IN the last few years, the wealth management ecosystem has changed at a very rapid pace and I believe this change will accelerate further in the coming year and decade. This will happen particularly in Southeast Asia (SEA). There are the four key trends driving changes in wealth management:
1. The number of investors will continue to increase across SEA
Driven by easier access to investment platforms and by the bull run of recent years, many people have begun to invest. Despite markets being down in the short term, there is a strong reason to believe that investors are here to stay and their numbers will grow, specially here, in SEA.
Why you may ask? The fact of the matter is that households in SEA hold onto a whole lot of cash. Approximately 40% of SEA households’ financial wealth is uninvested. Malaysians are no different, as Bank Negara statistics show that individuals hold RM845 bil in cash. That amount of uninvested wealth pales in comparison to the United States (US), where that figure is just 14% and Australia, where it is 23.
Additionally, today’s high inflation rate is a wake up call that money, left uninvested, depreciates over time.
Therefore, it makes it even more costly to keep cash under a mattress. It just goes to show that there is more than enough room for investment growth in this region.
2. The cost of investing will continue to decline, largely thanks to the growth of exchange-traded funds (ETFs)
ETFs are gradually replacing unit trusts as the main way in which people access diversified investment portfolios. In addition, due to the passive nature of ETFs, these are often more cost-effective than unit trusts.
If we were to look at the trend in numbers: Within the US, the ETF markets was worth US$7.19 trillion in 2021, up from just US$151 bil in 2003. ETFs now claim 20% of the US$35 tril fund market.
This growth in ETFs has been slower in SEA because it is less lucrative for banks to sell. While banks make more than 5 per cent per annum selling unit trusts, including fees. The banks are only able to charge comparatively small transaction fees on ETFs!
However awareness around ETFs is growing and it is gaining market share in SEA. If its growth in developed markets is to be compared then we can expect ETFs to quickly become the go-to investment instrument for savvy investors to effectively build their portfolios. While learning about which ETFs to invest in and when to rotate to others may be onerous, robo advisors use ETFs extensively to build portfolios.
Portfolios built with ETFs are also an easy and effective way of diversifying one’s wealth globally. With the weakening Ringgit, and superior returns overseas, it’s only wise to diversify globally, what with a bulk of our investments in EPF or ASB having adequate local exposure.
3. Wealth advisers going digital
If we reflect on what our habits were only ten years ago when Grab was founded and Lazada had just launched, these digital platforms are integral parts of our lives. We believe wealth will only become more digital. People are increasingly asking for self-service solutions, particularly in a post-COVID-19 environment, that don’t require meeting in person. And this also goes for investing too!
Investors are becoming more aware of the implicit conflict of interest that their advisers may have and they prefer to make investment decisions without being unduly influenced by someone whose interests may not be aligned with theirs.
Therefore, the traditional model where a relationship manager, private banker or investment advisor selling investment products will see a sharp decline. What will replace them?
As investors see more unbiased advice, it is clear that technology can offer a more sophisticated solution as clients are able to find personalised advice through self-service applications! They would also be able to seek the right level of human touch they desire.
This new balance between human interaction and automation will leave traditional relationship managers and private bankers to focus on less digitally savvy clients or those that require ad-hoc or highly specialised advice.
4. More financial services firms will go digital
In current times, financial services firms need to evolve to attract and retain a diverse group of talent. These firms will have a much smaller number of investment advisers and a much larger number of computer scientists, product managers, UI/UX designers and engineers. Culturally, this shift will have deep implications, as many traditional financial services companies are still working towards a company culture that attracts such talent.
In short, there is ample opportunity for investment growth in SEA, the size of the market is yet to be realised, low-cost, diversified ETFs are lowing the boundaries of investing and most importantly, the rapid rise of digitisation alone is a megatrend that will outlast any bear market. — Dec 1, 2022
Michele Ferrario is the CEO and founder of StashAway.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Main photo credit: The Industry Reach