Thailand looks to fintech to solve investing woes

Financial technology can break the fund distribution stranglehold enjoyed by Thailand’s banks and help local investors diversify from low-yielding fixed income funds, argued market experts at AsianInvestor’s inaugural Thailand Global Investment Forum, on September 7 in Bangkok.

Concluding a busy day for the 150 attendees, the panel of fund managers, regulators and participants offered their views about what major changes could be expected over the next 10-plus years in the country’s fund management industry.

Vasin Vanichvoranun, executive chairman of Kasikorn Asset Management, said that a key problem is that Thai investors maintain an unhealthy focus on fixed income funds. Approximately 60% of Kasikornbank’s assets are in fixed income.

“When customers buy products [from our asset management division] we ask them to do an assessment … and only 20% to 30% of customers hold products that reaches their risk targets. Most hold products that are less than their return range, meaning they have a gap in understanding the products,” he told the audience.

This is a concern because Thailand has a rapidly aging population, courtesy of low birth rates. While 11% of its population were 65 years or older in 2016, by 2040 this is projected to rise to more than a quarter of its population, according to World Bank estimates.

Saving enough to retire is therefore increasingly important, but too many Thai investors rely on low yielding bank deposits or bond funds. “If investors just add fixed income products they won’t get enough returns for retirement or their [investing] needs,” said Vasin.

He predicted that financial technology could play a major role in addressing this ignorance of risk and reward to regular citizens.

“With fintech I would think that we can see a lot of [investment] advisory in the space. We will next see solutions being customised to investors, not just in the high net worth people but running down to middle and mass segmentation,” he said.

The ability of fintech to play a greater role was also alluded to by Yingyong Nilasena, chief investment officer of the Government Pension Fund.

“I think the coming five to 10 years will change a lot of things. The Thai fund industry for the past 20 to 25 years has been dominated by banks, but I think in areas like fintech you will hear about more fund trading platforms start in Thailand and maybe you will have advisers in the future who will change [how people invest],” he forecasted.

Fintech advisers

Jomkwan Kongsakul, director of investment management policy department at Thailand’s Securities and Exchange Commission, agreed that the bank’s stranglehold on fund distribution has been a handicap to fund education.

“Normally people go to banks [to buy funds] and they only offer the products of their subsidiary asset management companies,” she said. “Banks including Kasikorn hold a 95% market share [of fund distribution] so I think in the longer future in Thailand we need more open architecture in terms of distribution channels.”

Like Vasin and Yingyong, she believes fintech could help to bridge this advisory gap, either in the form of robo advisers or acting as a support information service to fund salespeople.

“Many Thais are not [well] served in terms of a financial adviser, and I think fintech can help make quality advice to investors,” she said. “I think it will become more open and fund volumes will increase because other players have market distribution channels as they have fintech and investment advice to help them.”

Yingyong went further, arguing that the banks need to adopt such fintech solutions to ensure their own futures. “In the future if you have platforms that can analyse fund houses and companies, then the landscape will eventually change and the banks that are prepared will benefit. But those that are not prepared will not,” he warned.

Pisit Leeahtam, president of the Association of Provident Funds Thailand, agreed with the arguments for fintech as a solution to investor education and greater choice.

“There are perceptions of risks and high net worth individuals still prefer putting money into fixed income and see stock exchange as a risky place. We need to address this and make equities more trustworthy,” he said.

Growth potential

Pisit noted that the ultimate problem for Thailand’s fund industry is that local citizens are not saving enough for their eventual retirement. He hopes this will be partially solved by the government’s decision early this year to approve in principle a mandatory provident fund.

“In the near future that the authorities will push for a new law to make it mandatory for Thais to put money into savings for their old age,” he stated. “I hope that in addition to 10 million people in the Social Security Fund and another 2 million in GPF, we will get at least another 20 million serviced in the near future.”

In this context, offering new products and transparency is likely to cause its own issues, Pisit added. “I am sure it will lead to a lot of cases of bad advisers who people go to for decisions and advice. The SEC has to prepare for this,” he warned, adding that this advice will increasingly be offered to retirees.

However, Vasin focused on the opportunities Thailand’s growing need for investing offered. He noted that the industry looked set for some strong growth.

“The current assets under management in the industry is now $200 billion, and in the next 10 years I think it will grow to $400 billion, or at least 7% a year,” he predicted.