Can technology-enabled investment platforms deliver what they promise?


Billions of ringgit are already parked with the Employees Provident Fund and the Retirement Fund Inc.  Huge amounts are also being invested in unit trusts or mutual funds in Malaysia, which today have a net asset value of close to RM400bil.  But the returns from these asset classes are far from spectacular, at least going by the behaviour of many Malaysian investors.

Billions of ringgit are already parked with the Employees Provident Fund and the Retirement Fund Inc. Huge amounts are also being invested in unit trusts or mutual funds in Malaysia, which today have a net asset value of close to RM400bil. But the returns from these asset classes are far from spectacular, at least going by the behaviour of many Malaysian investors.

NOT unlike elsewhere globally, we Malaysians are in continuous search to get higher yields from our savings. The struggle is particularly felt here because we have a relatively high savings rate.

Billions of ringgit are already parked with the Employees Provident Fund and the Retirement Fund Inc.

Huge amounts are also being invested in unit trusts or mutual funds in Malaysia, which today have a net asset value of close to RM400bil.

But the returns from these asset classes are far from spectacular, at least going by the behaviour of many Malaysian investors.

They seem to be drawn to dodgy investment schemes, which are widely being reported about today. Billions of ringgit are believed to have been sunk into such schemes and we all know how that story typically ends.

For the well-heeled, though, they seem to have been given more options. It is a known fact that many of them from Malaysia and the rest of the region have historically placed a significant portion of their monies into wealth management firms in Singapore.

Today, the wealth management industry in domestic markets such as Malaysia and Indonesia has grown, so investors need not make a beeline for Singapore.

In other words, when you are a high-net-worth individual, you have more money management services being directed towards you. But even the rich are complaining about higher fee structures and associated risks.

So, against this backdrop, technology-enabled, legitimate investment platforms are timely. Will they deliver what they promise?

It is hard to tell at this point. Legitimising such platforms is a right step.

It is up to the players to take advantage of the new licensing regime to come to market with products and services that achieve all that is promised.

This is in relation to the digital investment management (DIM) guidelines launched by the Securities Commission this week.

Similar to the concept of the robo adviser, the DIM initiative is to invite platform operators who are able to offer more convenient, affordable and accessible channels for investors to grow their wealth.

Robo advisers’ assets under management are expected to nearly double this year alone to US$900bil, according to KPMG, although that figure is still a fraction of the total fund management industry in markets like the United States.

The bottom-line question is, are they offering investors higher returns?

One report that surfaced earlier this year tracked the returns of some of the main robo advisers in the US.

An advisory firm called Condor Capital Management decided to open up accounts with a number of digital platforms.

They put themselves down to having moderate risk and being in the high tax bracket, with a 20 to 30-year timeline to retirement.

The goal was to end up with a 60:40 equity-to-bond portfolio (note that one of the key features of DIM is that it aims to understand client needs, profiles, preferences and risk tolerance and use its software to come up with apt investment strategies and portfolios).

Condor Capital Management then published the full-year 2016 returns from its robos.

Any guesses what the returns were like?

Well, it was decent, but not spectacular. At the top-end of the scale, Charles Schwab provided them an annual return of 10.75%, while the lower-end returns were 5.55% from Vanguard Group (yes these established names have embraced the robo advisory concept.)

But that isn’t to say that DIM and robos aren’t attractive or game-changing.

The main advantage they bring is financial inclusion - they are bringing investment services to the regular folk who have been under-served all this while.

Secondly, they are going to slash professional fees - much, much lower than the high fees that our unit trust managers charge us.

Let us just hope that with the guidelines now out, there will be some credible parties taking the initiative to get licensed and roll out this much-needed investment service for the masses.

Personal Finance , Markets , robo , dim , aum