So everybody is talking about robo-advisors…

As with any new cool technology, there seems to be many questions or misconceptions around it. Robo-advisors are the future, and therefore it is essential to understand what’s real and what’s just a myth before you decide to build one or use a robo-advisor for your investment needs. 

Here are the top seven myths of robo-advisors you need to know.

Myth #1: Robo-advisors are the same

False! 

They may have similar characteristics such as lower fees, automated transactions, no or low minimum balances and easy account set-up, but robo-advisors differ greatly in many other ways:

  • Types of available investments – such as ETFs, indexes, stocks, gold 
  • Fees or costs charged on your investments 
  • Access or non-access to investment advisors
  • Minimum required initial investment amount ($1 or in the thousands) 
  • Add-on services such as rebalancing or tax loss harvesting
  • Investment strategy
  • User interface

With regard to investment strategy, each robo-advisor tends to have proprietary algorithms that utilize different portfolio optimization techniques. Most use variants of Modern Portfolio Theory (MPT), bootstrapping, Monte Carlo with some perturbations, Meucci’s or Bayesian techniques, Black-Litterman model and plenty more. 

Figure 1 also shows the distribution of portfolio construction methodologies used by robo-advisors. 

To read more about the algorithms behind various robo-advisors, you can refer here and here

RoboAdvisors and portfolio construction

Figure 1: Robo-advisors and portfolio construction
(Source: Which algorithms do robo-advisors use?

Overall, how a robo-advisor is constructed and its functions boils down to the company’s preferred investment strategy. As such, not all robo-advisors are equal. Taking some effort to find out the nuances behind a robo-advisor’s capabilities will help you understand these apps’ different outcomes. This is important when finding the best fit.    

Myth #2: Robo-advisors only offer one-size-fits-all portfolios 

Definitely wrong!

Robo-advisors tailor portfolios according to the user’s goal or risk assessment. The assessment asks questions on a few factors: the time horizon, risk tolerance and amount invested, which quickly but sufficiently frames the user’s needs and financial goals. A mix of investment instruments from the robo-advisor’s investment universe will be selected as part of the constructed portfolio. A moderate risk investor looking to save for a house in the next five years will likely have a very different asset allocation (i.e, investments mix) compared to a low-risk investor looking to save for retirement in 25 years. 

The level of personalization also would vary according to the number of risk bands that a robo-advisor provides. Similar risk levels and goals may result in similar portfolios. Still, such circumstances are arguably inevitable as too many permutations may hinder automation or make it too complex for a robo-advisor. This is also one advantage that human wealth management advisors have over robo-advisors – the level of understanding and personalization of  a portfolio. 

Other than personalizing  portfolios according to goals and risks, certain robo-advisors also provide themed, sector, or idea portfolios for their customers. This is a different kind of personalization that may appeal to customers who prefer investing in things they are more familiar with, or enjoy spotting global trends or growth opportunities. Examples of themes in themed portfolios include shale gas, global recycling, online gaming, environmental social and corporate governance (ESG) and even, a “fight fat” portfolio (investing in multiple weight loss companies).  

See how financial giants have built their robo-advisors and the kind of portfolios here: 8 Big Players in the World of Digital Wealth

Myth #3: Robo-advisors are only for young people

Not at all!

Robo-advisors are a convenient tool for anyone who wants help growing their money. Whether you’re a Millennial, a baby boomer, or part of Generation X, Y or Z, robo-advisors can help you kickstart your investment journey – at any age.

However, we do not deny that Millennials and the generations after them could be a financial jackpot, especially for Registered Investment Advisors who seek to relate to and engage a new generation of clients. 

Find out why this is so: Millennials: The Financial Jackpot for Financial Advisors

Myth #4: I have to choose between a robo-advisor or a human 

Never!

