Can digital save the funds business in Asia?
Mutual funds have not succeeded in Asia: today they account for only 5% of household wealth in Hong Kong, Singapore, Taiwan and China, according to Cerulli Associates.
The good news is that most people who say they aren’t interested in investing in funds say it’s because they don’t understand the products or know anything about them, said Chua Shu Mei, senior analyst at the research house, speaking at am AsianInvestor last week.
It is a lot easier to convert people ignorant of funds than to win back those who have been burned by investing in funds, she noted.
But how do you do that? The funds industry has been selling its wares here for decades; if anything, it has lost ground.
Cerulli’s research of mass retail and high-net-worth investors finds that most are self-directed, either because they ignore advice or don’t seek it out. Self-directed investors seek guidance from friends and family, as well as from financial websites or from their bank’s website.
So far, however, poor sales figures suggest these sources aren’t making a big impact.
Chua said digital platforms offer a chance for financial institutions to overcome internal silos between manufacturers and distributors. Online sales platforms such as Wealthfront, Nutmeg and Tianhong Asset Management are not just disrupting traditional relationships, but pointing the way for incumbent players.
She cited as an example Citi’s attempt to give its customers a holistic look at their relationship with the bank, or OCBC’s teaming up with a Singaporean department store chain to derive customer insights.
She also cited the work Australia's ANZ and Singapore's DBS do with IBM Watson to provide a better client experience, and UBS’s software to provide relationship managers with more historical data and portfolio suggestions for individual clients.
Chua warned that for digital technology to improve things, both for investors and for the industry, it needs to provide better insights about end-users. The new platforms have not yet answered fundamental questions about how products are developed and sold, but she hopes the industry will use technology to build products better suited to investors’ needs.
Similarly, she doesn’t know if investors are using this newfound access to information wisely. For now, most banks and fund houses are using technology to provide better service to existing clients, rather than win new business. The industry is not using these platforms to push people into trading.
That’s a healthy sign, but more may need to be done as digital adoption escalates to ensure responsible sales – otherwise that 5% household penetration rate may not rise.