SECTOR REPORT: WEALTHTECH

wealth, and the ability to be able to suggest what that person should do based on their previous actions. This is definitely something that the wealthtech players do better and they’re also kind of changing the dialogue when it comes to how you engage with the client,” Ong noted.

Michele Ferrario, CEO and co-founder of StashAway, further noted that the emergence of WealthTechs changed the game when it came to offering wealth management services.

WealthTech players are fractionalising the minimum investment and spreading it out over many investors

Singapore and across Asia-Pacific.

“With several MAS-licensed WealthTech platforms reporting Assets Under Management (AUM) reaching into billions of Singaporean dollars, this interest is likely to grow and present opportunities for Singapore’s fintech(s) to partner and participate in the asset and wealth management sectors,” SFA and PwC said in its FinTech State of Play report.

New models

Two entities, in particular, trump other WealthTechs in the city: Endowus and StashAway. Both have succeeded in tapping into the large gap of mass affluent, not-yet high-net-worth individuals looking for a platform to accommodate their wealth management needs.

This was exactly what Endowus CEO Gregory Van told Asian Banking & Finance as one of the three things that allowed WealthTechs in Singapore, and particularly Endowus, to successfully grow their AUMs.

“Number one is our business model, where we can be totally client-aligned, [or] what the industry calls fee-only; which means we can only be paid by our clients. This business model is very difficult unless you can do it at scale, and that scalability is helped through technology. Technology allows expertise to be delivered at scale, and in a business-like wealth management, that expertise is really, really important,” Van said.

Second is that their use of technology allows WealthTechs to deliver the best access to products and solutions at a very low cost.

“Number three is, there’s a generational shift or an experiential shift in what the end clients expect from an experience. That experience is more and more moving online even for things as intimate as wealth management,” Van noted.

KPMG’s Ong further noted that WealthTech’s success as a subsector of the financial technology sector lies in its ability to change the narrative in the wealth management services space.

“The way I look at it is, if wealth tech is a sub-segment of fintech, if it becomes truly successful, what you actually are successful in doing is democratising a lot of the wealth management services that traditionally are only reserved for the ultra-wealthy,” Ong said. Traditional wealth management services do so from a base, which is retail banking. “They lack visualisation of the portfolios, the visualisations of that person’s

WealthTech platforms have significantly changed how people invest

“Wealth in Singapore is still largely managed offline, with people buying unit trusts, insurance products, and structured notes from banks’ relationship managers and independent financial advisors. Not only do clients pay higher commissions, they also don’t receive any real advice on portfolio construction,” Ferrario said, adding that financial products are sold individually, as the system is built on revenues generated by buying and selling products.

WealthTechs has now made it simple and cost-effective to invest in diversified portfolios offering access to different investment products –from crypto to ETFs and stocks.

“WealthTech platforms have significantly changed the industry and how people invest. As a significant amount of investors opened accounts with these new players and started to invest part of their savings, many banks and advisors felt the need to offer similar services, and a few launched digital wealth management services,” Ferrario noted.

“The push from new players has created enormous value for investors, as it is now possible to invest in diversified portfolios easily and at a low cost. This was difficult and only available to a small minority 4 to 5 years ago,” he added.

Fractionalisation

WealthTechs, in particular, are democratising wealth itself, reducing minimums not just by offering lower fees but making certain expensive stocks and products more reachable for the mass affluent market.

“Imagine you try to buy, for example, Berkshire Hathaway, it’s a classic example of a stock that’s never split. Therefore the value is very high, in terms of the minimum investment that you need to be able to buy into it,” Ong said.

“That’s similar to a lot of other hedge funds, a lot of other funds and some of the other stocks that are out there. The entry-level investor may not have the money or even the appetite to spend that much money on a single investment choice,” he added.

What Wealthtech players are doing is fractionalising the minimum investment and spreading it out over a lot of their investors. “So rather than having to invest $1,000, to start with, WealthTech firm can find 100 people who want to buy the same stock, and offer the investment to each person for a minimum of $10,” said Ong. “So fractionalisation is another way that they’re making investments that were otherwise reserved for the ultra-rich, and they’re bringing it now and making it available to those of us who might think a bit harder about putting down that kind of money on my first investment,” he added.

The rise of WealthTech also introduced several new models in the last few years, according to Ferrario. This includes from peerto-peer lending offering direct investments into SME lending to low-cost self-service brokers to more holistic digital wealth managers like StashAway.

“As a significant number of investors opened accounts with these new players and started to invest part of their savings, many banks and advisors felt the need to offer similar services, and a few launched digital wealth management services. The push from new players has created enormous value for investors, as it is now possible to invest in diversified portfolios easily and at a low cost. This was difficult and only available to a small minority 4 to 5 years ago,” Ferrario said.

Risk & reward: Investors in the defense to grow their wealth

Amidst a high interest rate environment and ongoing economic difficulties, investors are seeking to strike a balance between risk and reward in order to grow their wealth.

This is just some of the insights shared by StashAway and Endowus regarding what trends are shaping WealthTechs and the wide wealth management space in 2023. “After a difficult year for both equity and bond markets, investors are looking for solutions that can balance risk while providing upside should the market rout end,” StashAway CEO and co-founder Michele Ferrario said. He shared that StashAway’s cash management solutions are enjoying much popularity amongst investors.

Naturally, products that offer favorable projected returns, such as StashAway Simple Plus– which offers projected returns of 4.6% to 5%-- and their General Income portfolio have seen a spike in interest.

For Endowus, CEO Gregory Van shared that they have seen much popularity in their diversified income portfolios, which can generate up to 6% to 7% in income every year.

Ease of choice

Ease of use and transparency are two qualities that investors look for in their WealthTech providers, a sentiment echoed by representatives of both companies.

“Being able to organise the thousands of options out there into what is suitable for me in my [current] life situation is really important [for investors]. Basically, greater personalisation of investment solutions for a specific client’s needs and desires,” Van noted. He shared that there is also greater demand for conscious investing, or investing sustainably or ESG-related investments. “For a certain group of users or clients, there is a desire to access strategies that have previously not been accessible to the individual. We are talking about the private equity and hedge funds, and certain public market strategies that have had very long and proven track records,” Van said.

Transparency has also emerged as a key trait that investors seek in their wealth servie providers. Investors, for example, want access to data and analyst reports that was only available to agents and managers in the past.

Endowus, for example, has seen much demand for its Fund Smart Platform, which offers over 300 investing strategies from 50 global fund managers.