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Singapore as test case for robo-advisory

THE dynamics of the Singapore market as a fintech hub could offer a test case to show how integrating robo-services into traditional financial advisory may be the best option for both consumers and financial institutions.

This comes amid a large market potential globally, with the value of the "digital advice" market expected to hit US$500 billion in 2020, a global KPMG report showed. The assets under management (AUMs) to be controlled by a robo-advisor is projected to hit US$2.2 trillion that same year.

Robo-advisory is using automation to offer wealth-management services, making use of regular or online channels. Robo-investing often appeals to less wealthy investors because of the low minimum investment sum and low cost portfolios, the KPMG report showed.

This applies in particular to young investors, with 80 per cent of millennials polled by KPMG saying they would be "very likely or somewhat likely" to consider the robo-advising product - the highest level of interest among all surveyed demographic groups.

But bringing in the human touch amid embracing robo-advisory is key. The KPMG report listed robo-advisory's ability to consult a financial adviser about investment approach and other financial matters as the third most attractive feature.

A Legg Mason Global investment survey showed that 60 per cent of Singaporeans are "somewhat" or "very comfortable" using a robo-advisor, above the global average of 57 per cent (excluding Japan).

Yet at the same time, 61 per cent of Singaporeans consult human financial advisers, the highest among the 17 countries surveyed. The global average was 46 per cent.

The Legg Mason report revealed that 79 per cent of Singaporean respondents indicated that they would be "somewhat" or "very comfortable" buying S$2,000 worth of investments online but the figure drops to 57 per cent for S$20,000 purchases.

This is despite robo-investing offering increased transparency into investment options and decisions, and increased accessibility with low or no minimum fees.

The simplest form of robo-advisory is one where clients receive single-product proposals or portfolio allocations based on listed investment products after answering a questionnaire to filter options, a Deloitte report showed. These products include stocks, bonds, ETFs and other investment vehicles.

In the next evolution of robo-advisory, investment portfolio will be created as a fund of funds, with the asset allocation managed manually by investment managers. Questionnaires are used to filter suitable products and to allocate clients to pre-defined, risk-allocated portfolios.

In anticipation of more robo-advisory services, the Monetary Authority of Singapore has proposed its regulatory approach to welcome the offering of digital advisory services, while still adhering to the regulatory framework that governs financial advisors and fund managers.

While robo-advisors will not be separately licensed, they will be given some concessions. It has been proposed that digital advisors who will go the fund management route and target retail investors be exempted from meeting the track record and minimum AUM requirements.