Southeast Asia is in the midst of change, with banks in the region seizing upon the opportunity to roll out new wealth management services to the growing mass affluent population. Changing demographics and income growth are increasing the number of people entering the middle class, with rapid urbanization set to double the region’s “consuming class” to 163 million households between 2017 and 2030 and with per-capita GDP to rise almost threefold to more than US$9,000 in the same period.
Compared with other regions, Asian private households’ gross financial assets are growing much more strongly. Between 2016 and 2017 alone they grew by 10.4%, versus 5.8% globally. Yet, despite this, bank deposits remain the most popular asset class, representing 45.3% of total gross financial assets – in Indonesia, it is as high as 70%.
This growth in the mass affluent population in Southeast Asia and the high levels of bank deposits present enormous opportunities for the wealth management industry. Yet for all its potential, banks are looking for ways to keep up with the pace of middle-class expansion and their growing appetite to do more than just deposit money in a bank. Scaling up personalized wealth management services of the kind seen in the past in such a fast-growing environment does pose challenges.
To tackle this, banks in the region are looking to the power of new technology for answers. Having seen how accessible and popular apps and online services have become, technology in the form of robo-advisors offers a real opportunity to roll out personalized investment solutions on a mass scale, enabling more people to take control of their financial future and reach their financial goals.
In much the same way that healthcare is available at every stage of our lives, this technology enables banks to provide “wealthcare”, a personalized investment product that integrates wealth management into people’s lives, on a wide scale. These new digital platforms are putting tailored world-class investment strategies right at the fingertips of retail customers.
Such a platform can match a customer’s risk profile to an investment portfolio, suggesting asset allocation and investment strategies based on the customer’s unique needs, preferences and risk tolerance. It also provides real-time updates on the investment’s performance and projected returns, ensuring rebalanced portfolios to keep customers’ investments aligned with their needs.
From a Southeast Asia perspective, the technology is ground-breaking with the potential to transform the wealth management landscape for the mass affluent. First, it will bring about the disruptive effect of removing upfront transaction fees, creating highly cost-competitive wealth management services across the region. Second, it opens up the wealth management market and discretionary portfolio management to middle-class retail investors by lowering initial investment amounts.
Regulatory developments in the region have been encouraging, with regulators recognizing the empowering effect technology is having for the growing mass affluent population. Easy-to-use, accessible and safe, regulators are beginning to see that robo-advisory technology not only has the power to put rising wealth to work but it also offers tremendous educational value for this increasingly prosperous part of the world.
Malaysia issued its first fund management license to a robo-advisory service in November under its new digital investment management (DIM) framework. Just in March, the regulator said it had granted approval in principle to two more firms, signaling positive steps towards embracing the technology. With user-centricity a prerequisite for the license, the opening up of the market will force financial institutions to rethink their offerings to maintain relevance and create accessibility for the mass market.
Thailand’s push to establish an innovative and creative nation through its “Thailand 4.0” policy is also opening up opportunities for fintech players in the country. In addition to rolling out regulatory sandboxes, the Thai Securities and Exchange Commission is easing license requirements on investment and derivative advisors that offer general non-personalized advice and reduced the required paid-up capital for securities and derivative businesses that plan to use fintech. These are encouraging steps forward.
Alex Ypsilanti is the CEO of Quantifeed.