How will next generation digital wealth platforms change the game?

• Investors who were looking for individually managed, diversified investment portfolios had few options available to them except for mutual funds, which became popular
• Regulators recognise the benefits of digital solutions to drive innovation and growth of the wealth management industry and are updating regulations to facilitate their introduction and implementation
• WeInvest is scaling up its core product development and has put in place a roadmap for redesigning and revitalising its wealth management activities, to upgrade its base platform and to expand the range of core products

The next generation of digital wealth platforms is looking to transform the traditional role and proposition of bank-based wealth managers which hitherto acted primarily as mutual fund distributors to allow them to provide more holistic investment advisory and asset management services.

Bhaskar Prabhakara, CEO and co-founder of , a Singapore-based wealth technology platform, observed that there has been an ongoing debate within the industry, especially in Asia, between different portfolio allocation and investment management approaches. Investors who were looking for individually managed, diversified investment portfolios had few options available to them except for mutual funds, which became popular.

However, in the developed investment markets of the US and western Europe, the concept of managed accounts (also known as “wrap” or “separate” account), a diversified portfolio of individually or separately managed assets by multiple managers with different investment styles and selection criteria, has been gaining traction and acceptance for a while.

“These actively managed accounts, as attractive as they are, have high distribution costs that eat up a lot of the value for investors,” Prabhakara remarked. This limited the appeal and access of such products to only the high net-worth investors.

Next generation of digital wealth platforms

The advent of digital wealth platforms promises more efficient and automated processes that lower costs and will make managed account structures a more viable option for investors, even those in the lower mass affluent and retail segments. As such, asset managers are also exploring how they can work with such platforms as alternative mode of distribution and product delivery to their investment clients.

In June 2018, asset manager Schroders Singapore acquired a minority equity stake in WeInvest, as part of a $16.5 million fundraising round completed by the latter. 
 
Prabhakara believes that the deal can deliver real value to Schroders and its clients in the region, he offered:

“They have obviously a large set of distributors, comprising: retail banks, and independent financial advisors (IFAs). And they wanted to partner with a next-generation platform which could offer value to their distributors and clients.”

Explaining its rationale for the acquisition, Susan Soh, CEO of Schroders Singapore, said:

“Many of our distribution channels are actively evolving their platforms to equip their wealth advisors with digital tools to manage and service their clients more effectively, and to provide digital advice. We believe this investment opens up opportunities for closer collaboration with our distributors, through a platform that enables them to tailor solutions for their clients.”

Creating the necessary regulatory framework

Indeed, regulators in the region recognise the benefits of digital solutions to drive innovation and growth of the wealth management industry and are updating regulations to facilitate their introduction and implementation.

Prabhakara offered his perspective:

“The regulators have been in sync because digital self-service solutions that are associated with increased transparency and lower costs. The regulators in Singapore, Malaysia, Thailand, and Hong Kong (among others) have been pushing guidelines around self-service advice or robo-advisory and self-service platforms because they see that as potentially the next wave. It could lead to 20% of the volume eventually going through self-service channels. For now, it is still very nascent, less than 5%.”

He added: “They have clearly outlined licensing requirements and what may or may not be done. For example, The Malaysian securities commission is putting out a very clear discretionary investment management (DIM) license framework that seeks to set the country as a separate hub to enable and propel a lot of self service solutions.”

With the onset of these digital investment management licence guidelines and frameworks, Prabhakara sees the entrance of new players into the digital advisory business and even traditional players such as Schroders, are reviewing their current distribution strategies and business revenue model.

“A lot of brokers are now saying: “We can now add a digital wealth management or advisory as an add-on service and apart from our traditional commission-based brokerage business, we can move into the annuity-based advisory fees space,” he said.

Asset managers, insurance companies and securities brokers who traditionally would not be considered players in the wealth advisory and management space are now entering the market, and are challenging the banks and IFAs.

And technology is an important consideration. Graham Kellen, chief digital officer, Schroders, added:

“Having the right technology to deliver holistic client-centric solutions is the key differentiator in the asset management industry today. At Schroders, we have placed ‘digital’ at the core of our overall business strategy, from optimisation of our operation and investment engine, to enhancing our engagements with clients and offering customised solutions for investors. WeInvest complements our continued digitisation progress and we believe it can bring long-term value to our business as a whole.”

Open architecture and integrated operations

In the digital wealth space, there are the technology providers such as Bambu that focus on the AI (artificial intelligence) and algorithm enabled robo-advisory solutions and there are the finance-as-a-service players such as Zurich-based Additive and Singapore-based WeInvest that provide a more holistic and integrated digital wealth management platform.

WeInvest provides an integrated range of software-as-a-service (Saas) solutions that comprises an aggregation service – TrackWealth, a robo-advisory or self-service advisory service – GrowWealth, and a relationship manager (RM) assisted advisory service – AdviseWealth.

It runs an open architecture and provides investment strategies from a variety of experts and players, including index providers such as MSCI, Standard & Poor’s (S&P), as well as investment research providers such as Morningstar, and niche providers such as Lighthouse Canton in Singapore.

“We kept it a completely open architecture because we believe the beauty of investing is that there will always be great ideas from different sets of people,”

On the operations side, the platform may also be connected to the end-execution brokers, eg. Pershing, Saxo or other in-house execution platforms, making it an end-to-end straight through process that is integrated and streamlined.

WeInvest has an operations team that runs clients’ back office onboarding, portfolio valuation and rebalancing operations.

“We have taken the technology created a transactional and operational platform, loaded it on a cloud-based infrastructure and worked with multiple regulators to get it approved. We allow our customers to run the entire execution operations on our platform.”

