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Robo-advisors: Disciplined but Not Intelligent (Just Yet)

Einstein dies and goes to heaven only to be informed that his room is not yet ready. “I hope you will not mind waiting in a dormitory and you will have to share the room with others” he is told by the doorman. “See, here is your first roommate. He has an IQ of 180!” – “Why that’s wonderful!”, says Albert. “We can discuss relativity theory!” “And here is your second roommate. His IQ is 120!” – “Why that’s wonderful!”, says Albert. “We can play Go!” “And here is your third roommate. His IQ is 80!” – “Why that’s wonderful!”, says Albert. “Say, where do you think the market is headed?”

Excelling at investment strategy would seem to be a low bar for an artificially intelligent machine: Earlier this year, a machine trained by deep learning beat Lee Sedol, one of the world’s best and most experienced players, at the ancient board game Go. Yet, digital wealth managers, or robo-advisors, are not beating humans at the investment strategy game; they are not even playing. And here is why:

Today’s digital wealth management solutions are based on the same investment principles and models used for the past three decades. 21th century technology is using 20th century concepts to decide on asset allocation and portfolio diversification. And there is nothing wrong with that – those models are based on timeless insights. Technological advance can refine them and bring more computing power to the table but the core concepts remain the same. It is telling that Wealthfront, a leading digital wealth manager, has Burton G. Malkiel serve as its chief investment officer. Dr. Malkiel is an 84 year old finance professor, best known for his book “A random walk down wall street”, first published in 1973.

So, if not in investment strategy, where did the digital revolution take place in wealth management?

Technology has made it possible to efficiently roll out portfolio management solutions to a large number of accounts. This brought down cost, resulting in low fees and a reduced minimum deposit requirement. Thus wealth management can be delivered to a client segment that did not have access to such services under traditional wealth management offerings.

In addition, cleverly designed investment tools and easy-to-use interfaces create a user experience rivalling and even surpassing that of a human advisor. What the ATM has done for bank branches and online banking to off-line money transfer is now being done for wealth management: a service that’s available anytime, anyplace and on any device. And while risk tolerance questionnaires, low cost diversified investments, such as ETFs, and immediate market access through online brokers have existed for at least a decade – it is only with digital wealth managers that all these elements are integrated on a single platform.

There is another area in which robo-advisors can outperform a human investment manager: digital wealth managers rely on rules-driven investment decisions, governed by mathematical formulae and quantitative criteria. While a human advisor consults similar models, automation brings discipline to the table. Human bias is taken out of the equation and decisions are consistent and unemotional. Nobel-prize winning psychologist Daniel Kahneman notes in his book ‘Thinking, fast and slow’  that, in general, formulae trump human judgement. And digital wealth managers rely on formulae.

Low cost, an integrated user experience and discipline are forecasted to attract up to US$ 300Bn* in assets by the end of the year to firms such as Betterment, Wealthfront, Motif and Personal Capital. This success lays the ground for further sustained technological advance in the sector. Digital wealth managers are already beginning to experiment with the application of artificial intelligence (AI) to their marketing (if not their investment) strategy. Salesforce already applies AI to customer relationship management. Their product is called Einstein.

*Source: AT Kearney

 

 

 

Saving label on glass jar with coins

Asia’s Great Leap – Finance for the Masses

Now and then a paradigm shift occurs that can totally change the landscape of an entire industry.

A recent example of this was telecommunications in Indonesia. Until the 1990’s, Indonesia had one of the lowest levels of telephone connectivity in the world. Now, Indonesia is one of the most connected nations on the globe. Put simply, mobile telephones allowed the nation to leapfrog the stage of land-line connections and now it has the most number of mobile phones per head in the developing world.

Another paradigm shift is occurring that will bring huge benefits to the millions of people living in the developing world – the availability of high speed internet accessed through mobile and smartphone devices. Both Google and Facebook are currently working on projects to beam high-speed internet from low-level satellites or drones to areas of the population which are not currently supplied by regular telephone and internet service providers.

Smartphones have a computing capacity today many times that of a personal computer just five years ago. These mobile devices are replacing laptops and PCs as the access point to the world of information available on the internet.

