Robo-advisors are digital platforms that offer automated, algorithm-driven financial planning services with minimal human supervision. They are here to disrupt the wealth management industry.
StashAway was the first robo-advisory firm to attain a full capital market services license from the Monetary Authority of Singapore. After completing its Series A round last March, the company also introduced its services in Malaysia.
KrASIA linked up with Freddy Lim, the co-founder and chief investment officer of StashAway, to learn more about the early days of the startup, the digital advantage when it comes investments, and the company’s future plans.
KrASIA (Kr): Having spent 17 years in cross-asset investment and portfolio management, specifically as part of financial institutions such as Nomura, Morgan Stanley, and Citibank, what made you decide to take the plunge and set up StashAway?
Freddy Lim (L): I have always had the tech bug (or itch) in me. While I was given the opportunity to take on a variety of roles at various Bulge Bracket institutions, I was on the sidelines observing all the really interesting developments in fintech.
The pivotal moment came when I met like-minded people with complementary skills and temperaments to mine. They became my co-founders. Michele Ferrario was CEO of Zalora Group. He had very deep experience in building e-commerce businesses and spent half of his career in and around financial services, first as a consultant to large financial institutions at McKinsey & Co., and then as a private equity investor. Nino Ulsamer is a serial tech entrepreneur who co-founded a number of tech companies, such as [Russian home goods e-commerce platform] Westwing and [human resources and recruitment portal] Personio.
We started StashAway because we felt like the three of us can really come together to make a difference.
Kr: How has your time in financial institutions shaped your views on various investment approaches?
L: Before my move to Singapore, I worked in New York, London, Tokyo, and Hong Kong. I had the opportunity to expose myself to different philosophies, styles, and techniques in investing. I met and learned a lot from really intelligent people who were very good in their respective fields in finance.
Sadly, the global financial crisis of 2008 was the year where I saw how intelligent traders and fund managers could also crumble. The crisis was a regime change in the economy at an unprecedented scale. No prior experience in the market or any sort of news flow could have armed traders or fund managers for that financial tsunami.
It was from that point—November 2008—when I started conducting deep research in economic regimes and how different asset classes would behave. In that multi-year search for an investment framework, I have gotten a lot of inspiration from academia and practitioners.
Kr: Does this relate to StashAway’s adoption of the economic regime-based asset allocation (ERAA) investment strategy?
L: That search for answers came to a full circle with StashAway’s risk-focused investment framework. ERAA basically embeds persistent and high-quality signals from the economy to value various asset allocation decisions.
For example, suppose we are in good times, where the stock market is expected to deliver an average return of 16% per annum. Investors, however, started to flock to the stock market en masse, and there is a chance that the stock market has become overvalued. With ERAA, we are able to compute the overvaluation gap and reduce the expected return of the stock market accordingly.
Kr: What were some of the challenges for StashAway before it became Singapore’s first licensed robo-advisor?
L: The process of obtaining a capital markets services license [for retail fund management] is fairly lengthy in Singapore, but that is true with most regulators around the world. Regulators are very focused on investor protection and hence would often require a certain level of scrutiny and due diligence before granting the license.
Some of the challenges pertaining to the CMS license include running quarterly and annual audits ranging from technology risk management, cybersecurity to outsourcing and marketing practices; conducting both internal and external accounting audits; and all other processes that have to comply with the internal controls that the Monetary Authority of Singapore requires.
Having the MAS thoroughly analyze our proposed approaches and processes while we built up the product made the entire journey an incredibly constructive experience. We have also since gone on to become the first robo-advisor to be awarded the equivalent license under the Malaysian Securities Commission’s digital investment management framework.
Kr: How is StashAway different from other investment platforms and traditional financial institutions?
L: Looking to empower people to build wealth in the long run, we try to differentiate ourselves as much as possible in every step of the user experience.
StashAway’s management fees are significantly lower than those of traditional financial institutions. As we charge on a pro-rata basis, more of our investors’ funds can be invested. There are no entry fees and minimum balance requirements for customers to start investing with StashAway. Also, customers can purchase a minimum of 0.0001 units of any given asset and can own a highly diversified portfolio for as little as USD 10.
Kr: StashAway now operates in Singapore and Malaysia. Are there upcoming plans to expand further in Southeast Asia? What is StashAway’s next focus in the coming year or two?
L: Yes, we are definitely looking to expand to other countries in the region, but our top priority will always be to do what’s best for our clients.
We actually do plan longer than that. I get extremely excited whenever I think about our roadmap over the next five years—more geography, more innovations, more product features, and more portfolio types to meet the needs of different investors.
Kr: When it comes to managing risk, returns, and fees, how do robo-advisors differ from a human advisor?
L: At StashAway, we strongly believe that a combination of algorithms and humans is key to success in wealth management. Algorithms can instill consistency with its rule-based decision-making. We also leverage technology to automate tasks and save time, bringing efficiency and hence lower fees. On the other hand, well-designed algorithms need intuition and guidance from humans in setting the right objectives, priorities, and boundaries to achieve their purpose.
Oftentimes, we are our own worst enemies. Many of us are either overly emotional or we procrastinate in setting goals. Both of those things can lead to lost returns over time. An automated investing platform such us StashAway makes it easy for investors to be systematic when investing their savings.
Kr: What is a piece of key investment advice that you have for young people, particularly those who are in their first job?
L: Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it earns it. He who does not pays it.”
This has become my favorite quote when it comes to investing. The power of compounding begins with having a long-term investment plan, and it should help you in three ways: set targets on how much to save, set risks compatible with your goals and tolerance, and set a clear schedule for how often you will invest your savings.
To close, I would also flag that it is important to be aware of the behavioral pitfalls in investing: Don’t borrow money to invest. Ignore the media. Control your FOMO (fear of missing out). Avoid the FOF (fight or flight).
This article is part of KrASIA’s “Startup Stories” series, where the writers of KrASIA speak with founders of tech companies in Southeast Asia.