#04 Finalist at MAS Fintech Hackcelerator Program

Our product, Sustainability Insights, was selected as a top 10 Finalist for the Monetary Authority of Singapore (MAS)’s Global Fintech Hackcelerator! The competition received over 430 applications across more than 40 countries. We were also the only #roboadvisory company to be in the category. Great job to the team for putting in the incredible effort! Read more.

 

#03 Partnership with Apex Clearing

Apex Clearing, the custody and clearing engine powering the future of wealth management, is now fully integrated with Bambu – a move that will further revolutionize digital investing for consumers. This new integration with Apex further propels us forward in the U.S. and strengthens our position as one of the leading global wealth tech companies. Read more.

 

#02 Launched a Robo for BCA – Indonesia’s largest bank

PT Bank Central Asia Tbk, commonly known as BCA, is one of the largest Indonesian private banks founded in 1957. BCA offers both commercial and personal banking services through its 1000-plus branches across Indonesia. Bambu developed an end-to-end Robo advisory B2B2C solution that focuses on the customer’s journey in creating financial goals. The platform includes Goal-based Investment, Client Risk Assessment, Investment Projection, Portfolio Rebalancing, which is integrated with BCA’s CRM with a custom admin dashboard, and Portfolio Performance. The primary users are the Relationship Manager of BCA’s High Net-Worth Clientele

 

#01 Franklin Templeton, Apex Clearing, and Bambu Introduce Tango – A Scalable Goals-Based Wealth Management Tool for Advisors

The all-in-one solution is a collaboration between three industry leaders—Franklin Templeton, Bambu, and Apex Clearing. Franklin Templeton provides personalized, goals-based portfolio management advice to advisors through its proprietary Goals Optimization Engine (GOE™), while Apex provides the digital clearing experience. At the same time, Bambu provides the technology to bring it all together. Through a single, bundled relationship, Franklin Templeton, Apex, and Bambu have created a turnkey tech-stack combining proven technology, clearing services, and professionally constructed portfolios. Read more

Check out our year in review podcast episode.  

 

On November 26th, the Monetary Authority of Singapore (MAS) announced the 20 finalists for the 2020 Global FinTech Hackcelerator (GFTH). 

This year, finalists presented their unique solutions to MAS in response to the challenges posed by COVID-19 and climate change. The GFTH aimed to drive positive social and environmental impact within the financial sector. Judges identified innovative market-ready solutions that could address real industry needs. 

We are proud to announce that Bambu has emerged as one of the 10 finalists, beating over 270 submissions in Singapore, and as one of 20 companies from across more than 40 countries. Bambu is also the only company within the robo-advisor category.

The finalists will be pitching their solutions at the Global FinTech Hackcelerator Demo Day at the 2020 Singapore FinTech Festival x Singapore Week of Innovation and Technology (SFF x SWITCH). The event will be happening at Singapore FinTech Festival, from 7 – 11 December. Join us there if you can!

 

What did Bambu submit for GFTH? 

Bambu has developed a Multi-Asset Machine Learning (ML) product that enables Financial Institutions to integrate material ESG considerations into the investment decision-making process, holistically and solves the pressing industry challenges.

The product is named ‘Sustainability Insights’ and targets banks, asset managers, and Principles for Responsible (PRI) signatories who hope to move towards Green Finance. 

Residing in Amazon Web Services (AWS) cloud, Sustainability Insights adopts the UN Sustainable Development Goals framework into the analysis of investment products. It provides scoring, controls carbon risk, captures mandate deviation using Natural Language Processing (NLP), and helps institutions transition their investment portfolios into the low carbon economy. 

With ESG Analytics driven by explainable artificial intelligence (AI) architecture, it further enables institutions to choose ESG data points based on their consideration and infuse their own convictions as an overlay into the research process with complete transparency.

 

About the Monetary Authority of Singapore (MAS)

The Monetary Authority of Singapore (MAS) is Singapore’s central bank and integrated financial regulator. 

As a central bank, MAS seeks to promote sustained, non-inflationary economic growth for Singapore through monetary policy and close macroeconomic surveillance and analysis. 

MAS manages Singapore’s exchange rate, official foreign reserves, and liquidity in the banking sector. 

As an integrated financial supervisor, MAS fosters a sound financial services sector through its prudential oversight of all financial institutions in Singapore – banks, insurers, capital market intermediaries, financial advisors, and stock exchanges. 

It is also responsible for well-functioning financial markets, sound conduct, and investor education. 

MAS also works with the financial industry to promote Singapore as a dynamic international financial center. It facilitates the development of infrastructure, technology adoption, and upgrading of skills in the financial sector.

 

About the Singapore FinTech Festival

Singapore FinTech Festival (SFF) is the world’s largest FinTech event. 

It also acts as a global platform for the FinTech community, linking FinTech players, technopreneurs, policymakers, financial industry leaders, and investors (e.g., private equity players and venture capitalists, and academics) together. 

Organised by the Monetary Authority of Singapore (MAS) in partnership with The Association of Banks in Singapore and in collaboration with SingEx Holdings, you can find out more about SFF at www.fintechfestival.sg 

 

About SWITCH

The Singapore Week of Innovation & Technology (SWITCH) is the leading tech festival for the Global-Asia innovation ecosystem. 

It is a one-stop platform where innovation meets enterprise, with access to global startups, investors, corporates, innovation community, and ecosystem players. 

It focuses on these key industries – Health & Biomedical Sciences, Smart Cities & Urban Solutions, and Trade & Connectivity.

SWITCH is a week-long event featuring Exhibitions, Conferences, Workshops, Lab Crawls, and partner activities such as startups pitching competition, SLINGSHOT 2020, and open innovation platform, TechInnovation. 

Together with the Singapore FinTech Festival (SFF), the SFF x SWITCH event in 2019 convened over 60,000 participants from 140 countries, hosted 569 speakers and 1,000 exhibitors.

 

Sources: 

 

Defying Expectations

Robo-advisors global AUM is expected to reach the US$1 trillion mark in 2020 and quadruple to US$ 4.6 trillion by 2022. 

The rise of Robo-advisory is evident. Now more than ever, it is critical for wealth managers to grasp the opportunity or face getting left behind. 

But of course, it is only natural for us humans to be a little hesitant about automation. Contrary to the general assumption, technology solutions like Robo-advisors bring about a win-win scenario for wealth managers and clients. 

The Shift has Started 

Robo-advisors are perfectly aligned with the needs-based investment trend. It is a fact that more and more investors are moving towards this approach, and Robo-advisors are perfectly positioned to capture this wave. 

Treating customers fairly is something we’d expect businesses to practice. Unfortunately, a survey conducted on clients would prove otherwise. 

Gallup asked respondents to rate people’s honesty and ethical standards in a range of fields on a percentage from low to high. The average ratio for those in the financial sector was only 28%. Edelman also conducted similar research called “Global Trust Barometer Survey,” the results showed that financial advisory is the least trusted by clients (Figure 1).

Figure 1: Low Trust in Segments of the Financial Services Industry

(Source: Edelman)

Although customer protection has been around for a long time, firms still did not fully embrace it as a strategic tool to reduce poor customer treatment. Eventually, it tainted the perceptions and trust that customers have in financial institutions.