Since both advisors provide different services, they are not mutually exclusive or even exist as competitors. Having one may not and does not need to stop you from engaging another. Consumers should think of both human and robo advisors as tools to achieve the same end goal of discovering their financial needs and to achieve their financial goals. They could also be targeting different segments: robo-advisors appeal to those with a passive investment strategy or with a lower amount of money invested, while human wealth management advisors are preferred by those who invest more aggressively or have a higher amount of money that they want to put in. 

The means to the end may differ – robo-advisors take on more of a passive investment strategy and commonly have lower returns, compared to human advisors. They also cost less than human advisors (human advisors receive 2-3% commissions, compared to less than 1% for robo-advisors). Humans could also be more active in understanding your needs, tailoring your products and monitoring the returns. The higher level of involvement and personalization  is also what drives up cost and requires financial institutions to be more selective with whose portfolios they manage. 

As such, a person may switch between robo-advisors and human advisors or even have both as part of a holistic investment strategy depending on their financial needs. 

Many investment professionals use robo-advising technology as part of their practice — and it works very well for their clients. Research indicates that many investors prefer a hybrid approach and that most clients expect their advisors to use technology to enhance their offerings. 

Myth #5: Robo-advisors are expensive

Nope. 

Robo-advisors usually charge a platform fee that covers transaction and custody fees. On top of that, the underlying financial products include some management fees that are typically collected by the fund manager, not by the robo-advisor. You would pay these same management fees if you were to invest yourself anyway. However, fees can go lower if assets under management are high. Some robo-advisors even remove any platform fee for some of their portfolios, typically those that are low risk and power-saving to attract assets and work on converting them into fee-bearing investment portfolios.

Typically, robo-advisors charge a platform fee of 0.5 to 1% per annum, which is inexpensive given that it covers all trading and custody costs. If you were to use the services of a traditional advisor, you would be likely to pay at least 1% per annum, unless you belong to the high-net-worth and ultra-high-net-worth segments. 

Myth #6: Robo-advisors are not smart and agile enough to weather market volatility

Outrightly false!

You may read that robo-advisors are not smart or agile enough to handle volatility like a Covid-19 crisis. In reality, it is often the contrary. A well-built robo-advisor buys without emotion when markets go down and trim when it goes up. On the other hand, you and your human advisor may base their trading decisions on emotions and do the opposite. Unless you are a financial genius, research shows that it is best to invest as passively as possible.

Myth 7: Robo-advisors are for those who can invest big

Not really.

As we have noted before, you don’t need a high investment amount to invest in a robo-advisor. Robo-advisors are primarily for those who don’t have enough money or the time to do financial planning and investments. If you have a lot of money, you can get your own human advisor, which will often cost you more but may not provide you with the results you want. If you have more important things to do than to create and manage portfolios, you are better off with a robo-advisor that comes with a portfolio builder that does the job for you. It will work on investing and rebalancing your portfolios against fluctuations of the financial markets. 

Robo-advisors can often do fractional units of mutual funds or fractional shares of ETFs, which allows them to invest very small amounts. Apps like Betterment in the US do not have any account minimum, for instance.

The wealth-as-a-service partners  

If you want to harness the power of robo-advisors for your financial institution and are ready to build your own, we could be the WealthTech partner you need.

At Bambu, we understand the power of technology and how to build it in a way that works for all types of financial institutions. 

Having built white-label robo-advisor solutions for 18 clients (including leading financial institutions like Franklin Templeton, HSBC and Standard Chartered), we are confident of building a robo-advisor solution tailored to your needs. 

Bambu’s founders bring decades of experience in finance and technology. Bambu also has teams in various functions that contribute to building a great robo-advisor: think, UI/UX, AI, R&D and investment, who bring domain knowledge, technical expertise and user-friendly design to all our robo-advisory solutions. As such, Bambu has delivered engaging experiences, and been able to predict financial behaviour and formulate portfolios. 

Speak to us at sales@bambu.co to find out how we can find the right robo-advisory solution fitted for your business and customer’s needs.

