With traditional retailers seeing their business diluted if not completely evaporated by the march of internet giants such as Amazon, is financial advice heading down the same dead-end path?
Are robo-advisors, the digital-only offering that takes the place of a human investment manager and in many cases offers a cheaper, nimbler and more accessible service, going to make human advisors obsolete?
There are solid arguments on both sides of the question. Many agree that for younger customers with few commitments, the robo model has its place. However, more mature investors with families may still require complicated bespoke advice and human support.
Nevertheless, amid a massive generational transfer of wealth in Asia, robo-advisors continue to grow.
Homegrown Singapore robo-advisor StashAway recently raised US$12 million in a series B round led by Fidelity International investment arm Eight Roads Ventures. StashAway provides digital wealth management services, investment management, portfolio analysis, and advisory services.
The latest funding round also saw involvement from private equity firm Asia Capital and Advisors. The robo-advisor has now raised a total of US$20.4 million since its founding two years ago.
The Asset recently met with Michele Ferrario, co-founder and CEO of StashAway, to discuss his journey in steering the fintech and his future plans for the business.
His firm now employs 43 people, with 35 in Singapore and 8 in Malaysia, and is still adding to its teams in both locations. It is also bursting at the seams in its Singapore base and will likely have to move to accommodate the ongoing business and personnel expansion.
Since its inception in mid-2017, the robo has developed quickly and now boasts in excess of 80,000 accounts. As well as domestic customers, the firm says accounts have been opened by people in 77 countries.
The figures have exceeded the expectations Ferrario envisioned for this time for the business. And if his firm, as well as other robo offerings are gaining market share, are traditional brokerages the ones seeing the outflows?
Industry disruption is nothing new to the affable CEO who was previously the group chief executive at e-commerce giant ZALORA. During his four-year stint, he was responsible for its rapid growth in becoming the leader in its market segment.
Before that role, he founded the Italian and Pakistani operations of Rocket Internet, and launched five companies in these two countries.
Ferrario’s career was on a fast track and he had a successful corporate role, so what led him to enter the financial services market to create a robo-advisor?
When it came to managing his own money, Ferrario could not find a service or offering that matched what he wanted, and he knew he wasn’t alone. Consulting his peer group, he sensed there was a deep demand and saw an opening for a new kind of private investment offering.
After signing up for mass affluent service with two banks in the city state, he found the service poor and mainly one way. With his relationship managers upselling unit trusts and other services he had no interest in, Ferrario recognized a serious misalignment of incentives.
“It was clear the relationship manager was simply trying to sell me products because they would make the bonus, not because it was a good product for me,” Ferrario says.
“We built our system in a different way to make sure that our incentives are completely aligned with the customers. Which means that we can only grow and make more money as a company if our customers grow assets with us,” he adds.
His firm charges fees calculated as a percentage of assets. So, as the assets of the customer grow, either because he’s happy with the service or because his assets are actually growing because of performance, the robo-advisor achieves higher fees.
Ferrario claims the robo platform looks simple and is easy to use, but it is actually very sophisticated. According to the CEO, it offers the dynamic asset allocation strategy of an institutional investor.
He has also put his own money where his mouth is as 100% of his investible assets are managed by his own firm.
With Singapore’s financial regulator recently announcing it will allow digital banks to enter the local market, does Ferrario have any ambition to enter the fray?
“This is not our sweet spot, but I think what may transpire is those that apply for the retail license might want to partner with somebody for wealth management, and we could be that partner,” he says.
With one foothold in Malaysia, are other StashAway businesses likely to spring up across Southeast Asia as the region’s wealth grows?
“In the next couple of years, what we want to do is continue what we’ve been doing so far, improving the product, adding a few ancillary products to our core products, and going to maybe one or two more countries,” Ferrario says.
Although viewed as a fintech entrepreneur, Ferrario sees his mission differently. His time in e-commerce saw him gain expertise in technology, marketing, customer acquisition and support. But his biggest takeaway was in calibrating his people skills.
“My main role today is to make sure we have the right people, and that they are empowered the right way to get whatever they need to do it,” he says.