That is why government bodies and regulators worldwide are implementing policies like the ‘Treating Customers Fairly (TCF)‘ initiative, ensuring that firms consider the interests of customers and treat them fairly. In turn, it should build the customer’s confidence in financial institutions. 

Robo-advisors are designed to support these initiatives further. The client’s needs are considered for all investment decisions to ensure that it is the best option available. Not only that, but all recommendations are free from any merits-based motives. 

Whether it is today, tomorrow, or years down the road, wealth managers will have to integrate digital wealth solutions into their offerings. The Shift has already begun and it’ll only be a matter of time before the market becomes concentrated with competitors. 

 

Win-Win Scenario for Wealth Managers

Integrating Robo-advisory into their offerings can bring out many benefits, namely: scaling up and utilizing analytics. This is even more critical in the current world, where wealth managers are swarmed with pressures from all directions. 

 

Expanding the Market 

With Robo-advisors, wealth managers can reach more clients at a manageable cost by digitalizing their value chain. Younger generations and lower net worth individuals were unable to receive financial advice due to their asset limitations. With the low fees and ease of use, the world of financial advisory has been opened to them.

Although this group of customers may not generate the desired ROI like HNWIs, it is more about customer acquisition early in their wealth journey. Wealth managers will then nurture the relationship and guide these Millennials up the wealth ladder to be the HNWIs of the future. It is all about giving up short-term gains for long-term profitability.

 

Analytics

Recently, there’s been a phrase circulating saying that “data is the new oil,” and it just might be. The ability to turn customer data into actionable insights might give any financial firm the advantage it needs to compete in the competitive market. 

The application of advanced analytics is providing value to financial institutions worldwide. With data, managers can make quick and reliable decisions to serve their clients better. 

Figure 2: Analytics is Key Factor in Decision-making

(Source: Deloitte)

 

There is a wide range of ways in which data can be utilized. A majority of firms have incorporated analytics for operational efficiency. At the same time, others are using data towards more data-driven processes such as sales and marketing. In both cases, it has shown that better investment decisions (Figure 2) were made and an increase in productivity in the middle and back office. 

But how does that work with Robo-advisor? 

Robo-advisors are smart. Based on the client’s questionnaire, they analyze the data and recommend investment solutions according to the client’s needs and goals.

Compared to humans, Robos can analyze thousands of variables simultaneously and efficiently. Some variables that are considered include demographics, timing, historical trends, technical analysis, fundamental analysis, market sentiment, and more. 

Now it is not to say that human advisors no longer have to analyze data. They still do. With the data collated by Robos, wealth managers are in a position to understand their client better – What’s their lifestyle; Where’s the trend heading towards; What are their needs and goals? 

They can then strategize and find ways to curate investment decisions, risk management, and improve their advisor-client relationship. 

Figure 3: Does Analytics Improve Competitive Positioning?

(Source: Deloitte)

 

Data and analytics can determine a firm’s position in the market. It is known to improve a firm’s competitiveness if it is properly harnessed and utilized. According to a survey conducted by Deloitte (Figure 3), 55% of respondents said analytics had improved their competitive positioning. 

Seeing the power of analytics, 86% of wealth management firms surveyed have increased their data and analytics spending over the past three years. 

 

Win-Win Scenario for Customers

The clients mainly benefit from these three features: high-quality portfolios, ease of use, and low fees. 

 

High-Quality Portfolios 

Before Robo-advisors, personalized portfolios were an exclusive offering only available to the HNWIs and UHNWIs of the world. But now, it is available to everyone of any income background. 

At the core of these portfolios are low-cost index funds such as exchange-traded funds (ETFs). Almost five years after the introduction of Robo-advisors, nearly 100% of their AuM consists of ETFs. These low-cost index funds give investors an 80% – 90% chance of outperforming other investment types. Why? 

Robo-advisory is not about timing the market; it’s about time in the market. They are utilizing Nobel Prize-Winning investment models to determine the best investment strategies for clients. It is all about creating an investment portfolio with the best returns and lowest risks, suitable for all clients, no matter where they are on their wealth journey. 

 

Ease of Use 

Appealing to the client’s digital preference, the whole investment process is easily accessible through a digital interface- mobile applications and websites. Everything from opening an account to determining the investment strategy is fully automated. 

Robo-advisors will do all the work so investors can focus on what matters to them, whether that is a passion, job, or spending time with loved ones.

 

Low Fees 

And last but not least, the prominent selling point of Robo-advisor is the low fees as compared to traditional advisors who charge 2% – 3% of AuM for the management fee. It was a once in a blue moon opportunity if anyone could receive professional advice for less than 1%. But now, that is the norm.

Make the win-win scenario a reality for both you and your customers. 

At Bambu, we specialize in developing Robo-advisory solutions for the financial services industry, from smaller RIAs and wealth advisors to some of the world’s largest banks. We help our clients work through the above vital considerations to implement solutions that genuinely benefit their wealth management business. 

To find out more, check out our product here or contact us at sales@bambu.co for more information.

Wealth Management is in a Quandary

Recently, we’ve seen Lloyds (UK) being fined £117 million in 2015 for failing to treat customers fairly and Wells Fargo (US) fined US$3 billion in 2018 for charging clients unanticipated fees.

There is a wind of change sweeping the wealth management industry – specifically regulations. Born out of the Great Financial Crisis in 2008, the emphasis on Caveat Emptor on sales of financial products has shifted to one of Treating Customers Fairly to Conduct Risk for the entire organization.

So where does that leave the rest of the financial industry?

Regulations in the Asia Pacific Region

The APAC region is definitely not immune to the impact. Just like the rest of the world, the region has been experiencing waves of new regulations demanding more transparency from financial institutions.

The market is highly fragmented with many different economies, so here are some examples of regulations that have been implemented by a few of the players.

Singapore and Hong Kong

These two markets have released guidelines to managers in regards to their fees for selling funds as well as providing clients with full transparency, and suitable products. It all comes down to the overarching idea of protecting investors and providing them with the peace of mind.

However, due to these regulations, both international and local wealth management firms operating in either of the two cities must invest significantly more in additional resources such as technology to monitor transactions, additional staff in the legal department, and compliance and risk management teams. As a result, approximately 15 banks have decided to close down and move out of these cities.

Japan

Japanese regulators have also released  guidelines for financial institution to follow with these seven overarching principles:

  1. Establishment and Announcement of the Policy Concerning Fiduciary Duties
  2. Pursuing the Best Interest of the Clients
  3. Appropriate Management of Conflicts of Interest
  4. Clarification on Fees
  5. Provision of Important Information that is Easily Understandable to the Client
  6. Provision of Services Suitable for Each Client
  7. Establishing the Framework for Appropriately Motivating its Personnel to Comply with Fiduciary Duties

Australia

There has been an increase in compliance, regulation, and technology costs- further narrowing the already tight profit margins.

Undoubtedly, this has put a lot of pressure on financial institutions across the regions. Even so, APAC’s prospect is still shining brighter than other regions of the world.

A Window of Opportunities for APAC

Like the old saying goes “when one door closes, another one opens”, and that door has opened for the APAC region.

Despite the ongoing pressure from regulators and investors, the APAC region is set for greater growth in the coming years. The market is dynamic and full of opportunities from developed markets like Australia, Japan, Hong Kong, and Singapore, to burgeoning markets like India and China. We’ll explore three major opportunities that wealth managers need to capture to drive Asia to the next level.