Behind every robo-advisor is a team or a set of investment professionals who will provide and guide the investment methodology. After all, 

“Robots capable of manufacturing robots do not exist. That would be the philosopher’s stone, the squaring of the circle.”

―Ernst Junger, “The Glass Bees”

Sources: 

Investing has long been a human-led experience where people trust financial institutions and their portfolio managers to advise them on potential opportunities. However, this slow-moving approach is quickly becoming a thing of the past with the rise of robo-advisors.

But what is a robo-advisor? Simply put, they are an emerging digital technology that provides people from differing investment backgrounds with an automated advisory service. From investment management and strategic advice to retirement planning, these digital-first tools work towards achieving a client’s specific financial goals. Backed by powerful data-driven technologies like machine learning, robo-advisors streamline the investing process and deliver long-term returns at a low-cost. 

Naturally, if your business is looking to launch a robo-advisor in the near future, it’s best to understand their precise purpose. Here, we outline some of the basics behind how the latest robo-advisors operate.

Explaining the AI in your robo-advisor

When a customer invests using a robo-advisor, the software works to achieve their objectives based on machine learning and optimised indexing strategies. But before the software can determine a suitable approach, the customer must complete a detailed questionnaire that assesses their ultimate financial goals, risk tolerance, timeframe, budget and tax liabilities.  

Once this information is established, the robo-advisor proposes and executes investment strategies that reflect the client’s unique goals. Meanwhile, the AI constantly monitors the probability of achieving the desired outcome and adjusts its approach accordingly. Throughout this process, there’s typically no direct human contact between the financial institution and the client. 

However, it’s important to realise that every financial institution’s robo-advisor will have subtle differences. With these AIs created using different investment and financial market data, an individual will have to research which robo-advisor is best suited to their needs. 

Are robo-advisors performing well in the market?

Although robo-advisors have only been publicly available since 2008, today you’ll find that most of the world’s largest financial institutions are heavily involved in the development of these investment tools. In fact, the U.S. robo-advisor market topped $1 trillion in 2020 – a figure that is growing approximately 40% year-on-year. Meanwhile, other financial hubs are starting to take notice, with a 2020 study finding that 38% of adult internet users in China are currently using robo-advisers.

As digitalization becomes a top priority for global financial institutions, the development of robo-advisors will be central to this ongoing shift. Currently, 70% of banks consider digital financial advisory services of major strategic importance, while 95% view the future of financial advice as a combination of face-to-face and digital services. Therefore, developing a winning robo-advisor is likely going to be hugely beneficial. 

Considering that 147 million investors around the globe are expected to utilize robo-advisors by 2023 – representing an 11-fold increase since 2017 – entering this digital marketplace now will position your company for a bright future.

Why launch a robo-advisor?

With access to robo-advisors rapidly increasing the world over, there are numerous reasons why your financial institution should also get on-board. One advantage that shouldn’t be underestimated is how your wealth managers can spend more time building relationships with clients to boost the uptake of value-added services. 

With data analysis and reporting aspects of an investment portfolio handled automatically by a robo-advisor, account managers will still have a critical, yet more customer-orientated role when offering financial advice. This means they can spend more time focused on complex or nuanced investment strategies requiring extensive experience, rather than bogged down in rudimentary facts and figures.

With these hybrid investment models combining the strengths of both humans and algorithms, a robo-advisor makes perfect sense for modern customers. Fortunately, this approach also serves evolving consumer expectations, as more people now prefer predominately automated solutions that only involve human contact when necessary.

Quick tips to consider before choosing a robo-advisor

If your financial organization is looking to enter the robo-advisor market, there are dozens of questions to answer before you’re ready to launch. But to give you a quick head start, here are a few simple tips to consider when planning your automated investment advisor. 

