Path clear for ‘robo- advisers’ in financial services

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MAS plans to make it easier for digital advisory firms by offering key concessions

Investors could soon be getting financial tips from so-called "robo-advisers" that offer financial advice or portfolio management services - often at cheaper rates than their human counterparts.

The Monetary Authority of Singapore (MAS) has proposed to make it easier for digital advisory services providers to operate here by offering some major concessions under the financial regulatory framework.

One is to allow digital or robo-advisers operating as fund managers under the Securities and Futures Act (SFA) to offer their services to retail investors. This could happen even if robo-advisers do not meet track-record requirements, as long as they fulfil certain safeguards.

But firms offering these services would have to comply with some safeguards. One is that portfolios must be diversified and comprise non-complex assets. The firms must have management staff with relevant experience in fund management and technology.

They must also undertake an independent audit within a year of operations - among several MAS proposals to refine licensing and business conduct rules aimed at supporting innovation in financial services. The public consultation ends on July 7.

An MAS consultation paper released yesterday clarified that there would not be separate licensing for digital advice. 

On why the MAS is proposing these moves, Mr Lee Boon Ngiap, MAS assistant managing director (capital markets), noted that some financial institutions, such as OCBC and UBS, have already started offering digital advisory services.

The MAS has also received growing indications of interest from other entities that want to offer such services to retail investors.

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As digital advisory tools may be susceptible to technology risks such as erroneous algorithms and cyber threats, MAS has set out expectations on the governance and management oversight to be adopted by digital advisers, including the need to put in place a robust framework governing the design, monitoring and testing of algorithms... and to monitor the quality of advice provided.

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"Some are existing fund managers, and some are new start-ups by experienced investment fund managers from the industry," Mr Lee said.

The regulator has recently given in-principle approval for a capital market services licence to be issued to Singapore-based digital wealth adviser StashAway and granted a financial adviser licence to digital advisory platform provider Autowealth.

The availability of such services would widen investor choice of "low-cost investment advice", MAS said. Autowealth, for instance, says it can offer services at a quarter of fees charged by traditional funds.

"Investors typically pay 2 per cent per annum in front-end and annual management fees to traditional funds. In our case, because we leverage on technology to replace some processes carried out by costly middlemen - such as analysts, sales people, fund managers - we are able to lower our fees to 0.5 per cent per annum," Mr Ow Tai Zhi, chief executive of Autowealth, said.

The firm, set up in 2015, currently manages $500,000 in assets, mostly exchange-traded funds (ETFs).

"During the early adoption period, the initial investment amount was $30,000. Now, because we have the MAS licence, customers can start an account with us for as low as $3,000 in initial investment capital," Mr Ow added.

Asked if these moves may displace more workers in the financial services industry, Mr Lee noted that the types of services that can be provided by robo-advisers are limited.

"I don't think that many will be displaced because robo-advisers can't offer the full suite of financial planning services such as estate planning, budgeting for children's education, and parental support," he told The Straits Times.

Other proposals include allowing robo-advisers to help clients execute investment transactions such as passing their trade orders to brokerage firms.

They would also be able to rebalance their clients' investment portfolios in collective investment schemes without the need for an additional licence under the SFA. This licensing exemption is to be made available to non-digital advisers.

The MAS will also require digital advisory services providers to manage the new technology risks associated with these activities.

It said unlike conventional financial advisory services, digital advisory services rely on algorithms and online tools to analyse client data and recommend investment portfolios.

"As digital advisory tools may be susceptible to technology risks such as erroneous algorithms and cyber threats, MAS has set out expectations on the governance and management oversight to be adopted by digital advisers, including the need to put in place a robust framework governing the design, monitoring and testing of algorithms... and to monitor the quality of advice provided."

Correction note: This story has been edited for clarity. We are sorry for the errors.

A version of this article appeared in the print edition of The Straits Times on June 08, 2017, with the headline 'Powering up 'robo-advisers' in financial services'. Print Edition | Subscribe