Financial advice the robo way

• Company will launch its robo advisor platform for family offices in Asia Q3
• Immediate markets are Singapore, Malaysia, Indonesia and India.

SINGAPORE-based Marvelstone Capital, which is a data-driven asset management company, is planning to launch its robo advisor platform for family offices in Asia in the third quarter of this year. Digital News Asia caught up with Marvelstone chief executive officer Joe Seunghyun Cho (pic) for more details on the company’s plans for its new robo advisor platform.

According to Cho, the robo advisor platform is being developed with Singaporean fintech startup Smartfolios, which is focused on building next-generation advisory and thematic investment technologies. The robo advisor will be available on desktop and mobile for Marvelstone Capital’s clients.

Investopedia.com defines a robo adviser as an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners.

Why a robo advisor for family offices in Asia?  “We identified family offices as a different type of clientele, different from retail investors and high net worth individuals. And we see family offices in Asia are underserved even compared to those in developed markets like US and Europe. And their needs are quite different from those in US and Europe.

“So we thought it made sense to help this market and a robo advisor itself is pretty helpful in many ways. So whatever they're getting from existing brokers like Goldman Sachs and others, the robo advisor could offer a similar product at much more flexibility. So we thought that this would be good market and our background is hedge funds so we have good access, we know many families in Asia,” Cho says.

He explains that family offices are their own market and what they need is different from others and the market size is quite big. “So, we thought this would be a good market to cover and since most families are getting traditional services from banks, we wanted to fill the gap.”

Cho adds that most of the products offered to family offices currently are in US dollar, so there's a gap for products dealing with local currencies. Marvelstone, he says, deals with Asian products in local currencies and has developed their own strategies for Asian family offices.

Target market

Where is the demand coming from? Cho says that he sees demand coming from family offices based in Singapore, Malaysia, Indonesia, Myanmar, as well as India. Malaysia, he says, is an important market. “Definitely Malaysia is a huge market and the culture is quite unique as well, there's a huge Shariah-compliant market, so it is definitely one of the most important markets for us.”

To give an idea of the market size of family offices in Asia, Cho cites a report that says that overall, the billionaires in the Asian market have about US$400 billion of assets at their disposal, which equates to an average of about US$3.6 billion per individual, which in turn makes all of them potential clients of family office solutions or even owners of single family offices. (Source: https://www.vpbank.sg/data/docs/en_SG/1713/Family-Offices-in-Asia.pdf)

Cho explains that family offices with below US$1 billion assets under management are the underserved family offices. “Typically if you want to have a portfolio, you need to have more than US$1 billion. So for family offices were are categorising them into two sectors: below US$1 billion, and above US$1 billion and up to US$10 billion. Those are the families we will be helping and for whom a robo advisor would make more sense.”

When asked what kind of investment needs their robo advisor platform can meet, compared to a human wealth advisor, Cho says that for traditional services that family offices get from banks, Marvelstone can offer them at a much cheaper rate and more customisation. This amounts to easily five to ten times cheaper than what they’re getting now if it’s the same product, he says.

“And instead of having to call their private bankers every time, the robo advisor will have a customisation facility to make it very easy. Because for certain investors, timing is very crucial, so we can send them alerts via the robo advisor. Compared to human fund managers, who are looking at 10 to 100 deals and maybe can call 10 to 20 customers a day, based on big data and data analysis, the robo advisor platform should be able to handle a 100 or even a 1000 times more clients a day. So these family offices will benefit more from a robo advisor,” he adds.

The human touch

However, one issue with robo advisors is that they lack the human touch and that people aren't as comfortable with the concept. What is his take on this?

Cho agrees that market adoption will take some time and he doesn’t know how long that will be. “Retail investors and high net worth individuals will take more time to get used to these services. That's why even in the family office market we are trying to identify the undeserved markets, those that will be more incentivised to use this platform. Because we are offering something they can't get from the traditional services.

“We're not going 100% automated, we still have our customer service and in-house private bankers to liaise with our clients. So we still need to spend a lot of time in person with the clients,” he shares.