1. Understand your customer base

It doesn’t matter whether your business is looking to purchase a white-label robo-advisor or develop its own, having a truly in-depth understanding of your customer base is critical to success. By considering a wide range of demographics, including age, gender, salary, investment preferences and pain points, you can create a solution that makes sense for your customers.

2. Design a digital-first solution

In response to your customer’s demographics, the design of your robo-advisor could change dramatically. With many robo-advisors aimed at inexperienced investors looking to enter the market for the first time, implementing a range of tools that guide them through the basics is essential. Alternatively, experienced clientele will likely prefer comprehensive statistics and analytics at their fingertips.

3. Create an easy-to-use app

Knowing your customer demographics and psychographics is not enough until you create an app that they are willing to use, especially when they may be new to investing. This boils down to ease of use manifested in simplistic design of user interfaces and navigation, onboarding processes, and even readability of dashboards, portfolios and fee models. Providing the user comfort during the investment experience is instrumental to the success of any robo-advisor app.

Partner with Singapore’s Best

Now that you have a basic understanding about what is a robo-advisor, consider how Bambu’s world-class solutions will help your financial institution engage its customers. Having developed robust automated investment advisors for 18 high-end clients, including Franklin Templeton, HSBC and Standard Chartered, we have the expertise to build a powerful solution for your company too.

Backed by years of experience in the finance and technology sectors, Bambu’s specialist team can guide every stage of your robo-advisors’ development, ranging from customer research and UX design to tailored AI-driven algorithms. Contact us at sales@bambu.co to learn how our elegantly designed robo-advisory solutions can service your customer base and achieve your business goals.

What makes each generation unique? From the slang we use to the choices we make, the nature and significance of intergenerational differences has been subject to tireless debate. But as Millennials emerge as the world’s biggest spenders, one crucial difference – their relationship with money – is having a global impact.

For wealth managers, understanding this relationship is key to unlocking a new crop of budding investors. Millennials don’t just want to have more money: they want to find out what this money can help them achieve.

The largest consumer population aren’t investing

Investing can help those who may not have a strong financial security work towards building one for themselves. 

That’s why you’ll be hard pressed to find that Millenials, who are currently the biggest spenders globally, aren’t investing enough for their future.

Insight into Millennial financial behaviour

To better provide financial aid to the world’s largest consumer demographic, service providers would do well to understand their needs and goals.

1. Millennials rely on word-of-mouth

Millennials grew up as social media boomed, and connecting with peers has become a driving force in their buying decisions. A global market research study found 82% of Millennials rely on word-of-mouth, social media and mobile influences to make purchases, compared to 52% of Boomers. In contrast, just 19% of Millennials claim to be influenced by what they see in print media.

If attracting Millennials to invest is your goal, reaching them where they are most found is a first pivotal step.

2. Environmentally conscious

Beyond good products, Millennials prefer brands that commit to the society they serve. In other words, they are more socially aware and conscious of the companies they choose to support. With 81% preferring brands to make public their commitment to good corporate citizenship, investment firms need to do more than just delivering their core services. 

Millennials express their beliefs for causes through their purchasing power. These potential investors are more willing to invest in a company if their money is being channelled to providing more jobs in communities or reducing their carbon footprint.

3. Millennials demand digital automation

Millenials are the most digitally savvy investor group with a preference for technology-based interactions over human interaction.

They are actually open to learning more about investing, but expect financial services to incorporate the most cutting edge technology to make investing as simple and seamless as possible. Being able to check trends and data on the go and seek advice in just a few taps appeals to them, which traditional modes of investing are unable to provide for.

4. Common concerns with investing

Many Millennials understand the urgency and pragmatism into putting your money into places that will grow your wealth; however, the term “investing” has long been an elusive buzzword to many outside the financial sphere.

To the financially uninitiated, investing can seem intimidating and complex. The unwillingness to take risks is underpinned by the lack of and inefficient access to knowledge and advice.

