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Whither robo-advisers as wealth managers

Money & You, StarBiz, The Star – Feb 24, 2018


Robo-advisors will soon be weaving their way into the very fabric of our society and our daily lives. No, I do not mean humanoid artificially intelligent beings in the likes of Asimov’s “I, Robot” or “The Positronic Man”, rather I am referring to digital investment management services that is rapidly gaining traction in Asia and very soon, right here on our own shores.

Perhaps, you may have heard of Betterment, Wealthfront and Personal Capital, three of the most widely used robo-advisors in the United States? Industry experts from technology solutions companies and fintech innovators are in agreement that robo-advisory is the direction to head for the future of wealth management industry, a sentiment echoed by banks and other wealth management service providers who are constantly on the lookout for innovative technology to keep up with the pace of their clients’ needs.

In Malaysia, we can expect to see the first wave of robo-advisors making its appearance once the Securities Commission of Malaysia starts issuing the necessary licenses sometime this year. When this happens, the general public will have a much wider access to digital investment services that fall within a regulated framework.

However, the question remains, will robo-advisors live up to all their hype?



Robo-advisors are essentially automated investment platforms that handle the construction and maintenance of an investment portfolio. A client only needs to open an investment account, answer some questions about his or her financial goals and risks tolerance, and thereafter, algorithms which are executed by pre-programmed software, would automatically allocate, manage and optimise their assets.

Some of the main advantages that robo-advisors can bring to the table include accessibility, lower fees, low starting capital and convenience. Portfolio management services, which are usually associated with high net worth individuals, can now be made available to a broader audience without the premium fees involved. Meanwhile, investors who may not want or cannot afford the time to carry out ongoing personal monitoring of their portfolio development will find robo-advisory services a boon.



Definitely not! There’s a tendency for the media to categorise robo-advisors as online wealth management companies. But, this is very misleading as it implies or offers the impression that robo-advisors can provide a full spectrum of wealth management services. Therefore, it is important that every investor is fully aware of the implications of choosing one over the other.

Robo-advisors worldwide have clocked in roughly USD224 billion in assets under management last year. While the numbers are certainly impressive, it still pales in comparison to traditional wealth management companies such as Merill Lynch, for example, who have more than USD2.1 trillion in client assets.

What is limiting the growth of robo-advisors and why has it not made a bigger impact despite being around since 2008? I believe it is important for you, the readers, to be made aware what robo-advisors can or cannot offer, prior to its arrival in Malaysia.  When the time comes, you would be able to go at it with both eyes wide open, and not be swayed by the buzz.



Our younger generation virtually grew up surrounded by technology and all things digital at their fingertips. They are likely to be most comfortable with robo-advisors. Novice investors who are just starting to dabble into investing, will appreciate the lower fees and entry costs offered by robo-advisors compared to engaging a professional wealth management service provider. The fact that no face-to-face interaction is required, and that investors are able to access their portfolio anytime and anywhere, is surely a win with the millennials and their frenetic lifestyles.

Nevertheless, robo-advisors have yet to make the same level of impact on the wealth management industry as what Airbnb and Uber have done to the holiday accommodation and public transportation market, suggesting that perhaps, the value proposition of robo-advisors may not be all that appealing to consumers.

Here are five drawbacks which investors need to be aware of when using robo-advisors

1. Robo-advisors are only good investment tools. They are not GREAT, nor are they the ultimate investing platform for all asset classes. Here’s why: the core function of robo-advisors is constructing and managing investment portfolios which may include ETFs, shares and unit trusts. But if you notice, they are all liquid investments. Robo-advisors do not cover certain asset classes such as real estate, which is a popular asset class for Malaysians. This means investors would still need to manage certain investment assets on their own.

