From robo-advisers to artificial intelligence, technology is changing the business environment for asset and wealth managers in Asia, writes Jeroen Buwalda of EY.

By 2018, the Asia-Pacific region will be the world’s largest wealth management market, with an asset pool of an estimated $61 trillion growing at three times the rate of the rest of the world. By 2030, wealth in China alone will be similar to that of the US today. 

But this growth bonanza won’t necessarily benefit the incumbents. Each element of the wealth management value chain is being disrupted by new technologies. The winners will be existing institutions and new players that harness these disruptive technologies most effectively.

ROBO-ADVISERS
So-called robo-advisers are algorithms that help to optimise investment decisions. Betterment and Wealthfront, two US-based robo-adviser companies, ask a client for a risk profile and create and maintain an appropriate investment portfolio automatically. Last year, the US robo-advisory market tripled in size to be worth $50 billion in assets under management.

Robo-advisers will not replace human advisers, but they will augment them, with clients choosing the level of human interaction on the basis of their needs and willingness to pay. Supported by robo-advisers, a single human support worker could service up to 10,000 clients, a capacity that fundamentally changes the cost structure of the advice and fund distribution process. Institutions adopting this technology will significantly improve their advice quality and adviser productivity.

ROBOTICS
Robotics companies, such as Blue Prism, are poised to revolutionise the wealth management sector’s middle and back office. Overlaid across legacy systems, robotic automation comes with compelling benefits. Robots work faster and more accurately than human beings and they do so 24 hours a day, seven days a week, without complaints or breaks. They do not require the complex, costly and time-consuming legacy systems integrations required for other transformative solutions, making the business case extremely compelling. A robot works at one-tenth the cost of an onshore full-time employee and one-third that of an offshore full-time employee. We anticipate the rapid uptake of robotics will likely lead to significant middle- and back-office redundancies in the industry.

ARTIFICIAL INTELLIGENCE
China’s biggest e-commerce company, Alibaba, has continuously reinvented itself using live market insights and feedback not only to develop new products, but to develop new business models. Its progress mimics that of artificial intelligence, where iterative self-learning has allowed programs to master increasingly difficult human gaming problems. These capabilities hold commercial opportunities for asset management, which depends on quality data and deep analytics to drive insights and decisions. 

Today, traditional managers looking after a Chinese retail fund are likely to base investment decisions on lag indicators such as occasional executive interactions, news and financial statements. In future, those managing the Alibaba retail index fund could have all of this information plus additional insight into half of the online retail market in China, providing real-time knowledge into which products or which companies are trending by village and client segment.

Already, early solutions, such as LikeFolio, are applying social data analytics to identify investment opportunities based on what is trending on Facebook and Twitter. The industry needs to harness similarly innovative analytics and emerging decision-support solutions to improve performance.

BLOCKCHAIN
At the back end of the value chain, blockchain is set to make asset servicing radically more efficient, with the potential to make not only humans but entire organisations redundant. 

Blockchain facilitates transaction interactions without the intermediaries currently needed for execution, clearing, settlement, depository and custody. Blockchain replaces all the separate central ledgers with a system of distributed ledgers – a copy of the truth held in many places at the same time. The system means participants can settle cash or securities in close to real time, rather than two or three days after the trade occurs.

Last year, Nasdaq was the first global stock exchange to publicly launch a blockchain platform for its private market clients. In December 2015, Chain.com was the first of six inaugural clients to use this Nasdaq Linq blockchain platform to transfer shares. Also in December 2015, the US Securities and Exchange Commission approved a plan from Overstock.com, an online retailer, to issue company stock via the internet using its blockchain technology. Now, the Bank of England, Barclays, Goldman Sachs and two dozen leading global financial institutions are backing R3, a blockchain consortium. By 2022, blockchain is expected to save $20 billion in securities transaction costs. 

INNOVATION ON THE AGENDA
To make wealth technology realise its potential in the Asia-Pacific region, the sector must:

• Improve data standards: Currently, these are lacking across the industry, creating uncertainty for solution developers and their financial backers.

• Focus on innovation: Many local markets suffer from incumbent complacency. If a few big financial institutions control the majority of financial transactions, they may feel they don’t need to innovate to stay competitive. This is a false sense of security. Barriers to entry are falling and new players such as Ant Financial are poised to move in. 

• Improve client onboarding: On the back of legislation introduced since the global financial crisis, client identification and authentication has become cumbersome. The industry
will need to harness mobile security checks, such as retinal scans, and centralised authentication to make this process quick and easy for clients.

• Go virtual: Right now, fund managers need to start using data analytics and artificial intelligence to support investment decision-making. Perhaps, in the future, asset managers will sport virtual reality goggles to conduct executive interviews, review new products or undertake remote site visits without leaving their office.

EVOLUTION, NOT REVOLUTION
By the time the Asia-Pacific region becomes the world’s largest wealth market, the sector will be fundamentally different. 

The investor experience will improve dramatically, with more convenient onboarding, better quality advice and access to more investment opportunities. 

At the same time, advisers will become more effective and be able to align themselves with the best interests of their clients. 

Meanwhile, the back office will become automated and trading functions will be more efficient.

We are seeing a lot of hype around many of these developments. In reality, we expect steady evolution, not revolution, as it will take time to proof and embed technologies. 

However, the winners will be those who grasp the potential of wealth technology and start to innovate now. 

Jeroen Buwalda is the head of the Asia-Pacific wealth and asset management advisory practice at consultancy EY

©2016 funds global asia