Making investment the norm after saving

Merely saving for the future and having a retirement fund may not be enough of a financial safety net. Factoring inflation rates and possible economic downturns, Millennials who are not actively growing their money may be at high risk of financial insolvency much sooner than later.

This is why it is imperative that financial services do more to make investing an essential practice as saving.

How financial providers can achieve this

1. Reframe the perception of investing

Firstly, service providers need to quell common misconceptions that investments are complex and inaccessible.

Many Millennials believe that a certain degree of wealth or expert knowledge is required before they can start their investment journey and this is simply not true.

It’s a tough journey ahead, but service providers have to prioritize educating and advocating financial literacy to the public. By incorporating digital tutorials and targeted educational content in their customer service models, service providers can make the idea of investing digestible to this customer segment.

The aim is to transition their belief to seeing investment as not only important and essential, but also available to the everyday person. Providing Millennials with an intuitive, affordable digital platform gives providers the chance to shift perceptions and begin associating investing with their customers’ lifestyle, making it as accessible as a streaming subscription or gym membership.

2. Offer tailored hybrid solutions

Millennials may have a penchant for technology-based interactions but they also have a deep need for self-governance. They are more willing to explore new investment strategies and digital advisory platforms as long as they are personalized and offer a sense of “self-investing”.

This makes them the ideal demographic for personalized robo-advisory solutions, which are digital investment portfolios driven by algorithms to assist investors in making the right decisions with little to no human intervention. This is why two of three investors who opt for robo-advisory are Millennials.

However, despite their preference for a digital-based platform, Millennials still require the human touch and advice a human advisor can offer. As Millennials age, life events become increasingly complex: whether it’s marriage, a new business, or more financial commitments, the investing scenario becomes more nuanced.

This is where a hybrid solution comes to play: combining the speed, low cost and mobility of robo-advisory together with the experience of a seasoned wealth advisor should provide them with the best of both worlds.

Advisors ignore the new generation at their peril

Advisors who understand the needs and goals of Millennials and are able to adapt early to tailor to their personal preferences will be positioned to onboard a large share of this market segment. As emerging investors, this new generation offers exponential value to service providers and represents a new crop of potential lifelong customers. A proactive response to their needs could help advisors establish their client base for years to come, while those who fail to adapt their service offering may find themselves left behind.

As the world has evolved, so has our understanding of how financial strategies can help people achieve their goals. Budgeting, investment and responsible borrowing are just some of the strategies we use to grow wealth, and it seems more accessible than ever as digital innovation surges. 

Why, then, are we seeing a widening in the financial advice gap across the globe?

What is the financial advice gap?

Financial advice is any kind of help with the planning of individual life circumstances; preparing for retirement, saving for a rainy day, tax planning, and perhaps the most important of all – how to invest in order to grow wealth.

The ‘advice gap’ then refers to the disparity between people who have access to this financial aid and to those who either can’t afford or access financial advice. 

A survey by OpenMoney UK shows a sharp increase in this gap every year. More people are finding financial advice unaffordable and even more are unaware of available financial advice:

  • The “free advice” gap refers to those who could benefit from advice but are unaware it exists – is estimated to have risen to 20.8 million.
  • The “affordable advice” gap which refers to those who could benefit from advice but can’t afford it – is estimated at 5.3 million.

Financial illiteracy is a huge issue

It’s clear that too many adults aren’t making financially-sound plans or investing for their future.

OpenMoney (2020) reveals that about 44% of adults had run out of money before their next pay at least once in the past year and only 24% of adults save every time they get paid. Whether exacerbated by the COVID-19 disaster or not, it’s abundantly clear that many lack the financial knowledge and capacity to weather another economic crisis.

And it’s not as if financial services are unavailable to the public – numerous financial advisors exist, which can generally be categorised into the following:

  1. Fee-based and commercial-based advisors: individuals or groups typically referred to as “financial planners” who take a fee for financial guidance and management.
  2. Robo Advisors: digital wealth management platforms that automate the process of investing and managing money on your behalf – powered by algorithms, with little to no human supervision.

