Robo-advisors are hardly a new concept in Singapore. Local fintech startups such as StashAway were founded in 2016, while Syfe and Endowus have been around since 2017. In recent years, they’ve gained incredible traction.
According to a policy statement issued by the Monetary Authority of Singapore (MAS) in January 2022, people in the city-state had invested approximately SGD 3.4 billion (USD 2.46 billion) into micro-investment products that were managed by robo-advisers as of the end of 2020. Deloitte predicts this type of personal wealth management service will be used by 6.7% of consumers in Singapore by the end of 2022.
What exactly is a robo-advisor?
Digital financial platforms typically provide two ways for wealth management, either through an experienced human, or through robo-advisors. A robo-advisor provides automated, algorithm-driven financial planning services. Unlike conventional forms of investments that are handled by fund managers, robo-advisors require minimal human supervision.
When a new client signs on for the first time, robo-advisors conduct a risk assessment and collect information about their financial status and goals. The collected data is then used to generate financial advice and automatically invest a client’s assets.
Robo-advisors are appealing because they do not require constant management. Plus, clients whose investment products utilize robo-advisors typically do not need significant amounts as starting capital.
The rise of robo-advisors amid rising inflation
In the past decade, Singaporeans have been facing alarming levels of inflation. In March, the rate rose to 5.4%, the highest in ten years. The MAS Core Inflation, which measures the increasing prices of most essential goods and services, is expected to be even higher, given the rising costs of fuel, imported goods, wages, and logistics.
As a result, 45% of Singaporeans cited inflation woes and the rising cost of living as their top finance-related worries, according to a survey conducted by Endowus in February. Singaporeans are turning to various types of investments in hopes of remaining financially secure—79% plan to invest more while markets remain volatile. The low fees of robo-advisors have made them a popular choice for individual investors.
Easy accessibility is important for millennials
The interest in robo-advisors in Singapore is highest among millennials, according to a 2019 study by Deloitte. This generation is characterized by a desire for financial independence and careful spending, and views robo-advisors as a strategic part of personal wealth management.
Besides, younger clients may have less disposable income, so they will often value the lower fees that robo-advisors charge. For example, Syfe and StashAway have no minimum initial investment amounts, and assets-under-management (AUM) fees start at 0.4% for Syfe and 0.8% for StashAway.
Reactions to robo-advisors
A study conducted by Singapore Management University in 2018 found that apps solely offering investments managed by robo-advisors are becoming an increasingly attractive alternative to the conventional fund and wealth management sector. Robo-advisors claim to offer more competitive rates and better expected returns by utilizing quantitative finance, with less subjective human intervention. However, concerns remain regarding the reliability of and over-reliance on robo-advisors. The study argues that investors are rendered passive by algorithms, discouraging people from developing financial literacy.
MAS has also noted the business model of robo-advisors contains the risk of mismatching clients to portfolios, given the reliance on data collection via online questionnaires. MAS intends to define minimum requirements to monitor and control these algorithms to ensure accuracy and safety.
However, robo-advisors cannot erase the human drive to become involved in portfolio management. As investment sums grow larger and strategies become more complex, some people may prefer to be more hands-on, with many returning to financial advisors for assistance. Unlike robo-advisors, financial advisors can understand their clients’ situations in a more holistic sense. Hence, robo-advisors fail to evoke the same level of trust as human advisors.
Fast growth and public awareness
Singapore-based fintech companies that offer robo-advisor services have grown rapidly. Syfe’s assets under management (AUM) grew 1,000% in the first three quarters of 2020. StashAway announced that it had crossed SGD 1.36 billion (USD 1 billion) for its AUM in January 2021, and then launched in Thailand eight months later. Meanwhile, Endowus has SGD 1.5 billion (USD 1.1 billion) in AUM to date.
In July 2021, Member of Parliament Desmond Choo, spoke about the adoption rate of micro-investment products, including fintech platforms that utilize robo-advisors. Although “the current take-up of micro-investments among Singapore investors remains fairly low,” he believed that there was “growing interest.” In response, MAS has rolled out awareness initiatives through MoneySense, a national financial education program, to cultivate stronger financial literacy among Singaporeans.
Despite the slow uptake, robo-advisors may be able to automate some of the simpler aspects of wealth management. Although more sophisticated investors will likely still depend on financial advisors, investors with more modest objectives may utilize robo-advisors to take advantage of their low fees and convenience.