The Rise of Robo Advisors in Malaysia

Beyond virtual banking, both robo-advisor and robo-advisory are the latest buzzwords in Malaysia’s financial services landscape.

In 2017, Securities Commission Malaysia (SC) introduced a regulatory framework to facilitate Digital Investment Management services. The framework sets out the licensing requirements for offering automated fund management services to investors.

Robo-advisors are operating in Singapore. Among them are Singapore’s own Smartly Pte Ltd, as well as India’s Valuefy Solutions and Main Street Capital Sdn Bhd.  One or two who are reportedly looking to expand to Malaysia. StashAway, headquartered in Singapore, is the first robo-advisor to provide robo-advisory services in Malaysia. It launched its robo-advisory platform in November 2018 after obtaining a Digital Investment Management License from the SC.

What is a robo-advisor?

Basically a robo-advisor refers to an application of algorithms in providing financial planning or investment management services to investors with minimal human intervention.

How does it work?

Robo-advisors can be as good as human financial advisors. They replicate what human financial advisors can do at the basic level, but on a larger scale. Robo-advisors provide primary financial advice to investors in respect of asset portfolio allocation. It can select investments, allocate and re-balance an investment portfolio automatically based on clients’ risk preferences and financial goals. Robo-advisors also gather client information through online questionnaires without any human interaction.

What are the benefits?

The robo-advisory industry has grown rapidly since the emergence of Betterment in 2008, the very first robo-advisor in the world. According to Statista, assets under management in the robo-advisory industry amounted to US$398 billion in 2018. And the segment is expected to increase with a compound annual growth rate (CAGR) of 38.2% to reach US$1.5 trillion by 2022.

The 4 key benefits of using a robo-advisor to manage your investment portfolio are:

1. Low fees

Many robo-advisors in the market today have 0% sales fees with annual fees ranging from 0.5 to 1%. For example, StashAway charges a management fee annually which ranges from only 0.2% – 0.8% in Malaysia.

For the entry-level investor, a robo-advisor is more cost-efficient as it cuts out the middleman, making it affordable to everyone.

2. Low entry requirement

For example, StashAway does not require a minimum balance for investors to start investing in Malaysia while Smartly allows users in Singapore to invest as little as S$50 per month, even in Exchange Traded Funds (ETFs) globally.

3. No specialised financial knowledge required

Conceptually, a robo-advisor uses artificial intelligence to manage an investment portfolio. The robo-advisor mimics the way a human thinks and acts under different circumstances using artificial intelligence.

4. No emotions

It follows preset rules and doesn’t allow human emotions to cloud its judgement to affect decision-making. The investment process is fully automated when you use a robo-advisor.

Who gains?

Undoubtedly with the advent of robo-advisors many novice investors benefit especially the millennials. The rise of robo-advisory is regarded as a watershed moment for the investment management industry in Malaysia. The use of robo-advisors will transform the traditional fund management services in Malaysia for years to come.

Reference:

The Rise of Robo-Advisors in Malaysia, A Beginner’s Investing Guide, Desmond Mar,
27 November 2018 (https://www.imoney.my/articles/beginners-guide-robo-advisor)