So why does the financial gap still exist?

When asked about seeking financial advice, many adults revealed that they: 

  • Were simply unaware
  • Many didn’t know of existing financial advisors or where to look.

  • Think it is unaffordable 
  • A recurring consensus was that many financial services were exclusive to the wealthy or simply too expensive.

  • Believe it’s unnecessary
  • They trust their ability to manage their own money and believe they “shouldn’t have to pay for something they can google”. 

  • Distrust conventional advisors
  • Possibly the biggest reason – many believe financial advisors are untrustworthy and only wish to “sell you something” out of self-interest. 

    Digital wealth managers may be the answer

    Robo-advisors are digital, algorithm-driven financial advisors that can help provide adequate, affordable and unbiased financial planning to solve many of issues driving the advice gap:

    • Inexpensive

    The selling point of most robo-advisors is that they require low starting capital (some from as low as $100) and minimums which makes financial advice more accessible and affordable to the general public.

    • Advice is automated

    Based on your risk-appetite, robo-advisors assess your information through a survey to offer advice and tailor a suitable portfolio which automatically invests your money digitally. This means little to no human intervention, removing the element of distrust people may have in conventional advisors.

    • Can be recommended by conventional financial advisors 

    By incorporating both a hands-on approach with robo advisory, financial advisors can offer an even more comprehensive, accessible and personalised financial plan for clients; this could help onboard clients who may previously not have the means for financial services. 

    The potential for Robo-advisors to start closing the financial advice gap isn’t just promising for budding investors. Financial advisors can use this strategy to bring affordable, diversified investing and essential financial advice to an untapped market, creating new opportunities that were previously too expensive and time-consuming to pursue. These opportunities aren’t necessarily short-term, either: financial advisors can reach first-time investors and potentially turn them into long-term clients, capitalising on the scalability of robo-advisors.

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

    New offering brings together three powerful technologies for a personalized, end-to-end solution

    San Mateo, CA, December 10, 2020 – Franklin Templeton today announced the introduction of Tango, a turnkey robo-advisor designed to empower advisors to provide personalized, goals-based wealth management at scale. The all-in-one solution is a collaboration between three industry leaders—Franklin Templeton, Bambu, and Apex Clearing. Franklin Templeton provides the personalized, goals-based portfolio management advice to advisors through its proprietary Goals Optimization Engine (GOE™). Bambu’s white-label platform is the digital solution for clients and advisors, while Apex facilitates trading and custody through its modern back-end platform built for safety, scale and speed.

     

    “Tango is a single solution built on the expertise of three partners, each providing a unique offering for advisors, and it is truly a case of the whole being greater than the sum of its parts,” said Harshendu Bindal, director of Digital Strategy and Wealth Management for Franklin Templeton. “As the industry continues to move towards digital platforms and technology-based services, investors increasingly expect a seamless digital experience. Tango will give advisors the ability to focus on growing their client relationships with professional management, personalized to their client’s specific goals, without the demands of increased back-office responsibilities or up front charges that are typical of many robo platforms.”

     

    GOE, a key differentiator in the offering, is Franklin Templeton’s proprietary technology that enables advisors and financial services firms to deliver personalized, high-value services to end-investors at greater scale. Based on proprietary research that won the prestigious Harry Markowitz Award in 2018[i], GOE combines Franklin Templeton Investment Solutions’ portfolio construction expertise with dynamic programming to deliver individualized portfolio pathways based upon an individual’s unique goals. With the ability to handle multiple investor goals, GOE uses probability of success as the driver for the initial asset allocation and each reallocation in order to maximize likelihood of achieving the goal. Portfolio paths further adapt to client changes and market events.