Unlike traditional technology vendors that sell solutions or fintechs that sell software licences, WeInvest operates a revenue model based on a combination of subscription and revenue-share. In 2017, it generated an annual revenue of $3 million and is looking to double that in 2018.

“So, we put a lot of skin in the game with the clients,” Prabhakara quipped.

He continued: “When you ask a head of wealth management what are his pain points? He talks about RMs, products, operations, profitability and gross or net margins. He has to get six or seven different companies to come together to solve his business issues.”

Hence, the attraction of a digital wealth management platform that engenders the end-to-end processes, infrastructure and eco-system of partners to resolve these issues. He emphasised:
 
“The head of wealth does not want to worry about five or six teams coming together, he wants one team who is able to get the platform up.”

He added: “We automatically execute these trades with Pershing or Saxo. We effectively become part of the wealth management solution partner and end up taking a revenue share of the trades.”

The company is working with partners such as Saxo to increase market share and reach out to distributors.

“We do believe a lot in partnerships and working with our partners to expand our reach.”

Omni-channel approach

WeInvest has a range of solutions that caters to client requirements across multiple channels; from RM-assisted, self-service to a hybrid of the two. All designed to drive greater adoption of digital advisory services. With many clients adopting the hybrid approach.

“While the banks, brokers and distributors look at self-service as an opportunity and challenge. They know that their RMs have been delivering so far, so they don’t want to not invest in the RM channel. It will still be one of the largest volume creators,” he explained.

It has also started work on integrating with social media channels and messaging platforms such as Line, WhatsApp and WeChat.

Regardless of channels, Prabhakara feels that any holistic digital wealth platform must deliver a complete product set, including protection or insurance, to meet the diverse needs of investors.

“While people think that cost is going to be one of the biggest factors, the products on the platform will turn out to be one of the most significant differentiations. Because you can’t just offer five assisted investment portfolios and expect all the clients to invest with you. Because there are growing needs in the lifecycle of a client,” he elaborated.

Core markets

The company focused on three key markets: Southeast Asia, North Asia, including Greater China, and the Middle East.

So far, it has partnered with CGS-CIMB Securities in Malaysia, Siam Commercial Bank in Thailand, OCBC Bank in Singapore and Mubasher Financial Services, a leading securities brokerage in the UAE, which is its first client in the Middle East.

In August 2018, OCBC Bank in Singapore and a Singapore wholly owned subsidiary of CGS-CIMB Securities, CGS-CIMB (Singapore) separately partnered WeInvest to launch their robo-advisory and digital wealth services.

OCBC’s RoboInvest is targeted at young and tech-savvy investors and requires an initial investment amount of SGD3,500 ($2,670). Investors can choose from 28 diverse portfolios of equities and exchange traded funds across six markets, constructed based on themes like technology, real estate investment trusts, fast-moving-consumer-goods companies, property, healthcare and food & beverage.

It uses algorithms to monitor each portfolio automatically and periodically re-balance assets according to economic and market movements that impact the portfolio.

Customers have access to a dashboard to see how their investments are performing and can withdraw or add on to them at any point. Costs are a fraction of traditional investment management fees: Just 1.5% annually for assets under management of up to SGD50,000 ($38,160), and 1% annually for assets under management of more than SGD50,000 ($38,160).

OCBC Bank’s head of e-business, Aditya Gupta, commented: “We are empowering our customers to get started on their investment journeys and grow their wealth in a simple, smart and self-directed way. This is another step in our ongoing journey to ‘democratise’ wealth management by delivering solutions to more investors with greater efficiency, convenience and personalisation.”

CGS-CIMB Securities (Singapore)’s eWealth, robo-advisory platform, taps on its research capabilities to provide goal-based and thematic portfolios to help investors meet their need for investment diversification.

Carol Fong, its CEO said: “eWealth is a good complement to our existing brokerage business which helps clients to grow their wealth with mid-to-long term strategies. We will provide clients with a wide range of portfolio selections, from conservative options for those with a low-risk appetite to aggressive ones for investors who possess a higher risk tolerance and want to achieve above-market returns.”

Through algorithms, the platform offers guided investment journeys with regular rebalancing of investment portfolios to help clients stay on track with their investment objectives. Catering to the digital savvy investors, the eWealth platform provides a total online on-boarding experience.

Among the two types of strategies, goal-based investing focuses on providing portfolios that seek to achieve market returns with an initial investment starting from SGD3,500 ($2,670). On the other hand, thematic investing, which combines quantitative strategies with factor-based investing in constructing baskets of stocks to capitalise on the latest market trends, seeks to achieve above-market returns.

The platform currently offers thematic portfolios such as “US Refining” which allows investors to invest in companies that are likely beneficiaries of rising oil prices. There is also the “S-REITs” portfolio for clients looking for yield, and it allows clients to own ten individual listed REITs without incurring the usual minimum brokerage charges as compared to purchasing stocks individually.

eWealth is also provided in partnership with Saxo Capital Markets, a subsidiary of Danish investment bank Saxo Bank

Adam Reynolds, CEO Saxo Capital Markets Pte. Ltd., said, “We strongly believe that partnerships and technology sharing will be defining the financial industry in the coming years bringing enormous improvements in quality of service and offering to clients. Our combined solution with CGS-CIMB and WeInvest is a hallmark example of fintech partnerships in Singapore.”

What’s next?

With its latest round of fundraising, WeInvest is looking to invest into three key areas of growth. It is scaling up its core product development and has put in place a roadmap for redesigning and revitalising its wealth management activities, to upgrade its base platform and to expand the range of core products.

It is also strengthening its bench strength, hiring a team of senior executives for regional expansion, especially in the presale, solutioning and implementation areas.

It is also strengthening its core operations and process capability and is looking to expand its current work force of about 40 to about 150 within a year