China, Singapore, Australia, South Korea, Hong Kong, India, and Taiwan will lead the way in Asia Pacific’s robo-advisory arena, with combined total assets under management (AUM) estimate on robo-advisory to reach US$500 billion by 2021, said IDC Financial Insights.
In particular, robo-advisory in China is expected to manage around US$450 billion in assets by 2021, accounting for 90% of the estimated market for the region.
Releasing recently its first perspective on robo-advisory titled Robo-Advisory: Changing the Face of Wealth in Asia/Pacific, IDC Financial Insights defines robo-advisory—also known as automated or digital advice—as a set of automated systems that rely on algorithms to construct, manage, optimize, and rebalance wealth and asset management portfolios. In its purest form, the entire process of robo-advisory is completed without human intervention from start to finish, IDC said.
“The typical approach involves assessing the risk tolerance of the customer (although some algorithms factor in more heavily the customer’s goals) and coming up with suitable model for portfolios of funds based on that assessment. At this point, the portfolio of robo-advisory options is mostly exchange-traded funds (ETFs), and very few have started to include stocks as well,” Michael Araneta, Associate VP, IDC Financial Insights said.
Although the robo-advisory opportunity—growing from 0.2% in 2017 to 1% in 2021—is still miniscule compared with the share of total wealth of AUM, the entire story seems to be more about its lightning speed growth of 100% compound annual growth rate, said Anuj Agrawal, Senior Research Manager at IDC Financial Insights.
“This strong optimism rides on the quick, yet outstanding, successes of a few robo-fintechs in the United States (Betterment), Europe (Nutmeg), and Japan (Money Design's THEO), therefore encouraging movement in Asia/Pacific as well, "Agrawal observed.
Hybrid advice model preferred
IDC said traditional wealth management players move quickly in this area—either by creating their own proprietary robo-advisors or partnering with robo-fintechs.
IDC advised firms to start with defining their value proposition for their existing and future business while other key decisions to be made include those related to partnerships (with existing robo-advisory companies and technology providers), the revenue model, customer channels, and risk mitigation.
Expecting a bigger preference for a hybrid advice model in the future, Sneha Kapoor, senior research manager at IDC Financial Insights said: “Firstly, we are seeing more robo-fintechs riding on the success of mass market investors and expanding to launch their premium versions with access to human advisors. Secondly, traditional players, which continue to have human advisors, are starting to embrace the robo-advisory model for support.”
“While traditional players with hybrid advice models are more likely to dominate the market in terms of AUM, there will be a few successful robo-fintechs evolving into a full-service robo-financial planning model,” Kapoor added.