     

    Apex was one of the first companies to digitize the activities associated with securities clearing and custody to give financial services providers the speed, efficiency and flexibility they need to deliver a better investment experience. Bambu has integrated with Apex’s robust suite of application programming interfaces (APIs) that include new account opening, automated customer account transfer systems (ACAT), funding and trading.

     

    “From our headquarters in Singapore, we have delivered digital wealth solutions for the most discerning global and US clients. With Tango, we saw an opportunity for a singular offering that makes it much simpler for anyone in wealth management to launch their own white-label robo-advisor. Through a single, bundled relationship, Franklin Templeton, Apex and Bambu have created a turnkey techstack combining proven technology, clearing services and professionally constructed portfolios,” said Ned Phillips, CEO and founder of Bambu.

     

    “Apex is committed to simplifying investing by leveraging technology to bring relevant and cost-effective investment solutions to individuals and the advisors that serve them. Through this exciting new relationship with Franklin Templeton and Bambu, we’re able to do just that,” said Tricia Rothschild, president of Apex Clearing. “Tango is a powerful solution that brings together a frictionless digital experience with open-architecture technology designed to arm advisors and financial services firms with sophisticated goals-based decision-making capabilities that will improve investors’ relationships with money.”

     

    Tango is designed for seamless implementation and cost efficiencies that can be deployed quickly and easily into an advisor’s practice. Firms can implement this solution without upfront technology costs in a matter of eight to ten weeks versus several months through competing solutions.

     

    Franklin Templeton continues to expand its offerings beyond traditional investment products, which now include planning and advice, digital tools, and advisor and retirement platforms. Tango leverages these expanded offerings to weave active investing strategies and advice into a digital platform, enabling financial planners to efficiently run their businesses with custom, optimized portfolios in an open-architecture environment.

     

    About Bambu

    Bambu is a leading global digital wealth technology provider for financial institutions. We enable companies to make saving and investing simple and intelligent for their clients. The cloud-based platform is powered by our proprietary algorithms and machine learning tools. The company serves approximately 300,000 end users on the platform in 10 countries. Bambu is funded by PEAK6 Investments and Franklin Templeton. Founded in 2016, Bambu is headquartered in Singapore with a subsidiary in the United Kingdom, and United States and EMEA representatives. For more information, visit https://bambu.co/ and follow us on LinkedIn and Twitter.

     

    About Apex

    Apex Clearing is a custody and clearing engine that’s powering the future of digital wealth management. Our proprietary enterprise-grade technology delivers speed, efficiency, and flexibility to firms ranging from innovative start-ups to blue-chip brands focused on transformation to capture a new generation of investors. We help our clients provide the seamless digital experiences today’s consumers expect with the throughput and scalability needed by fast-growing, high-volume financial services businesses. Founded in 2012, Apex Clearing, a PEAK6 company, is registered with the SEC, a member of FINRA and a participant in SIPC. For more information, visit the Apex Clearing website, and follow the company on Facebook, LinkedIn, and Twitter.

     

    About Franklin Templeton

    Franklin Resources, Inc. [NYSE:BEN], is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 165 countries. Franklin Templeton’s mission is to help clients achieve better outcomes through investment management expertise, wealth management and technology solutions. Through its specialist investment managers, the company brings extensive capabilities in equity, fixed income, multi-asset solutions and alternatives. With offices in more than 30 countries and approximately 1,300 investment professionals, the California-based company has over 70 years of investment experience and approximately $1.4 trillion in assets under management as of November 30, 2020. For more information, please visit franklintempleton.com and follow us on LinkedIn, Twitter and Facebook.

     

     

    # # #

     

    Copyright © 2020. Franklin Templeton. All rights reserved.

    [i] The Harry M. Markowitz Award from the Journal of Investment Management and New Frontier Advisors, LLC is an annual award honoring Dr. Harry M. Markowitz, a Nobel laureate in economics, for his legacy and to support future research and innovation in practical asset management. Candidates are taken from among papers published in the Journal of Investment Management each year.

     

    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.