Disclaimer

This is to inform that by clicking on the hyperlink, you will be leaving sc.com/sg and entering a website operated by other parties.

Such links are only provided on our website for the convenience of the Client and Standard Chartered Bank does not control or endorse such websites, and is not responsible for their contents.

The use of such website is also subject to the terms of use and other terms and guidelines, if any, contained within each such website. In the event that any of the terms contained herein conflict with the terms of use or other terms and guidelines contained within any such website, then the terms of use and other terms and guidelines for such website shall prevail.

Thank you for visiting www.sc.com/sg


Proceed
Person, Human, Appliance

Will robo advisors replace human advisors like me?

Joey Ng, Associate Director, Senior Investment Advisor

The article is an educational piece about robo advisory. For informational purposes only.

When I first joined the wealth advisory business more than a decade ago, things were, in my opinion, less complicated. Products were simpler to understand, a stable asset allocation was often good enough and service quality was really the most important aspect of our job. Today, the same investor is spoilt for choice, with wealth management services readily available at a wide selection of banks, independent financial advisors (IFAs) offering a broader range of products, and new entrants in the form of robo advisors entering the market. It’s hard not to think that my job is not at risk!

What is robo advisory and how does it work?

Robo advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. 1 A typical robo advisor will assess your risk tolerance through an online questionnaire, then propose a few “ready-made” portfolios (consisting of either Exchange Traded Funds (“ETFs”) or Mutual Funds) that match your risk profile. After which, the portfolios will go through automatic rebalancing using their proprietary asset allocation mechanism. This automated platform approach is what allows the robo advisor to have lower fees.

But, does your robo advisor truly understand you?

If you have attempted an online financial needs questionnaire, it mainly covers the quantitative aspects (assets, liabilities, income, expenses, ability and willingness to take risks defined by percentage losses that you can and are willing to take). Such assessments rarely take into consideration major milestones or life goals.

I believe a robot simply cannot weave together the complexities of an individual’s multiple life aspirations. For example, a father may be saving up for his child’s university education but if market conditions are supportive, he may quit his full-time job to start his own business. Such goals are not quantifiable yet can and should be taken into consideration by a financial advisor when doing a comprehensive financial planning.

Does matching a risk profile to a standard portfolio equate to giving good financial advice? I would challenge this notion. In my experience as an Investment Advisor, I have come across many clients who seek investment products that are of low risk, yet they provide high returns. The definition of risk is often a very personal decision and it’s not something that can be ascertained by a simple questionnaire. In the case of a robo advisor, chances are a low-risk client will likely be directed to the robo’s “cash portfolio”, consisting of money market instruments, yielding a return slightly better than holding cash. I would argue that this might not be the best advice and attempt to understand these clients better on their specific needs and concerns. And if required, educate them about the relationship between risks and returns and how these risks can be mitigated through proper diversification given the appropriate investment holding period.

Like a sherpa/guide who knows the terrain, advisors can assess financial situations, preferences and existing holdings. It is akin to finding the missing piece in your investment jigsaw puzzle, where standardised portfolios may fail. For instance, a conservative investor may have multiple insurance policies, but since an online questionnaire rarely captures active insurance policies, the automated advice will likely recommend a fixed income centric portfolio to match his or her risk profile. A human advisor, on the other hand, may recommend exposure to multi-asset funds (i.e. mix of bond and equities) and/or more defensive equities to achieve a more diversified and robust portfolio.

The value adding advisor

Ask a business owner and he will tell you that sales revenue growth is but one of the key factors to achieve earnings target. Other factors include reduction in expenses and cautious use of debt to invest in financial assets.

Likewise, the financial planning journey is also more than just investing in a “ready-made” investment basket in the hope of making a positive return. If investors are comfortable with the inherent risks, there are innovative strategies that human advisors can suggest to achieve financial goals faster. While robo advisors are limited to rebalancing portfolios using pre-set algorithms, nimble human advisors may identify opportunities beyond the universe of ETFs and Mutual Funds. For example:

  1. Fixed Income – Buying short-dated corporate bonds to match cash flow requirements of clients.
  2. Equities Structures – Locking in the attractive parameters (higher coupon, better downside protection etc) in equity structures when market volatility escalates.
  3. Currencies – Using different currencies to lower interest costs or investing in opportunities not found in SGD.

The personalised human touch

In a bull or range-bound market, some investors may prefer minimal human contact and are generally satisfied with a portfolio update through a robo advisor’s app. However, this “take it or leave it” approach towards a standard portfolio may not work well when market is in turmoil and worse still, if the robo advisor’s investment philosophy contradicts yours. While you think that China’s valuation is cheap enough to start investing, your robo advisor may think that China is “uninvestable” and heads for a complete exit!

Hence in challenging market conditions, most investors prefer curated advice or perhaps a discussion of pros and cons on the various available options – whether to stay the course, average down or cut losses.

This personalised handholding and reassurance by human advisors is something robo advisors are unable to provide.