These changes in technology have an enormous democratizing effect on people living in the developing world. Education, health information and legal services will be available online, hopefully lifting millions out of poverty. The most positive outcome may be that millions of unbanked people in the developing world, who have no access to payment services, capital, financial advice or who suffer at the hands of unscrupulous non-bank lenders, may receive financial services for the first time.

Many of these people may in fact by-pass the stage of ever going to a bricks-and-mortar bank, as technology enables them to freely access a variety of financial services at any time and on any device. Not only will they benefit from the access to financial services and advice, but the competition from digital financial service providers will drive down the cost.

New digital financial services in Asia

Online loan marketplace

For people with no or little credit history, getting a short term loan to cover something as necessary as a child’s school fees or a family emergency can be an uphill battle. Millions of such people in Asia fall prey to loan sharks and opportunistic money lenders.

A new company based in Singapore, Onelyst, has turned the tables on this situation. By creating an online marketplace for borrowers and licensed non-bank lenders to meet, their technology levels the playing field – allowing price discovery for the borrowers and encouraging lenders to compete. The marketplace enables borrowers to quickly identify the cheapest loan from potentially hundreds of possible lenders. The competitive environment created by this market place forces the lenders to show their best offers. It also simplifies the marketing process and enables lenders to reach customers at lower cost.

Digital wallet

Philippines-based Coins.ph is meeting the needs of another unbanked section of the population. The company enables people with no bank account or credit card to be able to deposit money into a digital wallet and pay utility and other bills on their smart device.  This might seem rudimentary to many of us who have bank accounts but in countries where over 50% of the population have no bank account these services fill an important void.

Digital wealth management

Wealth management may not be a concern for the world’s poorest communities but an entire generation is emerging that will be the first to save for their own retirement. Wealth is growing faster in Asia than anywhere in the world and it is growing fastest in the emerging and mass affluent sectors.

Until recently, these two sectors – characterised by lower account values – have been underserved by traditional wealth management providers. In the past, it simply wasn’t profitable for financial institutions to provide them with a face-to-face service.

This situation is about to change. Companies such as Quantifeed are enabling financial institutions to offer powerful wealth management solutions on digital devices. These applications enable the investor to self-direct an investment experience. The online investment journey takes the client from an assessment of their goals and needs, through to the recommendation of a suitable portfolio. After an investment is made, it can be reviewed and managed. Financial institutions across Asia now realize that by deploying digital wealth management services, they can profitably service customers with smaller amounts to invest. This connects with a new generation of tech-savvy consumers that expect to be able to get their wealth services online.

Services for the mass affluent will be high-quality and affordable as banks compete in an increasingly transparent market to offer wealth management services that were previously only available to those in the high net worth bracket.

 

Onelyst, Coins.ph and Quantifeed have all recently graduated from the OCBC Open Vault Fintech Accelerator programme, which took place between May and August in Singapore. Eight companies from across the globe were chosen from over two hundred applicants, with the purpose of helping entrepreneurs build promising Fintech companies of the future, faster and more efficiently.

Press: Asian Banking & Finance – Which robo-advice platforms will pull ahead in Asia?

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“Financial institutions are no longer contemplating whether they should have an automated platform, but how and in what capacity. Firms are actively looking to monetize the growing mass and emerging affluent segment, recognizing digital is a huge opportunity – not a threat” Quantifeed CEO, Alex Ypsilanti

“Which robo-advice platforms will pull ahead in Asia?”

By Banking Technology Staff Reporter, 27/07/2016 

It’s the incumbent banks vs direct-to-consumer platforms.

If you were betting on which robo-advice platforms will pull ahead in Asia, there is a strong case for siding with those run by well-entrenched financial institutions.

Direct-to-consumer robo-advice platforms similar to Betterment and Wealthfront may be mushrooming in the region, but even with their fancy features and splashy promotions, they are starting from a disadvantage, argue analysts, compared with robo-advice platforms from incumbent banks that Asian consumers prefer more by default.

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Press: DealstreetAsia – B2B fintech Quantifeed raises $4.5m Series A from PGA Venture Partners

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“B2B fintech Quantifeed raises $4.5m Series A from PGA Venture Partners”

By Nguyen Thi Bich Ngoc, 24/07/2016    

Shanghai-based PGA Venture Partners, which invests in early-stage and growth-stage ventures, has led a $4.5 million series A investment found in B2B fintech company Quantifeed, to enable the Hong Kong-incorporated firm to accelerate expansion in key markets in the Asia Pacific region, including China.