1. Passporting

The area of passporting is one that is expected to grow significantly over the coming years.

Currently, there are three schemes:

  1. ASEAN Collective Investment Scheme (ASEAN CIS) – consisting of Singapore, Malaysia, and Thailand
  2. Mutual Recognition of Funds (MRF) – cross-border mobility of assets between Hong Kong and Mainland China
  3. Asia Region Funds Passport (ARFP) – a multilateral fund passporting framework that covers Australia, New Zealand, Singapore, Thailand, South Korea, and Japan

 

Following the implementation of all three schemes, the total AUM of regional passport schemes is estimated to reach USD 11 trillion in 2025 from USD 6.7 trillion in 2017. The growth is most prominent in the MRF scheme as China starts opening its market to external investments (refer to Figure 1).

Figure 1: Asian fund AuM projection by countries in passport scheme for 2025
(Source:
PricewaterhouseCoopers, 2019)

2. Retirement Plans and Pension Funds

Japan, China, Singapore, Hong Kong, and Thailand are amongst the economies with the fastest growing aging population. However, according to OECD, only 26% of Asia’s working population and 35% of the labor force are enrolled in pension funds (refer to Figure 2). Now if we compare it to the 34 OECD countries, the averages are 65% and 86% respectively. Asia’s coverage is drastically low and that is mainly due to the large rural populations who do not have access to such services.

Figure 2: % of working population and labour force enrolled in pension funds
(Source:
Eastspring investments, 2019)

For major economies such as China and India, a slight shift in their growth will produce huge revenue for wealth managers. And that shift has already begun. In 2018, China launched the Third Pillar Pension Tax Initiative which encourages clients to invest in pension insurance products.

But then you may ask, what about those who do not have the assets to invest? Well, individuals will receive a deduction on their income tax so that they can invest in fixed-return, guaranteed-return, and floating-return products. And even better, at the maturity date, 25% of the benefit is tax-free and the other 75% is taxed at a very low rate.

As other countries start launching similar initiatives, the future of APAC’s pension fund growth is on a positive trajectory. By 2025, the total APAC pension fund AUM is estimated to reach USD 6.8 trillion, with a 3.5% compound annual growth rate (CAGR).

Figure 3: APAC pension fund AuM growth
(Source:
PricewaterhouseCoopers, 2019)

3. Digitalization and Millennials

Even amidst the uncertainty from geopolitical events and pressures from regulators, the APAC region has managed to keep itself relatively buoyed, but how?

The answer is technology and millennials. More than half of the global millennial population is in Asia, 58% to be exact. They are the investors of the future with the potential to bring wealth managers fortunes. As this younger generation enters the investment landscape, the need and importance of Robo-advisors will become more prominent- after all, they are known as the digital generation.

With the help of technology solutions like Robo-advisors, it has made it even easier for wealth management firms to increase scale and target new market segments. Even as services are being digitized, wealth managers must evaluate their value propositions to ensure that client’s experiences are of top priority.

Prior to digital wealth management platforms, customized investment strategies were only accessible by HNWIs or UHNWIs, but that is no longer the case. Robo-advisors have made personalized portfolios readily available to investors across the whole wealth spectrum.

The move to digitalization has already begun in the APAC region, all thanks to the favorable regulatory environment surrounding digital technology and Fintech solutions.

Specifically, in Singapore and Hong Kong, the regulations have established an environment where new innovations are highly encouraged and welcomed. Similarly, China has one of the largest digital distribution markets (delivery of products through digital means), a favorable position for wealth managers and investors to start their Robo-advisor journey.

 

The APAC Financial Hubs

Singapore and Hong Kong are the two leading financial hubs alongside New York and London.

The governments of the respective cities saw potentials in their markets and have continuously shown strong support for the industry. In return, the cities are attracting a plethora of multinational companies from all directions- venture capital firms, private equity firms, family offices, philanthropy service providers, and financial consultancy providers.

London, the second largest financial center after New York, had been facing a tremendous amount of pressure from Brexit. This means that massive funds were flowing out of the city, and Singapore and Hong Kong were and are in the perfect position to capture the outflows. As a result, over the last five years, the aggregated growth rate has consistently maintained in the double digits and is expected to stay that way.

With the current growth rate, Hong Kong and Singapore are poised to compete for the position of world’s largest offshore wealth management hub.

Technology and Regulation

As the financial industry expands into the digital world, the need for regulations has become even more prominent, especially in preventing financial crimes.

Regulations like Anti-money laundering (AML) and Know your customer (KYC) are not new to the financial industry. But with the introduction of Robo-advisor technology, the whole process has become far more efficient.

Integrating AML softwares into the firm’s strategy has been highly beneficial. Not only is it more efficient and precise, the solution is also able to analyze customer’s data and accurately pick out any discrepancies; suspicious activities can be immediately detected, reducing the potential for fraudulent affairs.

Meanwhile, the KYC procedures have been streamlined to just 3 simple steps:

  1. Select the proof of identity document type (passport, national identity card or driver’s license)
  2. Upload a photo of the selected document
  3. Upload a photo of them holding the selected proof of identity

With this, it has gotten more convenient, reliable and secure for both customers and businesses.

APAC in 5 years

Undoubtedly, the APAC region is abundant with diverse markets and potential for growth, making it the largest investment infrastructure region.

PwC predicts that APAC’s total AUM will reach USD 29.6 trillion by 2025, a CAGR of 8.7% from 2017. Now, this estimation is highly optimistic so if we take into account the possible geopolitical issues, the conservative estimation is USD 18.1 trillion by 2025. Even so, this growth is still higher than other developed regions such as Europe and North America.

With China opening up its economy to offshore investors, India pushing for economic liberalization, and the overall continued growth of pension plans across the region, it is accelerating people’s adoption of investing. The APAC wealth management market is one that wealth managers do not want to miss out on.

Take your first step into the Robo-advisory world with Bambu.

At Bambu, we specialize in developing Robo-advisory solutions for the financial services industry, from smaller RIAs and wealth advisors to some of the largest banks in the world.  We help our clients work through the above key considerations to implement solutions that truly benefit their wealth management business.

To find out more, check out our product here or contact us at sales@bambu.co for more information.

Evolution of Robo-advisors

Today, the average person touches their phone an astronomical 2,617 times per day. That works out to be an average of 3 hours 10 minutes per day and just over 1,000 hours on our mobile phones a year! It’s no surprise that the past decade has been labeled as the ‘digital era.’

As part of the digital revolution, wealth tech too has experienced its growth spurt. Introduced 12 years ago, Robo-advisors have evolved from a tool to a smart, intuitive financial advisor capable of servicing clients of all levels on the wealth spectrum. 

Source: Deloitte

 

Robo-advisor 1.0

The first Robo-advisor was brought to life in the aftermath of a financial crisis. It was the first of its kind, paving the way for automated advisory services. 

Robo-advisors first-generation was developed to create a transparent and reliable investment advisory process based on objectivity- data rather than human instincts. As a result, it produced detailed, multi-format, and secure transactions, reducing clients’ pressure and regulators on the financial institutions.