2. Robo-advisors are not in the same league as holistic wealth management companies. Holistic or full spectrum wealth management is the comprehensive service which aims to grow one’s wealth with high certainty by taking into consideration 8 areas – Investment Planning and Management, Risk Management and Insurance, Children’s Tertiary Education Planning, Retirement Planning, Asset Protection, Estate Planning, Debt and Loan Management and Tax Planning. Hence, if you were to take a good look at the entire wealth management value chain and compare it, robo-advisors are only a subset of the entire wealth management ecosystem. At best, robo-advisors only manage the investment planning and management aspect in the entire wealth management service.

Therefore, for matters pertaining to estate planning, risk management and insurance and debt management, consumers still need to go to a traditional offline wealth management service provider since robo-advisors cannot provide the convenience of a one-stop solution.

3. Robo-Advisors are not BIG PICTURE players. Because robo-advisors are so single-minded with its algorithms, it fails to capture the full picture of a client’s financial assets and liabilities. Therefore, advice given by robo-advisors may not be as relevant nor it is 100% tailored-made to a client’s unique financial circumstances.

4. Robo-advisors are NOT real. The majority of people still want some form of human guidance and assurance that their investment decisions are being validated by a qualified professional. Most consumers may not identify so easily with a faceless, nameless artificial being to entrust it to manage their money.

Unlike real-life wealth management service providers who strive to get to know their clients personally to support their financial freedom goals, robo-advisors, as we already know, are unable to offer personalised services. Moreover, financial decisions very often have emotional and psychological effects on an individual and a robot can never deliver the empathy and understanding of its human counterpart.

5. The ability for robo-advisors to manage assets are limited. Even if investors were to start off with robo-advisors, when their assets grow bigger, they would need to move on to a traditional wealth management service provider. In consumers’ minds, a human advisor is still better able to understand them and their wealth complexity in order to give them customised advice.


Suffice to say, in spite of all the media excitement over the coming of robo-advisors to rock the wealth management industry, it is important for us to recognise that robo-advisors are basically only investment tools, not holistic wealth management service providers. After all, digital algorithms cannot completely help you navigate the path towards financial freedom, nor can they guarantee 100% financial success any more than a human can.

Truth is, we may have set too high an expectation on robo-advisors. In its present state, it is not able to offer something big enough to match current wealth management offerings, let alone something better than what the present wealth management industry can provide.

When robo-advisors fail to provide holistic wealth management solutions, it is at best a new investment option in a sea of investment opportunities. Therefore, its power to disrupt and replace current wealth management service providers is doubtful.



A recent survey in America saw 56% of investors acknowledging the value in robo-advisor but at the same time, 69% wants online services that blend human and digital guidance. Meanwhile 71% wish for technology that connects them to a human advisor.

To address the gap, many robo-advisory companies are now moving towards a hybrid model, merging man and machine. For example,  companies like Betterment, Capital One and Charles Schwab are  taking the route of adding human financial advisors to their online advisory services.

To this effect, the Chief Marketing Officer of Money Farm, a leading robo-advisory company in Europe, said to me, “Even though my company has added human advisors to our existing robo-advisory service, it is still too early to tell if this is the way forward for internet wealth management. Maybe it is still not good enough, and it would take a whole new online wealth management 2.0 to reinvent the current wealth management industry.”


We over estimate technology in the short term and under estimate technology in the long term: Arthur C. Clarke

Many have lauded robo-advisors as the disruptive force that is capable of transforming the wealth management industry. But is it?

The evidence suggests otherwise. Perhaps it is still early days, or perhaps it may never happen and robo-advisor will fail in its crusade to transform the wealth management industry. However, one thing is for certain, we must not under-estimate the power of the internet and technology that is reshaping the world over. I believe technology innovation in the wealth management industry won’t stop here. The next internet-powered wealth management creation could emerge to uplift the wealth management industry to offer something better and more relevant to the consumer’s needs and wants.

Who knows, a fresh new approach to online wealth management services could arrive at our doorstep as early as next month!


The Star article – Feb 2018

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