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Press: e27 – Wealth management platform Quantifeed closes US$4.5M Series A led by PGA Venture Partners

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“Wealth management platform Quantifeed closes US$4.5M Series A led by PGA Venture Partners”

By Anisa Menur A. Maulani, 21/07/2016

Digital wealth management solutions company Quantifeed today announced that it has closed a US$4.5 million-worth of Series A led by PGA Venture Partners.

The Hong Kong-based company plans to use the funding to accelerate expansion to key Asia Pacific markets, including China.

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Press: Tech in Asia – Wealth management startup seeks to expand out of Hong Kong with $4m series A

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“Technology will enable banks and other financial firms to transform how they deliver wealth management services – allowing many of them to reach myriads of underserviced consumers for the first time” Quantifeed CEO, Alex Ypsilanti

“Wealth management startup seeks to expand out of Hong Kong with $4m series A”

By Michael Tegos, 21/07/2016

Wealth management startup Quantifeed is a little more wealthy today. The Hong Kong-based company announced it has raised US$4.5 million in a series A round led by Shanghai venture capital firm PGA Venture Partners.

Quantifeed makes financial management software for financial institutions and their customers. Its apps can be customized for each client’s purposes and they can work online or within a client’s internal network.

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Quantifeed Raises US$4.5 Million in Series A Funding

[Press release]

Provides wealth management software to Asian financial institutions; Plans to accelerate product development and expansion in Asia Pacific.

HONG KONG, July 21, 2016  — Quantifeed, a leader in digital wealth management solutions in Asia, has reached a significant milestone by closing US$4.5 million in a Series A financing round. Shanghai-based PGA Venture Partners led the investment. The funds will enable Quantifeed to accelerate expansion in key markets in the Asia Pacific region, including China.

“The battle in digital wealth management will be won by the institutions with the strongest distribution and the richest customer experience. We are working with some of the top institutions in Asia to build them a customer investment journey,” said Alex Ypsilanti, CEO and Co-founder of Quantifeed. “PGA Venture Partners has an incredible track record of building successful companies and we look forward to working with them on bringing our product to the Chinese market.”

Quantifeed’s clients have been using its platform to manage assets since early 2015. Quantifeed has integrated with three execution brokers to enable its clients to invest across major global markets.

“We believe Quantifeed’s digital investment solution is one of the most comprehensive in the industry, combining a robust financial technology platform, global investment themes, and a pipeline of innovative investment tools and applications,” said Mr. Peilung Li, Founder of PGA Venture Partners. “Quantifeed is well positioned to capture the next wave of private wealth’s growth in Asia and is ready to execute its strategy in China.”

About Quantifeed

Quantifeed’s automated investment platform allows banks, brokers and wealth planners to offer their customers a digital investing experience under their own brand. Quantifeed’s software and financial models provide institutions with a configurable solution to suit their wealth management objectives. This allows firms to reach hundreds of thousands of consumers quickly and economically. The online platform enables users to invest in portfolios of stocks, funds and other asset classes across all major global markets. Quantifeed offers a library of portfolios for asset allocation, thematic investments and other trading strategies.

The company was founded by former investment banking executives Alex Ypsilanti, CEO, and Ross Milward, CTO in Hong Kong in 2013.

About PGA Venture Partners

Shanghai-based PGA Venture Partners invests in early and growth stage companies around the world. Its early investments include companies in financial and education technology. The firm’s approach is to help portfolio companies navigate their entry into the Chinese market and create an ecosystem of complementary businesses.

Media contact:

To arrange an interview with the co-founders, Alex Ypsilanti, CEO, or Ross Milward, CTO, and for more information on Quantifeed, please contact Johanna Laajarinne: johanna.laajarinne@quantifeed.com.

Press: Fintech Singapore – Robo-Advisory Services in Asia

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“Robo-Advisory Services in Asia”

By Fintechnews Singapore, 18/6/2016

Automated advisory platforms, also known as robo-advisors, have already caused a stir in the US and the UK, and are now winning market share in Asia.

These digital platforms offer online, customized investment advice and portfolio constitution, most of the time through ETFs or mutual funds, and are starting to appear in Asia as the region is expected to drive most the private wealth’s growth for the next decade and beyond.

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