To some degree, Robo-advisor 1.0 was just an augmentation of traditional advisory practices already in place. It was mainly a solution to help streamline tasks that were previously performed by financial advisors. 

The result? Increasing operational efficiency while lowering costs to improve return on investments for clients. 

However, this wasn’t enough. Like any new product, there was a lot of room for improvement. Even though there was a wide array of products to choose from – stocks, bonds, ETFs, and other investment vehicles – it still did not meet investors’ basic requirements. 

Investors, especially HNWI and UHNWIs, were looking for services that provide financial coaching, goal-based planning, and proactive adjustments, but Robo-advisor did not yet possess such capabilities. Hence, this new advisory service did not appeal to them and was not an option for consideration above the mass affluent. 

Robo-advisor 2.0

The upgrade from Robo-advisor 1.0. 

Considering feedback and demands from clients, the Robo-advisor evolved into its next-generation – setting up accounts and order execution can be quickly completed through the platform. 

Questionnaires are used to filter product recommendations; they can now allocate clients to pre-determined portfolios based on their risk profile. A dedicated advisor manages the assets allocation process. And once invested, the rebalancing and management of portfolios are performed by financial advisors. 

This whole investment process is still semi-automatic as investment managers are overseeing the algorithms and making changes accordingly. 

Nonetheless, it was an evolution of Robo 1.0, where the platform was able to integrate cognitive computing programs that interacted with clients directly, significantly lessening a human advisor’s workload. 

Overall, it is a more personalized and scalable digital wealth management solution. 

Robo-advisor 3.0

Here comes the next generation, where a majority of the current Robo-advisors are at. 

The onboarding process is pretty much the same as in past generations. But the major differentiator comes down to the platform’s investment recommendations and portfolio management. 

Algorithms help determine each client’s best investment decisions – a fully personalized experience based on their financial goals. Not only that, but there is little need to manage portfolios as the algorithms will ensure that clients’ goals are on the right track through automated rebalancing.

For clients who still want the human touch, don’t fear; it is still available. 

Some firms still offer consultation with their human advisors as an additional service to the Robos. No matter the circumstances, professionals are readily available, whether for consultation or providing the final oversight of the investment progress.  

Robo-advisor 3.0 is a fully automated service that covers low to high-value capabilities. 

 

Robo-advisor 4.0

Robo-advisor 4.0, the new and improved high tech advisor, delivers a more engaging and personalized experience for investors and advisors.

In the onboarding process, questionnaires are more sophisticated to better profile and gauge the client’s risk. Machine learning can be deployed at this juncture to improve on the goal recommendations for the user.

Proceeding onto the next step of the investment process, it is fully automated – from investment strategies to portfolios’ monitoring. Portfolios are built based on algorithms and risk bands to construct investment classes tailored to your needs. This also means that it can shift different asset classes based on market conditions and significant life changes as per your objectives and goals.

It doesn’t end there; there’s more. 

The interactive experience is far more advanced than any of its predecessors. Design thinking methodologies are applied to ensure the platform is designed to meet every individual user’s requirements. 

From curated questionnaires, according to demographics to recommendations based on your current income and expenses, the modern Robo-advisor is now able to understand the client’s intentions and is capable of delivering a human-like advisory experience.

Where is it Heading?

The Robo-advisory industry started just 12 years ago, yet it has evolved rapidly, and it’s not stopping for anyone here. As the astronomical usage of technologies continues to surge, Robo-advisors too will continue to push the ceiling of digital wealth higher. 

Source: Capgemini

 

Currently, the Robo-advisory industry is still in the innovation stage, with much room for improvements. Additionally, the automated advisory market share is still a small slice of the pie compared to the traditional advice model performed by human advisors – this represents a massive opportunity for wealth tech galore.

 

A word of caution though, 92.4% of clients survey said they are not satisfied with the current state of digital wealth management, citing examples such as: 

  1. “Robots cannot understand my questions and often give irrelevant answers.”
  2. “There are too few questions that I can ask, leaving meaningful communication out of reach.”
  3. “Robots are only capable of answering basic questions.”
  4. “It is emotionless and cold.”

 

To integrate Robo-advisors into one’s service offerings will indeed help expand the clientele base and delivery efficiency. But leveraging technology does not mean eliminating the need for humans; it should be used on a complimentary basis next to the human touch’s warmth. 

 

The foundations for Robo-advisors have been set in place, and the trajectory is only going up from here. It is an opportunity for RIAs, wealth managers, and brokers to compete with the industry’s incumbent with the same advantage. 

 

At Bambu, we specialize in developing Robo-advisory solutions for the financial services industry, from smaller RIAs and wealth advisors to some of the world’s largest banks. We help our clients work through the above vital considerations to implement solutions that genuinely benefit their wealth management business. 

 

To find out more, check out our product here or contact us at sales@bambu.co for more information.

Asia is Experiencing a Slump

By 2030 the world’s middle classes will number 4.9 billion and 66% of them will be in Asia. Boosted by the rise of income levels, Asia is poised to be the leader in the asset management industry as evident by the six consecutive years of growth, at an average of 15% CAGR.

Unfortunately, those golden years soon came to a pause. In 2018, the AUM growth was only at a paltry 5%; a drastic 10% decline in just one year.

So what happened?

Well, there are a few potential causes, namely:

  • A decline in market performance by an average of 3.2%
  • The weakening of Asia’s equity market that is highly volatile
  • The profit pool only grew by 3%, a significant decline from 14%
Source: McKinsey

But of course, that’s not all. Analysts have identified five major disruptions that can potentially have a bigger impact on the asset management industry if not contained soon.

  1. Increasing Cost Pressures – costs have risen swiftly by 25% over the last two years
  2. Margin Pressures on Traditional Products – firms are slowly moving to non-traditional offerings with a focus on passive investments
  3. Increased Demand for Pension and Insurance Products – Regulators across Asia are pushing for more mandatory/voluntary pension saving programs
  4. Increased Demand for Cross Border Products – Clients are demanding for broader global access, putting pressure on firms to find the best solution to meet their needs
  5. Progress of Digitalization – Adoption of digital channels has been slow, only 30% of firms say they are using or are installing digital tools.

Navigating the Disruptive Environment

These five disruptions will have a major impact on the economy and industry as a whole. Any failure to adapt to these changes will have major implications on firms, to the extent of possibly closing down the business.

In order to navigate through the disruptive and uncertain landscape, Asian wealth managers must equip themselves with the right set of capabilities. There are two priorities that wealth managers must focus on: gaining scale and digitizing operations to enhance productivity and optimize costs.

There are many ways to achieve both priorities but there’s only one that targets both concurrently. And that solution is integrating Robo-advisors as part of their service.

Gaining Scale 

Scale can be referred to as either the size of the business or the number of clients served and Robo-advisor addresses the latter.

It is able to do so by opening the opportunity to reach out to an untapped segment in the market- millennials.

Millennials, millennials, millennials. They’re everywhere now and are mentioned in nearly every single article, research paper, blog, etc. Are they overrated? Definitely not.
1.42 billion millennials in the world, 62% of them are in Asia – 880 million to be exact. They are the emerging middle class of Asia but due to their lack of assets, millennials often do not qualify for traditional wealth management and services. A good example would be the US – there are 92 million millennials but only 30 million are currently investing. Despite being the largest generational population, the number of investors are the lowest compared to Gen X and Baby Boomer generations.