Parting words

Investing is a long journey, like a long hike to the mountain top. Navigating it on your own (with Google Maps) and journeying with a sherpa (who is the map) result in two very different experiences. A good sherpa knows your fitness level (risk appetite), cautions you of potential danger and points out scenic views (opportunities) along the way. The sherpa will also provide tips on how to reach the summit (financial goals) faster but when bad weather (market uncertainties) strikes, he or she is there to encourage you and provide alternate paths to take.

Will robo advisors replace me? I am convinced that as long as I continue to enhance client’s investment journey, I will remain an asset to the bank and its clients.

About the writer

Joey finds joy in sharing her knowledge, experiences and thoughts with different people. Her most loyal (and captive) audience, are her three children, who are also her biggest investments, giving her good diversification from the financial markets. In her previous life, she conquered Everest Base Camp and marathons. Now she looks forward to soaking in the beauty and wonder of nature once again, after her biggest investments ‘mature’.

Reference:

1https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp

Disclaimer

This article is for general information only and it does not constitute an offer, recommendation or solicitation of an offer to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments.

This article has not been prepared for any particular person or class of persons and does not constitute and should not be construed as investment advice or an investment recommendation. It has been prepared without regard to the specific investment objectives, financial situation or particular needs of any person or class of persons. You should seek advice from a licensed or an exempt financial adviser on the suitability of a product for you, taking into account these factors before making a commitment to purchase any product or invest in an investment. In the event that you choose not to seek advice from a licensed or an exempt financial adviser, you should carefully consider whether the product or service described herein is suitable for you. You are fully responsible for your investment decision, including whether the investment is suitable for you. The products/services involved are not principal-protected and you may lose all or part of your original investment amount. Standard Chartered Bank (Singapore) Limited will not accept any responsibility or liability of any kind, with respect to the accuracy or completeness of information in this article.

This document is being distributed for general information only and is subject to the relevant disclaimers available here. It is not and does not constitute research material, independent research, an offer, recommendation or solicitation to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments. This document is for general evaluation only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person or class of persons and it has not been prepared for any particular person or class of persons. You should not rely on any contents of this document in making any investment decisions. Before making any investment, you should carefully read the relevant offering documents and seek independent legal, tax and regulatory advice. In particular, we recommend you to seek advice regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs, before you make a commitment to purchase the investment product. Opinions, projections and estimates are solely those of SCB at the date of this document and subject to change without notice. Past performance is not indicative of future results and no representation or warranty is made regarding future performance. Any forecast contained herein as to likely future movements in rates or prices or likely future events or occurrences constitutes an opinion only and is not indicative of actual future movements in rates or prices or actual future events or occurrences (as the case may be). This document must not be forwarded or otherwise made available to any other person without the express written consent of the Standard Chartered Group (as defined below). Standard Chartered Bank is incorporated in England with limited liability by Royal Charter 1853 Reference Number ZC18. The Principal Office of the Company is situated in England at 1 Basinghall Avenue, London, EC2V 5DD. Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Standard Chartered PLC, the ultimate parent company of Standard Chartered Bank, together with its subsidiaries and affiliates (including each branch or representative office), form the Standard Chartered Group. Standard Chartered Private Bank is the private banking division of Standard Chartered. Private banking activities may be carried out internationally by different legal entities and affiliates within the Standard Chartered Group (each an “SC Group Entity”) according to local regulatory requirements. Not all products and services are provided by all branches, subsidiaries and affiliates within the Standard Chartered Group.

Market Abuse Regulation (MAR) Disclaimer Banking activities may be carried out internationally by different branches, subsidiaries and affiliates within the Standard Chartered Group according to local regulatory requirements. Opinions may contain outright “buy”, “sell”, “hold” or other opinions. The time horizon of this opinion is dependent on prevailing market conditions and there is no planned frequency for updates to the opinion. This opinion is not independent of Standard Chartered Group’s trading strategies or positions. Standard Chartered Group and/or its affiliates or its respective officers, directors, employee benefit programmes or employees, including persons involved in the preparation or issuance of this document may at any time, to the extent permitted by applicable law and/or regulation, be long or short any securities or financial instruments referred to in this document or have material interest in any such securities or related investments. Therefore, it is possible, and you should assume, that Standard Chartered Group has a material interest in one or more of the financial instruments mentioned herein. Please refer to https:// www .sc. com/en/banking-services/market-disclaimer.html for more detailed disclosures, including past opinions/ recommendations in the last 12 months and conflict of interests, as well as disclaimers. A covering strategist may have a financial interest in the debt or equity securities of this company/issuer. This document must not be forwarded or otherwise made available to any other person without the express written consent of Standard Chartered Group.

 

Deposit Insurance Scheme

Singapore dollar deposits of non-bank depositors are insured by the Singapore Deposit Insurance Corporation, for up to S$100,000 in aggregate per depositor per Scheme member by law. For clarity, these investment products are not deposits and do not qualify as an insured deposit under the Singapore Deposit Insurance and Policy Owners’ Protection Schemes Act 2011. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.