24th October 2019
Platforms now dominate large swathes of the B2C world. Netflix has disrupted the entertainment business. Facebook has upended the traditional publishing model. Uber has revolutionised A to B journey planning. And Airbnb has transformed how we holiday.
Ultimately, platforms could disrupt the asset management industry too.
JP Morgan took about 25 years to create the largest money market fund with $150 billion in AUM. Yet, within four years of Ant Financial launching Tianhong’s Yu’e Bao money market fund on AliPay it had $275 billion in AUM – making it the largest money market fund in the world. Reportedly 600 million AliPay users have placed deposits in the fund.
These numbers are set to rise: AliPay claims to add 10 million clients to its platform every six months, whilst new player Tencent, the provider of WeChat (the WhatsApp of China), already has 1 billion clients and has just received a license to sell funds.
Learning from the Asian experience
The key to Yu’e Bao’s success is accessibility and ease of use. As Alipay is ubiquitous, trusted and the fund has a low deposit threshold, it’s a stress free, lucrative alternative to traditional banking for merchants and consumers working on Alibaba and Taobao. Instead of requiring a minimum amount (typically $10,000) to participate, Yu’e Bao takes small deposits from as little as $0.15, and gives a high yield interest rate. By allowing everyday people to drip feed small sums the fund has grown faster than conventional methods.
The success of Alipay and Yu’e Bao has opened up other opportunities for Ant Financial, using AI to match this large customer data set with other investment opportunities. Ant Fortune, which launched the Caifu Hao wealth management platform for third party institutions in 2015, has doubled its number of individual investors in 12 months – thanks to higher returns on investment backed by algorithms. AI has fueled a 70% growth in users transacting, whilst those purchasing automatic investment plans have multiplied by 1.7 year-on-year. A recently launched AI bot assistant helps users evaluate asset allocations and investment portfolios in real time, plus receive customised recommendations.
So far, 80 of China’s 124 fund companies have set up virtual stores giving customers access to 5000 funds. An admin dashboard allows providers to analyse customer data and manage relationships, using AI to push relevant products to targeted users. The average transaction value of institutions with storefronts is x62 greater than those without, increasing their operational efficiency by 70%.
As well as platforms and AI, the robo-advice phenomenon is increasingly being driven out of Asia. Part of this is cultural, with 57.3% of Chinese investors saying they are “always the first to try a new product” they are more open to new business models. Not surprisingly, the proportion of individuals who’ve tried a robo-advisor stands at 31.8% in China, compared to 13.7% globally.
A range of new providers include start-ups like WaCai, tech giants such as Ant Financial and Ping An-backed Lufax, and big banks including China Merchants Bank. With another 8.3 million individuals qualifying as mass affluent in the next 4 years there’s another $1.7 trillion of assets up for grabs – a significant robo-advice opportunity.
Implications for asset managers
These examples show how technology is democratising investment in China and transforming the direct to consumer experience. Of course the landscape is very different in terms of regulation, maturity and limited intermediary sector, compared to the UK. However, there are still lessons to be learnt.
First, the growing influence of platforms, whether they are direct to customer or advisor, cannot be ignored. Estimates suggest that advised platform assets under administration could increase as much as 19% by 2023. However, the mass replatforming and consolidation by the industry over the last three years has been met with increasing complaints about poor service, functionality and growing disillusion amongst some clients and intermediaries. In some quarters there’s a belief that there’s a better model than that being offered by existing providers, but a lack of alternatives is maintaining the status quo. Is this the opportunity for the asset management industry to provide the management tools and integration capabilities that advisors crave and get closer to its network?
Secondly, access to client data is crucial to an asset manager’s future success: the effective application of AI and robo-advice in China is only possible because of access to detailed customers’ profiles – made possible through their use of AliPay and Alibaba as trusted technologies. Access to this data enables more valuable predictions and modelling.
The same principles hold true for asset managers’ relationship with their intermediary networks. AI and natural language processing (NLP) can give asset managers the competitive edge by analysing clients’ research and analysis behaviours to predict investment decisions. It’s possible to align this with shifted market sentiment, by interrogating analyst reports, news and social media, for wording that suggests upcoming changes to headline forecasts. However, this approach is reliant on capturing and consolidating client profiles and interactions in the digital domain. Something which in the past has been a challenge for the industry.
Thirdly, whilst the jury is out in some quarters for UK robo-advice, due to the inability of some more retail focused propositions to turn a profit, its influence is set to grow. At a practical level many “traditional” advisors simply can’t or won’t cover the ground, as servicing customers isn’t cost effective. Research from Schroders suggests 60% of financial advisers have turned away customers in the last year.
And whilst robo-advice won’t replace human interaction, it can be used to complement and enhance existing client relationships and increase reach. Hybrid advice is set to become an increasing trend in discretionary and passive advisory propositions as well as execution only. For example MyEva, launched this summer, is the UK’s first fully-regulated digital independent financial adviser offering a blend of automated and human advice to employees of Unilever, Calvin Klein and the NHS as well as direct to consumers. An AI powered chatbot pre-qualifies user goals and profiles and passes these on to a human investment team, allowing them to recommend targeted plans.
Technology is disrupting traditional distribution models and surfacing a new range of “middle-men” for asset managers to influence.
Platforms, AI and robo-advice enable asset managers to get closer to and better understand their networks, cover more ground and ultimately go direct to a new customer base. The jury is out on which of these roads the industry will take.
The asset management industry is beginning to rethink its digital strategy to ensure it remains relevant to clients and can offer them highly personalised quality products and services.
Whether its supporting client relationship management, recognising hot prospects or reducing fund administration, digital technology is key to an asset manager’s success over the next 5 years. The status quo is no longer a viable option and will potentially lead to declining influence in client and customer investment decisions.
We believe the role of digital technology is not to replace, rather to enhance, giving asset managers the additional time and insight to do what they do best. We’ve worked with many asset management companies to help them utilise digital technology to transform their client experience and improve retention of their assets under management.
Here’s what Michael Browning from Artemis had to say about our relationship:
“ORM lead us through a complete rethinking of our strategy, quickly understanding our business. They extended and enhanced our existing brand with excellent creative work and developed a great customer experience. That, combined with a new content management infrastructure, has helped us regain our digital standing in the industry.”