Source: Accenture

Often known as digital natives, Millennials see innovative technologies as a necessity in all scenarios, including investment. Now if we break down the statistics of millennials relationship with finance, here’s what it shows:

  • 60% are keen to learn about how to better manage their cash flows and budget
  • 60%  feel that they have a good understanding of their investments
  • 67% want computer-generated recommendations- Robo-advisory services
  • 66% want self-directed investment portals while retaining the access to an advisor
  • 65% want access to platforms that will help learn more about investing
  • 63% want a mobile platform

In summary, there is no separation between millennials and technology, they come as a set. This makes it inevitable for firms to implement digital services into their offerings if they want to serve the investors of the future. Not only that, but millennials are keen learners, always on the lookout for new knowledge. It is no wonder that they are more financially prudent as compared to previous generations and making them the ideal clients for Robo-advisors.

Digitize Operations to Enhance Productivity and Optimize Costs 

The idea of optimizing cost and enhancing productivity through automation is nothing new. It was mainly associated with manufacturing and front-end customer engagement. However, the extent of automation is no longer limited to just those two aspects.

Digitalization and analytics have unlocked the full potential of wealth management offerings- both front-end and back-end processes.

Traditional wealth managers cannot compete with Robo-advisors when it comes to fees. According to a database of more than one hundred Robo-advisory providers charge an annual management fee of between 0.02% to 1% of the AUM, whereas traditional wealth managers charge a fee of about 2% to 3%. It is just impossible to compete with the low fees of Robo-advisors, mainly due to the nature of the service.

Then that poses the question of, how is it possible for Robo-advisors to charge such a low fee? Technically, the services offered are exactly the same, so the cost differs when it comes to the investment process. It is most evident in these three pillars of the business, personnel, operating expenses, and digitalization.

1. Personnel

It is of no surprise that personnel is one of the contributors to the high costs, wealth management has often been defined as the client relationship business. The advisor-client interaction is highly time-consuming, meaning that each advisor is only able to serve a very limited number of clients, a maximum of 150 clients to be exact. Additionally, each advisor must oversee approximately €100 million to generate enough revenue to cover the costs. Not only is it costly but it is also restricting the type of customers that advisors serve.

However, with Robo-advisors, personnel costs can be drastically reduced. Since most processes are fully automated, the classic role of a financial advisor is no longer needed. As a matter of fact, advisors will only need to oversee the process and intervene when necessary- more of technical support personnel than a financial advisor.

From 150 clients per advisor, with Robo-advisor it has increased to 20,000 clients per advisor- more clients served with fewer advisors. Even in more established Robo-advisory firms like Betterment, there are about 130 employees– still a fraction of the number of employees in traditional wealth management firms.

2. Operating Expense 

So what are some operating expenses? Rent, equipment, inventory costs, payroll, marketing, insurance, and resources for research and development are all operating expenses. Traditionally, wealth management firms require a representative building in major cities to be used for meetings with clients. But now that everything’s online, there is no longer a need for that.

Most Robo-advisors either work remotely or use co-working spaces with other firms, reducing costs of rental and increasing work motivation. In most cases, there’s also no need for fancy equipment, all they need is a desk and computer. And since everything is done digitally, marketing activities have migrated there as well. Not only is it more cost-effective but it has allowed firms to reach a wider range of clients no matter the geographic limitations.

3. Digitalization 

With Robo-advisors, everything can be digitized. Everything.

The front-end customer interaction is fully automated with user-friendly experience features. Clients can easily navigate through the platform on their own with support- live chats or chatbots- readily available if they need it. As chatbots are limited to the predefined answers that are available to them, most platforms have also provided clients with detailed FAQs to refer to.

As for wealth managers, they can now focus solely on customers. Ensuring that customers receive the best service and highest satisfaction. With more clients and a seamless investment process, wealth managers only need to manage less than half the AuM prior- €48.8 million to cover costs and operate viably.

Source: Deloitte

Overall, Robo-advisors can help cut down 60% of traditional wealth management’s costs mostly due to its lean organizational structure.

Starting the Engine Again

Despite the sudden slowing of growth and challenges that may come in the way, Asia is definitely a leader in the global wealth management scene.

Compared to the more developed regions like North America and Europe, Asia has stronger profit margins – 22.5 basis points (bps). It is double the margins of both North America and Europe, 11.1 bps, and 12.3 bps respectively.

Although it is a dominant region right now, Asia has yet to reach its peak. Integrating solutions like Robo-advisors will propel the region to even greater heights.

The opportunity is here, let us help you grasp it.

At Bambu, we specialize in developing Robo-advisory solutions for the financial services industry, from smaller RIAs and wealth advisors to some of the largest banks in the world.  We help our clients work through the above key considerations to implement solutions that truly benefit their wealth management business.

To find out more, check out our product here or contact us at sales@bambu.co for more information.

The Global Financial Crisis

The 2008 financial crisis was the worst economic disaster since the Great Depression, leaving firms and economies in shambles.

The main cause was the housing market bubble. People were borrowing more than they could afford to purchase bigger houses, which drove house prices through the roof.

While that was happening, banks were paving the way to their inevitable fall. More loans were being applied, causing banks to be overwhelmed and, and to start making moves based on impulse and speculations. As a result, many financial innovations were introduced, but it was moving way too fast and way ahead of regulations. Even the banks themselves were unable to keep up with the risks.

And that is when the bubble popped.

Financial institutions and banks alike did not have enough capital to combat the losses. And the global financial system wasn’t ready to absorb the shock. The aftermath rippled to all financial institutions across the globe.

New Regulations in the Regions

To prevent such an event from recurring, regulators and governments around the world have tightened their measures on financial regulations with emphasis on transparency and accountability.

Here are some regulations that have been implemented according to region:

Europe – MiFID II

The MiFID II was implemented by the European Union (EU) in 2018 to regulate financial practices and improve protections for investors. The main purpose of the framework is to standardize financial practices across the EU and regain the trust of investors, all through increased transparency.

The US – Department of Labour Fiduciary Rule 

The US Securities and Exchange Commission is re-evaluating the Department of Labour Fiduciary Rule with the main aim of developing a uniform fiduciary standard. The newly updated Fiduciary Rule will ensure that high commissions do not have any influence on advice provided to investors- following the initiative started by the UK Retail Distribution Review in 2012.

The Asia Pacific

Within the Asia Pacific region, individual countries have implemented stringent regulations built on four pillars: board effectiveness, risk and compliance, financial integrity, and disclosure and transparency.

Compared to the US and Europe, such regulations actually opened up new opportunities for investors and firms in the Asia-Pacific region.

How do the Regulations Affect Financial Institutions?

These new regulations are definitely putting pressure on financial institutions especially in terms of cost and profit margins.

Disclosure of Costs and Fees

As part of the aim to increase transparency, the regulations implemented require financial institutions to disclose all costs and fees. The MiFID II bans asset managers from paying retrocession– usually seen as non-transparent fees. Similarly, the US Fiduciary Rule requires firms to increase disclosures and voluntarily make statements more self-explanatory.

With such rules implemented, it has massive implications on customer acquisition capabilities. Under the new regulations, financial institutions will need to charge an explicit advisory fee and/or increase the brokerage fee to make up for the lost revenue from retrocessions. However, this also means that it is easier for clients to pick and choose. Thus, there is a higher chance of losing clients who are unwilling to pay such fees.