Commenting on Marvelstone’s plans for its robo advisor, Cho shares that they will focus on regional expansion this year. “We will find partners in more cities in countries that we are looking at in the region. We are in discussion with many families in Asia and they are not just in Singapore, but also in Malaysia and other places. We will try to find banking partners and we still need to work with investment banks and prime brokers, angel investor groups or even family office groups that can help each other.

“The immediate markets we are targeting will be Singapore, Malaysia, Indonesia and India. We are in discussions with prospects in those countries.”

He adds that second priority countries will be Korea, China, Taiwan and Japan and that the third priority will be emerging markets such as Myanmar and Vietnam.

“We don't know how fast we can work with the third-tier markets, because they don't have the legal structure yet, most likely we'll engage with second and third-tier markets' family offices to open accounts in Singapore, because most of them have assets in Singapore and we'll start with them first. This year we will expand our services to those four countries and at the same time we will still talk to families in other places who have assets in Singapore. And next year we will try to open more centres and branches in other places.”

In providing this service, what kind of risks does he foresee? Cho explains that the underlying assets offered to family offices are the still the same, so the risk exposure or return will be pretty much the same if they were offering traditional asset class portfolios. “But it will be cheaper and be more well-defined risk levels, so risk management will be much better for clients. And of course, transactional costs and management fees will be a few times cheaper than what they are getting now from existing managers.”

He believes that over time, taking advantage of big data driven analysis will help them to identify new opportunities.

“Startups, venture capitalists and private equity, those are good examples. Everyone is curious about investing in startups but traditional hedge funds and asset managers are not really holding these things and the same for family offices.

“It's a bit too small for them, so if we can make use of the platform to get better data, and if we can bundle these into a new asset class to let investors have exposure to new innovations, then it will be quite interesting. So we are looking at startups and innovations as a product we can offer to family offices that have traditional asset classes,” he explains.

What are his thoughts on the potential for robo advisors in the Asian region? Cho says that the potential for robo advisors will be much bigger than in developed markets.

“If you look at many places in Asia, they don't have infrastructure, even in the retail investor market, we have a huge unbanked population even and they don't have access to extra services. But now mobile penetration is pretty high, and everyone is coming down to these unbanked people.

“China is one of the best example, where they don't have bank accounts, but open an account with Alibaba to make online payments. So Alibaba helped bring payment facilities and credit lines to these people. A similar thing could happen in most of the emerging markets. India is one fascinating market, we see huge potential not just with professionals and high net worth individuals, but retail itself is quite big, so it will be quite interesting to see how far it can go.”

Growing interest

What other trends does he see in this area? Cho replies: “I think this year is going to be interesting. Robo advisors are not just coming from startups themselves, they are being introduced by financial institutions. And one sector we should take a look at is technology companies. Facebook is introducing their remittance services, a similar thing could happen in Asia.

“Modern financial institutions and traditional banks, tech companies will introduce these services; competition will be quite interesting to look at. So this year we expect to see more tech companies from traditional markets to come in. India will be a good example, you see how Amazon, to Facebook to local players have spent billions to dominate the market. And we have big Asian players like Alibaba, they have plenty of cash to deploy in startup markets. So those developments will be quite interesting to see,” he says.

Does he see Marvelstone in competition with the fintech startups? “We see huge competition, that's why our business model is not competing, we are partnering with them. So for this project we are partnering with a fintech startup.

“We have the resources to deploy our own robo advisor and I could work with other startups or I could work with big tech companies or banks. Instead of building the best robo advisor solutions, we are trying to be the best platform and best player to understand the market.”

He adds that any robo advisors or any competitors from startups, could be their partner. “And I don't try to compete with banks, they can be my partners. If we just leverage on the existing banks' platforms, by bringing in new products with the startups and helping both sides to make more money together, I think that will be interesting. We see even big players are partnering together so we try to position ourselves as an intermediary to help both parties.”

He adds that for example, a startup may have a product but have problems getting licences, therefore Marvelstone can be a licensed platform where startups or fintech players can deploy their product to do revenue sharing or any other kind of partnership.

“And we're more interested in data than revenue sharing so we're happy to promote other competitors on our platform and support their brand as long as we get more data and access to new markets. That will be our approach,” he concludes.

Related links:

Fintech still has a long way to go

Goodbye banks. Hello fintech!

The fintech revolution: It goes beyond blockchain

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