To counteract this problem, financial institutions need to adopt new cost-efficient advice models, such as Robo-advisor, so affluent clients can still obtain the same guidance even if the fees structure changes.

Higher Costs 

The disclosure of costs and fees bears another problem — higher costs for firms. There has been a rising cost-to-income ratio across the industry as financial institutions are incurring more costs than they did before. But where do all these costs come from?

Well, after the implementation of regulations, operating and compliance costs have skyrocketed. Mainly due to the competitive pressure from peers.

Additionally, investors are demanding for more. More customization, complex products, and different reports, all these add to the cost in servicing assets. Based on a study of firms in North America, Europe, and Asia-Pacific, the average cost of managing each dollar of AUM has increased by 4% since 2014. The cost of salaries also rose by 5% and non-compensation costs (regulatory expenses, technology, and office space) now account forof a firm’s budget compared to just 26% in 2014.

Ultimately, this will definitely impact the revenue margin and it did. It has been decreasing since 2014 and is continuing on a downward trend.

Source: Bloomberg

Slow Growth

The stringent regulations have definitely played its part in slowing the growth of the financial industry. Now coupled with the Covid-19 pandemic, the growth does not seem so rosy anymore.

PwC forecasted AUM to grow from US$84.9 trillion in 2016 to US$145 trillion by 2025– a growth rate of approximately 6%. Unfortunately, in 2020, Covid-19 sent the world into a downward spiral, and with it the financial industry. Hence, forcing a downward revision of the earlier predictions to within the 1% – 3% range instead.

What Can Firms Do?

It is hard enough to thrive in a competitive environment and now with even more uncertainty, the tough just got tougher. However, this is no time to lose hope. According to McKinsey, firms can overcome the pandemic and the ever-changing environment through three horizons.

Horizon 1 – Short Term

Business continuity is the first priority.

  • Taking clear and well-communicated steps to protect the health and well-being of all stakeholders
  • Educate investors on holding on through these volatile times
  • Be transparent with clients through frequent communications, as this will strengthen the relationship between firms and clients
  • And more importantly, ensure that the firm’s infrastructure is able to offer omnichannel communications- consistent and on-brand communications across multiple customer touchpoints (variety of offline and online channels)

Horizon 2 – Medium Term 

The market is slowly stabilizing so:

  • Focus on upgrading digital and analytics infrastructure across the value chain
  • Upskill employees to ensure they are prepared for the increasing reliance on digital engagement platforms
  • Develop new approaches to meet client’s needs such as through digital advisory platforms

Horizon 3 – Long Term 

Both incumbents and newcomers must reinvent the wealth management scene through:

  • Striking a balance between physical and online channels
  • Shifting from a product-centric approach to client-centric advisory methods

No matter the horizon or the cause of the volatility, firms need to remain agile and transparent. Financial institutions that manage to navigate through the turbulence will emerge above others- transformed and well-positioned for the new challenges ahead.

It has only become more evident the importance of digital platforms as part of a firm’s offerings. Let us help you make that move towards digitalization.

At Bambu, we specialize in developing Robo-advisory solutions for the financial services industry, from smaller RIAs and wealth advisors to some of the largest banks in the world. We help our clients work through the above key considerations to implement solutions that truly benefit their wealth management business.

To find out more, check out our product here or contact us at sales@bambu.co for more information.

From smartphones to driverless cars, doors to endless possibilities have been opened through technology. It is no surprise then, why this era quipped as the ‘Technological Era.’ But of course, being in the Technological Era presents its fair share of challenges and fears.

One big fear is that we would end up in an Automation versus Humans situation. For instance, many believe that with robotics and artificial intelligence (AI) development, human labour will be entirely replaced soon. Unemployment rates will shoot up and disaster ensues. This was reflected in a Pew Research Center survey conducted across 10 countries (both emerging and advanced economies) in 2015.

Source: Pew Research Center

Amongst the 10 countries surveyed, most agreed that automation would transform our workplace by 2065.

Whether it was an emerging or advanced economy, more than half of the respondents expressed fears of getting displaced. This sentiment was more vigorous in countries like Greece (52%), South Africa (45%), and Argentina (40%). Workers in those countries strongly believed that they would get displaced due to automation sooner or later.

Meanwhile, an even higher proportion of respondents were convinced that automation would bring about more pitfalls than workers’ opportunities. Examples of some pitfalls are as follows:

  • Ordinary people will have an increasingly more challenging time finding jobs.
  • There will be an expansion of the inequality gap between the rich and poor.
  • Very few better-paying jobs will be created.

Yet as society only seeks to progress and grow, the move to automation seems almost inevitable.

Fast-forward to 2030

How long do you think we will work in 2030?

McKinsey’s research revealed that we might be working just 70% of the time. They found that 30% of the global work hours can be automated by 2030 (depending on adoption rates). Even at this point in 2020, half of all paid social work can be automated using currently available technologies.

Even so, all these are just predictions. Many factors affect a person’s decision to automate. It varies according to the country and sector — some are more susceptible to displacement than others.

I would be lying to say that people will not get ousted at all. Estimates have predicted that robots could replace 400 million to 800 million people by 2030. Of the total number supplanted, 75 million to 375 million individuals would need to learn new skills or switch occupational categories.

Although the threat of automation is real on the brighter side, it can only eliminate a limited number of occupations. It is more of a case where work will be transformed, depending on the role’s nature.

Technical Feasibility

Technical feasibility is also known as the % of time spent on activities that can be automated by adapting currently available technology.

Source: McKinsey

Looking at the graph above, we see that not all occupations are susceptible to automation. It boils down to the scope of work. Even if tasks are being automated, it doesn’t necessarily mean that the demand for that occupation will decline. Instead, workers will just need to learn new skills and perform new tasks that can’t be automated.

There are several cases where automation was integrated into tasks, yet overall demand for that occupation continued to grow. This was seen in the case of the supermarket or retail barcode scanner. Introduced in the 1980s, it reduced labour costs by approximately 4.5% per store. However, supermarkets’ employment rates continued to climb at a constant of 2% or more between 1980 – 2013. Why? Because cashiers were still needed. Scanners were just an additional tool to improve efficiency, which translated into more sales.

What Kind of Work is Most Susceptible to be Automated?

What work would the most (and least) susceptible to automation then? The answer is that jobs in predictable environments would be most vulnerable, and vice versa (i.e. works in unpredictable environments the least).

The reasons are presented in the table below:

Works in Predictable Environments Works in Unpredictable Environments
Involves little to no complex skills Involves complex and high-value skills
Technical feasibility: 78% Technical feasibility: 25%
Automation susceptibility: High Automation susceptibility: Low
Examples: manufacturing, data collection and processing, etc. Example: people management, child care, plumbers, etc.

We can expect to see many workers in say, the manufacturing industry, being displaced. This is because 59% of all manufacturing activities have the technical potential for automation.

Additionally, automation has evolved beyond just machines in manufacturing. Payroll processing, calculating material-resource, and administering procurement are more examples of what has been automated too.

Through machine learning and AI, technology now possesses the capability to transform the healthcare and finance sectors.

Even though you might argue that financial service firms rely mainly on professional expertise and knowledge, studies tell us that 50 percent of overall work hours are spent on repetitive tasks such as collecting and processing data. Activities like these definitely can and will be, automated to make sure that financial advisors can focus on higher-value skills.

A Shift in Skills Demand

The acceleration of automation is correlated to the demand for workforce skills according to a few factors. McKinsey launched a study projecting the need for these skills by 2030.

The skills were split into five categories:

  1. Physical and Manual Skills
  2. Basic Cognitive Skills
  3. Higher Cognitive Skills
  4. Social and Emotional Skills
  5. Technological Skills
Source: McKinsey

The most demanded skills are:

  1. Higher cognitive skills
  2. Social and emotional skills
  3. Technological skills.

Despite being the smallest category today, technological skills are expected to grow by 55% by 2030 and makeup 17% of the working hours. Moreover, demand for social and emotional skills such as managing people and leadership will rise by 24% and makeup 22% of working hours. Finally, the demand for higher cognitive skills will grow moderately at 8% over the next 10 years.

On the contrary, we will observe a decline in basic cognitive, physical and manual skills. As repetitive tasks, they can be easily automated and thus, considered as lower-value tasks. Even so, they will remain the largest category of workforce skills as the rate of adoption varies between countries and sectors.

The shift in skills is nothing new — the skills requirement has continuously changed since the first industrial revolution. As technologies transform the nature of work across industries, job scopes will adjust accordingly. It opens up doors to a vast array of opportunities for people to explore.

“This journey of transformation can also be a journey of growth for our businesses and people alike.” 

Mrs. Josephine Teo (Singapore’s Minister of Manpower)

Zoom into the Financial Sector

The financial service industry is one where transformation brings about many opportunities. Many industry players have invested enormous amounts into new technologies. As a result, it enhances their competitiveness and operating capabilities.

Financial advisors are still spending the majority of their time collecting and processing data. These low-value tasks can easily be automated with the help of AI and technology. With this, financial advisors can shift their focus to higher-value work and ensure the highest quality service delivery.

Some firms have already moved to transformation, resulting in a shift in demand for workforce skills specific to the financial sector. As of 2018, the 5 most in-demand skills in the fintech industry are:

  1. Blockchain & Distributed Ledger Experts
  2. Programming Skills
  3. Machine Learning, Artificial Intelligence & Deep Learning
  4. Cybersecurity Expertise
  5. Soft Skills

Now, if we categorize based on the general five workforce skills:

1. Blockchain & Distributed Ledger Experts Technological Skills
2. Programming Skills Technological Skills
3. Machine Learning, Artificial Intelligence & Deep Learning Technological Skills
4. Cybersecurity Expertise Higher Cognitive Skills
5. Soft Skills Social and Emotional Skills

As expected, the demand correlates with McKinsey’s predictions. 3 out of 5 of the most in-demand skills are technology-oriented, while the other two require higher cognitive and social, and emotional skills. This proves that the demand for lower value skills is becoming obsolete.

Although some may perceive this as a warning light, others see potential. This highlights an opportunity to automate low-value tasks and focus on higher-value activities.

Digital Transformation: Now or Never?

It doesn’t have to be an either-or situation: automation AND humans can work together, in harmony, to deliver the best of both worlds. For example, you could consider implementing a wealth tech solution that will enable your financial advisors to be more efficient. Robotic Process Automation (RPA) is one technology that allows you to streamline operational processes with Robo-advisors that will help better financial advisory for your clients. Therefore, the time for digitalization is now.

Leveraging technology to allow your advisors to focus on higher-value tasks will lead to an improvement in their skill sets, further setting your organization and staff up for long-term success.

Don’t know where to start? Well look no further, Bambu has just the solution for you.

At Bambu, we specialize in developing Robo-advisory solutions for the financial services industry, from smaller RIAs and wealth advisors to some of the largest banks in the world. We help our clients work through the above key considerations to implement solutions that truly benefit their wealth management business.

To find out more, check out our product here or contact us at sales@bambu.co for more information.

The Financial Advisory Market

Registered Investment Advisors (RIAs) are not in danger of extinction. Period.

As a matter of fact, they are growing bigger than ever. 2019 was the year RIAs hit a record high of 12,993 firms, serving 43 million clients and $83.7 trillion of assets under management. With the number of RIAs consistently growing each year, it now stands on a cusp of its next growth phase as global income levels rise.

During the ‘80s and ’90s, baby boomers helped fuel the nascent development of the advisory industry. Hardworking and excellent collaborators, they are a generation that uses technologies as productivity tools rather than connectivity.  However as this generation nears retirement, RIAs now seek a new generation of clients.

Who are they?

Millennials. The generation that grew into the digital age. They are a generation that lives and breathes technology – it is their connectivity to the world.

But who are they really? According to Pew Research Center, millennials are anyone born between 1981 and 1996.

Current Demographic of Millennials

Millennials make up ¼ of the US population in 2020, the second-largest generational cohort in the US.

 

Source: Knoema

Now if we look at other parts of the world, millennials still make up a large bulk of the population

  • Asia 36.6% of the population are millennials
  • Africa 29.2% of the population are millennials
  • Latin America 36.2% of the population are millennials
  • Europe 34.1% of the population are millennials
  • North America 33% of the population are millennials
  • Oceania 33.6% of the population are millennials
Source: Statista

What can we gather from these statistics?

It is evident that millennials are one of the largest generations in the world. In more developed regions, we can see that the percentage of baby boomers may be slightly higher, all due to aging populations in those areas. Whereas, in developing regions, the Gen Zs are not far behind and will soon overtake all previous generations.

Financial Habits 

This group of individuals are the drivers of the future. As they come of age, enter into the workforce and mature financially, this is the group that advisors do not want to miss out on.

Often labeled as materialistic and spoiled, but the truth is they’re more than what society perceives them to be. Millennials’ generational attitudes differ greatly from generations of yore, especially the baby boomers.

There are many things that we don’t know about this generation, but one thing we know for sure is that they are anxious.

Millennials are constantly worrying about their financial future asking questions like:

  • Will I meet my financial goals?
  • Will I be able to buy a house in the future?
  • Will I pay off my student loans?
  • Will I be able to save for retirements?

As a result, millennials became experts at saving money. According to research conducted by the Bank of America, 73% of millennials are saving in 2020- 15% increase from 2018. 24% of those have $100,000 or more in their savings.

Source: Bank of America

These habits emerged in the aftermath of the great recession, where 15% of millennials were left unemployed, and many are still struggling. For those who managed to land a job, it hasn’t been easy either being thrown into a tough job market with wage stagnation.

Hence, despite saving early and saving well, millennials are behind in wealth accumulation:

  • Average net worth of American millennials is less than $8,000
  • Average net worth of Americans aged 18 – 35 has decreased by 34% since 1996
  • Millennials earn 20% less than baby boomers

The outcome?

Student loans are piling up and living costs are outweighing the wages, making it near impossible to save.

For younger millennials who watched the great recession unfold and the struggles of their seniors, they developed better saving habits. They became more practical in terms of having rainy day funds for their future.

From the same survey, the results showed just exactly that – 75% of respondents are saving for retirement and 51% are saving for emergency funds.

Source: Bank of America

Not only did they start saving early for retirement than previous generations- at the age of 24- millennials hold their future as the utmost priority with:

  • 67% are utilizing employer sponsored retirement plans
  • 52% would rather work harder today and retire early, instead of working longer and having more free time now
  • 48% put money into savings each month
  • 28% who have savings are investing in the market

Millennials are not what they’re usually stereotyped as. They’re more forward-looking and are willing to forego short-term pleasures for long-term rewards.

What are the Implications for RIAs?

Traditionally, RIAs require a minimum AUM ranging from US$250,000 to US$1,000,000. However, this filters out a large portion of the market, specifically the millennials.

Millennials have the heart and burning desire to start their investment journey, but that’s not enough. Limited by their asset size, they’re unable to overcome the traditional barrier of entry. Ironically, this same barrier prevents RIAs from engaging with them too.

Even if they are able to, it’ll be much later in the millennial’s financial journey, which may be too late by then.

With the help of Robo-advisory solutions, RIAs no longer have to be handicapped.

The low initial investment amount and the user-friendly digital interface structure allows any millennial to kick start their investment journey early on. Coupled with being digital natives, the provision of such services will enable millennials to connect with RIAs easily.

In this new digital era, this represents a win-win situation for both clients and RIAs.

Future of Financial Advisory

What happens when baby boomers’ kids who want nothing to do with their parents’ financial advisor inherit their wealth? Will consumers pay advisory fees when they can easily build a personalized investment portfolio online for a fraction of the cost? Where is the future of Financial Advisory headed? These are just some of the worries that are plaguing the financial advisory industry.

Automation has always been seen as a threat to the job security of advisors, but that may not be the case after all. The demand for personal financial advice is growing and will continue to grow stronger as income levels and savings rates rise. The demand for financial assets is also increasing at the same time.

With recent news of the US personal savings rate hitting its highest level in 39 years, the wealth management industry is poised for skyrocket growth.

Financial Advisor’s Ally 

According to a survey conducted by Capgemini, financial advisors spend 67% of their time engaging with clients. While 29% of their time is used to perform administrative tasks. Leaving only 4% to perform productive tasks such as monitoring and rebalancing client’s portfolios.

piechart-article-3-time-allocation
Source: Capgemini, 2010

However, all these mundane and repetitive tasks can go away with the help of a Robo-advisor. Automation can help wealth management firms:

  1. Increase the advisor’s productivity
  2. Improve operational efficiency
  3. Improve advisor-client relationship
  4. Increase market share and improve reach
  5. Assist in the delivery of simple and complex financial services

A shift in Consumer’s Expectations 

Now that financial advisors are relieved of the repetitive mundane tasks, they can focus more on enhancing client experiences. Research by Salesforce found that 84% of respondents expect very highly of customer experience, to the extent that it holds the same importance as the products or services.

Just as how technology has evolved, the client’s expectations have done so as well. It is no longer enough to just deliver an extraordinary product, a customer’s experience is just as important. Therefore, the integration of automation in financial services will enable financial advisors to deliver the finest customer experience while retaining high productivity.

Digital Consumers 

Even though technological advancements have been going on for years, companies are still having trouble keeping up with the digital change – including wealth management firms. Unfortunately for the firms, these changes are inevitable and will not stop, especially with digital consumers as the driving force behind it all.

In 2019, Ernst & Young surveyed 2,000 investors across 26 countries on various topics surrounding the wealth management scene. This is what they found.

Source: Ernst & Young 2019 Global Wealth Management Report

So what does this tell us about consumers’ behavior? First of all consumer’s behavior is definitely evolving and it’s evolving fast.

In 2016, 18% of clients used mobile applications as their primary channel with a projected 6% increase by 2018. And once again, as consumers, we underestimated the rate of change. The actual percentage of clients who use mobile applications doubled from the amount in 2016. Coupled with those who prefer website access, ⅔ of clients prefer digital platforms as their primary channel.

Smartphones have only become smarter. Everything can be done at the touch of a button, from grocery shopping to finding jobs. Convenience and efficiency are the main drivers behind increasing preference from clients.

As clients drift towards mobile, first-generation channels such as websites are becoming obsolete. Projected to stay constant at 38%, the actual numbers would beg to differ. In less than three years, the preference for websites as a primary channel dropped by a third.

These numbers are the average across all wealth management activities. Hence, will the number differ when we dive into specific activities?

The answer is no.

Source: Ernst & Young 2019 Global Wealth Management Report

The gap is even wider. Although a large portion of the clients uses mobile applications for basic tasks, there has been increasing popularity in using apps for advanced activities as well- such as portfolio management, and advice-related tasks.

These percentages are expected to increase over the coming years with advancement in wealth management tech and ease of use for clients of all ages.

Another compelling observation found that in correlation with the complexity of tasks, the client’s preference for digital assistant or chatbot increases as well.

A survey conducted in 2018 found that only 1.4% of respondents are currently using digital assistants. However, it is projected to increase eight times the amount in the future. The demand for digital assistants is not restricted to only simple tasks. Clients are actually more inclined to use digital assistants for complex tasks such as advice-related activities.

High Touch Engagement

Nonetheless, the need for traditional advisors is still prevalent. High touch engagement is even more important during a volatile time and major life milestones. Looking at the results from the survey below, we can see that for all major life stages, more than half of the clients are looking to use advisory services.

Why is this so?

As human beings, we fear uncertainty, and major life changes are full of it. When faced with such changes, clients search for trustworthy advisors to help them navigate through the murky waters of life. However, the demand for human interaction can vary depending on the types of clients. Clients with more complex financial strategies or situations request more human interaction.

To many people’s surprise, the demand for face-to-face meetings actually decreases with wealth. The rate of mass affluent demand for such services is nearly double the rate of the ultra-high net worth clients- 11.7% and 6.5% respectively. This counters the general perception that automated services are for the mass affluent.

Source: Ernst & Young 2019 Global Wealth Management Report

What’s Next?

Integrating automation does not mean eliminating human advisors. Yes, consumers are shifting more towards digital as a primary channel. However, some clients require the help of a traditional financial advisor.

It is said that the absence of emotions is one of Robo-advisors biggest strengths. But in times of uncertainty, clients need someone who can empathize with them and reassure them by providing that human touch.

So what does this mean for firms? Do they move to digital or remain the same? Well, both. It is all about balancing high tech and high touch services. Through harnessing state of the art technology, firms can improve productivity and automate repetitive tasks. As a result, advisors can focus on delivering high-quality engagement to clients who desire the human touch.

According to a Deloitte survey, 66% of consumers seek a self-directed journey. Providing omnichannel delivery will enable consumers to lead their own journey and choose how they want to interact with wealth management firms. Those who prefer little to no human interaction can opt for the full digital experience. Whereas, clients who seek to consult a financial advisor still have the option to do so; providing the best of both world experience for modern clients.

This is truly the financial advisor of the future.

Be a financial advisor of the future with Bambu

Bambu can help you and your company prepare for the future. Our products have an easy-to-use and well-designed interface, helping to facilitate the smooth journey that you seek to deliver to your clients. Our features are powered by proprietary algorithms, allowing us to automate things like portfolio rebalancing, pull financial insights, visualize data and value add to financial advisors in many ways.

Find out more about Intelligent Advisor, built to help investment advisors here.